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Meeting the growing demand for retail banking services in Africa

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Demand for retail banking services in Africa has picked up in recent years, spurred largely by the emerging middle class on the continent which has tripled over the past 30 years to 355 million or more than 34% of the continent’s population. To this end, domestic, regional and international banking groups are re-focusing their efforts to expand the menu of services to meet the growing needs of this newly-found affluent class. According to recent estimates, retail banking in sub-Saharan Africa is projected to grow by 15% per annum by 2020, bringing the sector’s contribution to GDP to 19% from 11% in 2009.

High growth African countries posted the largest demand for retail banking services between 2004 and 2010. The gains were especially greater in two of the 25 countries for which data are available. In Rwanda, the number of deposit account holders increased to 218 per 1000 adults in 2010 from a mere 7.5 in 2004, representing a phenomenal annual average growth of 174%. Over the same period, the number of deposit account holders in Gabon increased by an average of 73% to 95 per 1000 adults up from 12 per 1000 adults. In 7 other countries demand for retail banking services also increased by an average of 36% while only 4 countries had average annual growth rates of less than 2%. Still faced with considerable post-conflict fragility and reconstruction costs due to population displacements, access to retail banking services decreased in the Central African Republic with the number of deposit holders dismally lower at 2.6 per 1000 adults in 2010, down from 3.4 in 2005, an average annual decline of 0.7%.

The gains in demand for retail banking services reflect the accelerating economic pulse on the continent largely owed to prudent macroeconomic and structural policies aimed at stimulating private sector-led growth. By and large, these policy measures have set the stage for the flourishing of service sectors, such as telecommunications, construction and retail banking6 industries.

While the focus of recent banking sector growth has largely benefitted from the growing middle class, emphasis is now shifting towards expansion of innovative banking services through mobile technology to capture lower income segments and the ‘unbanked’ shut out from formal financial institutions due to high transaction costs and distance to financial institutions, among other factors. A recent study  shows that, in Africa, 70% of adults earning less than $2 per day are ‘unbanked’ or do not use a formal financial institution. For instance, recently a number of African countries have made giant strides in expanding mobile banking services to a wider income customer base. Kenya’s M-PESA service launched in 2007 now caters to more than 14 million customers (more than 70% of the country’s adult population) and is widely regarded as a successful mobile banking model in Africa. With an agent outlet base of 28000, the M-PESA processes more transactions domestically within Kenya than Western Union does globally.

Similarly, South Africa’s First National Bank (FNB) reported a rapid uptake of mobile banking in Southern Africa with estimated annual growth rates of 277% in Botswana, 204% in Namibia, 473% in Swaziland and 376% in Zambia. According to FNB estimates, subscribers in Botswana, Namibia, South Africa and Zambia carry out a total of 1.2 million mobile banking transactions per month with an estimated value of R122 million (USD 14 million). Whereas only a little more than 16% of the population in sub-Saharan Africa (SSA) have access to retail banking services , about 40% now own mobile phones and this number is projected to rise to 70% by 2020. This broadens the scope for innovative banking services in many African countries.

The expansion of retail banking services to the ‘unbanked’ population is also taking on new initiatives.

In Malawi for instance, only 2% of the rural population has access to banking services mainly due to, inter alia, prohibitively expensive Identity Card (ID) schemes. An innovative banking program administered by Opportunity International Bank of Malawi is however attempting to reverse this by providing easier access to banking services for rural households through issuance of Biometric smartcards that serve as efficient IDs.

As the private sector pioneers new and innovative retail banking products, some Governments are also taking steps towards reduction of barriers to entry into the retail banking sector. For instance, to encourage entry and competition in the Angolan banking sector, the gap in minimum capital requirements for international and domestic banks is only USD1 million (USD6 million for international banks vis-à-vis USD5 million for domestic banks). This is comparatively lower than the proposed minimum capital requirements in Zambia of K104 billion (USD20 million) for local banks and K520 billion (USD100 million) for foreign banks, yielding a gap of K416 billion (USD80 million). The authorities argue that the new capital requirements will attract additional resources into the industry and encourage lending to the private sector whilst strengthening the banks’ resilience to economic shocks. In Angola, competition among commercial banks is expected to lower the minimum deposit requirement of USD 200 which has limited access to banking services to 10-20% of the adult population.

Similarly, revamping non-traditional financial intermediaries such as cooperative societies and credit unions could widen the breadth of banking services by bringing more people into the formal financial sector. Botswana, Tanzania and Namibia have 360 bank branches between them (with 56% of these in Tanzania) but with limited penetration compared with 800 post offices present in some of the remotest places. Post offices can provide more than half of the physical point of access for financial services and therefore reforming them to meet current technological standards could expand financial inclusion among a large segment of the ‘unbanked’ rural population.

As the current trend has shown, robust economic growth and financial deepening could widen opportunities to satiate large unmet needs for basic financial services in Africa. The same could be true of new and more innovative technologies aimed at enhancing access to financial services. 


Trevor Kaseke - South Africa 15/10/2012 05:52
Interesting article. Might I direct you and your readers to the story unfolding in Rwanda, particularly what they have achieved with their Umurenge SACCO programme. It is both a remarkable success story of finding a local solution to financial inclusion (rather than just coping what has been done elsewhere), and also a cause for concern in terms of the potential to ruin the trust that has since been built up in formal financial institutions.

In terms of agribusinesses suffering due to a lack of credit. We were involved in a national quantitative study in Tanzania on agribusinesses. The focus was on demand for financial services, but the study also got very valuable information on obstacles. A critical obstacle is access to markets. You could flood these agribusinesses with cheap credit, but without access to markets, their increased production would bring no joy. Unfortunately, the answer to agricultural development lies in a number of initiaves that need to be implemented simultaneously - access to credit is but one of those. On its own, it will not achieve much. It might actually prove more detrimental to the businesses and business owners.

For more on this study (including a report on this study), you can contact me via The report is available for free.

Trevor Kaseke, Yakini Development Consulting, South Africa
Peter van der Krogt - Netherlands 08/08/2012 09:47
I fully agree and very interesting observations. I just want to draw your attention to the link with MSME banking. Micro and many small business entrepreneurs do not have separate personal and business accounts. How banks approach this is very important not only to build retail and sme banking but also to improve their liability -to assets ratio. Local banks as we have seen in our advisory are very dependent on mobilising local funding. Peter van der Krogt, Partner Financial Access, Amsterdam
Drake Kyalimpa - United Kingdom 02/08/2012 12:46
Dear Prof Ncube,

Thank you for your thoughtful insights.

I join you in applauding the exemplary services offered by the ADFB in uplifting the lives of many impoversihed communities across the continent.

I fully agree with you on the need to increase financial services and technologies to the rural poor to enable them partcipate in economic ventures that improve their livelihoods. As you are already aware, the survival of most most economies and indeed communities in Africa is entirely based on agriculture (i.e. the sector supports the livelihoods of the majority of households and is the dominant employer). It is also the source of the badky need foreign foreign exchange earnings from exports.

However, agriculture development, and indeed poverty alleviation is hindered by farmers limited access to finacial services (microcredit) which is critical in enabling them to buy inputs to modernise their farming skills. As result, agriculture sector productiviuty growth is very low in most African economies. This productivity growth is vital is increasing household incomes, releasing excess agriculture labour to other sectors of the economy and in ensuring food security.

It is on this note that African i would like to make to call upon your organisation to prioritise the provision of funding to memeber countries that have a clear strategy for agriculture development as ameans of suataining growth and poverty alleviation.
It is unfortunate that most african governements are not committed to uplift the standards of living of their citizenry most of whom live in the rural areas. What is needed more is the Bank to have monitoring teams on the ground to ensure that the allocated funds are put to use and that rural farmers are the principal beneficiaries. Without adequate monitoring and evaluation, funds are likely to be diverted away from their cardinal use and the loosers are the farmers.

I would also suggest that the AFDB advises and supports its member countries to rejuvenate cooperatives since this is the most cost saving means of accessing credit by poor farmers with no collateral. It is widely accepted that cooperatives promote organised farming, educate their members and support government efforts of poverty alleviation,and improve the wellbeing of their members.

Lastly, the poverty and growth reduction prospects of a well funded agriculture sector are much higher given the significant linkages the agriculture sector has with the rest of the economy in most developing countries.


The writer is a PhD (Economics) finalist at the University of Dundee (UK) and his research focuses on Economic Growth and Poverty Alleviation and Applied Econometrics.
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