Financing Africa

FINANCING
AFRICA
THROUGH THE CRISIS
AND BEYOND
Thorsten Beck, Samuel Munzele Maimbo,
Issa Faye, Thouraya Triki
Financing Africa
Through the Crisis and Beyond
Financing Africa
Through the Crisis and Beyond
Thorsten Beck
Samuel Munzele Maimbo
Issa Faye
Thouraya Triki
Washington, DC© 2011 The International Bank for Reconstruction and Development / The World Bank
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Washington DC 20433
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ISBN: 978-0-8213-8797-9
eISBN: 978-0-8213-8798-6
DOI: 10.1596/978-0-8213-8797-9
Library of Congress Cataloging-in-Publication Data
Beck, Thorsten.
Financing Africa : through the crisis and beyond / Thorsten Beck . . . [et al.].
p. cm.
Includes bibliographical references and index.
ISBN 978-0-8213-8797-9—ISBN 978-0-8213-8798-6 (electronic)
1. Financial institutions—Africa. 2. Finance—Africa. 3. Monetary policy—Africa. I. Title.
HG187.5.A2B43 2011
332.096—dc23
2011034178
Cover design by Debra Naylor of Naylor Design.
Contents
Foreword xi
Acknowledgmentsxiii
Abbreviationsxv
1. Financing Africa: Setting the Stage 1
Introduction 1
Financing Africa, the Book 3
An Analytical Framework 3
The Main Messages and a Caveat 7
Financial Sector Development: Why Do We Care? 9
Time for New Solutions to Old Problems 16
The Outline of the Book 23
2 Landscaping African Finance 27
Introduction 27
The Effect of the Crisis 27
Africa’s Financial Systems in International Comparison 36
Explaining Financial (Under)Development in Africa 59
The Firm and Household Usage of Financial Services 68
Conclusions 74
3 Expanding Financial Systems 77
Introduction 77
What Do We Know about Access to Finance? 78
Broadening Finance: A Reality Check 85
Landscaping the Providers: How to Get to the Frontier 88
vvi Contents
Demand-Side Constraints 102
Technology: The New Silver Bullet? 105
Pushing Out the Frontier: The Role of Governments and Donors 111
The Role of Government: Looking beyond Institution Building 113
From Agricultural Credit to Rural Finance 119
SME Finance: Continuing Challenges 127
Conclusions 137
4. Lengthening Financial Contracts 141
Introduction 141
Africa’s Long-Term Financing Gap 142
Optimizing the Current Possibilities for Expanding Long-Term Finance 145
Tapping International Markets 164
The Changing Global Environment: Tales of Dragons and Elephants 178
Pushing toward the Frontier and Beyond: A Long-Term Agenda
with Tricky Shortcuts 180
Conclusions 190
5. Safeguarding Financial Systems 193
Introduction 193
Stability: We Have Come a Long Way 194
Bank Regulation and Supervision: New Challenges in a Changing
Environment 197
Looking beyond Banks: How to Regulate Which Segments of the
Financial System 213
Focusing on Users: Consumer Protection 218
Conclusions 223
6. All Financial Sector Policy Is Local 227
Introduction
Modernist Reform Policies: Africa’s Achilles Heel 227
The Activist Reform Agenda Revisited: Larger, More Effi cient,
and Stable Financial Markets 229
The Politics of Financial Sector Reform 234
The Stakeholders 240
Redefi ne the Role of Government with the Necessary Safeguards 245
One Size Does Not Fit All 247
Conclusions 256Contents vii
References 259
Index 279
Boxes
1.1 What’s New? 4
2.1 Performance on Selected Stock Markets during 2008–09 31
2.2 The Real Economy Impact of the Financial Crisis in Zambia 32
2.3 Bank Consolidation: Learning from the Nigerian Experience 45
2.4 The Egyptian Exchange 55
2.5 Benchmarking Financial Development 66
3.1 Measuring Access to Financial Services: Recent Advances 78
3.2 Financial Capability Programs 106
3.3 Examples of Transformative Technology-Based Products 110
3.4 Malswitch 116
3.5 Financial Innovation: The Opportunities and Risks in
Expanding Outreach 117
3.6 Examples of Value Chain Finance 122
3.7 Malawi: Development Finance Institutions 128
3.8 NAFIN’s Productive Chains 135
4.1 The Housing Finance Frontier: An Approximation for Africa 146
4.2 The Role of the Housing Bank in Mortgage Finance in Tunisia 149
4.3 International Labour Organization Best Practice Guidelines for
Board Members in Africa 160
4.4 The Experience with a Secondary Board in Egypt: Nilex 161
4.5 Capital Markets in Latin America 163
4.6 Private Equity Funds: The Benefi ts and Experience in Africa 166
4.7 Sovereign Wealth Funds 175
4.8 Diaspora Bonds 181
5.1 Competition and Stability 203
5.2 Bank Resolution 206
5.3 The Consumer Protection Framework in South Africa 220
6.1 Learning from the East Asian Miracle 280
6.2 Financial Journalism 236
6.3 What to Do with State Financial Institutions? 248viii Contents
Figures
1.1 Finance and Growth across Countries, 1980–2007 10
1.2 Finance and Poverty Alleviation across Countries 13
1.3 GDP across Countries, 2009 18
1.4 The Informal Economy across Countries, 2007 18
1.5 Governance across Countries, 2008 20
2.1 Remittance Flows through the Crisis and Beyond, 2004–10 29
2.2 Stock Market Performance through the Crisis, 2008–10 29
2.3 African Exports through the Crisis and Beyond, 2006–10 32
2.4 Bank Stability in Africa, 2005–10 34
2.5 Absolute Size of African Banking Systems, 2009 37
2.6 Relative Size of African Banking Systems, 2009 38
2.7 Intermediation Effi ciency Versus Financial Depth, 2009 39
2.8 Asset Composition of Banks across Regions, 2009 40
2.9 Financial Deepening across Africa, 1990–2009 40
2.10 Private Credit across Africa, 1990–2009 41
2.11 Branch Penetration across Countries, 2009 42
2.12 The Maturity Structure of Deposits and Loans across Africa,
2005–09 42
2.13 Sectoral Lending Share Relative to GDP Share, 2005–09 43
2.14 Banking Sector Concentration across Countries, 2006 44
2.15 Banks’ Market Power across Countries, 2006 46
2.16 Foreign Bank Shares across Regions, 1995–2009 47
2.17 Foreign Bank Ownership across the Continent, 1995–2009 48
2.18 Interest Rate Margins across Regions, 2009 49
2.19 Small Scale Comes with High Margins, 2009 52
2.20 Low Governance Comes with High Margins, 2009 53
2.21 Stock Market Capitalization across Countries, 2009 56
2.22 Listed Firms across Countries, 2009 56
2.23 Stock Market Liquidity across Countries, 2009 57
2.24 Bond Market Structure in Africa 58
2.25 Life Insurance Penetration across Countries, 2008 59
2.26 Financial Development and GDP Per Capita, 2009 60
2.27 Domestic Savings across Regions, 2008 62
2.28 The Ratio of Offshore to Domestic Deposits across Regions, 2009 62
2.29 The Ratio of Offshore to Domestic Deposits over Time,
1995–2009 63
2.30 Capital Flows across Regions, 2000–09 64