Author: TIMOTHYRADIER

Building the future of financial services

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Moonshot by TechCabal is the conference that brings together Africa’s tech ecosystem in person to network, collaborate, share insights and celebrate innovation. Join us in Lagos on  October 11 and 12. In this second article built around the conference, Abraham Augustine offers suggestions for designing a future for the financial services sector that is defined by government and private sector collaboration to create shared prosperity and thriving economies. 

What the future of financial services will look like depends on who you are talking to. Crypto advocates believe in a future where financial services are decentralised and both real-world assets and virtual assets are tokenised. Governments around the world seem to be coming to a consensus that the future of money is programmable central bank digital currencies that can rival crypto stablecoin dreams. And in the development sector, financial inclusion advocates affirm little more than simply providing access to digital wallets.

No programme embodies the development sector focus on digital wallets as the future of financial services like the Better than Cash Alliance of the United Nations.

And they have a point. Financial services is a broad range that includes banking, insurance and investing. The unspoken consensus is that the form in which these will be delivered will be digital. That helps us narrow it down to one overarching theme. Which is that the future of financial services is mostly digital.

Digital technology has a strong presence in the back offices of the financial services sector. Banks are run on software architecture that help them manage customer and account information. Bond, equity and commodity investors all over the world rely on software to execute trades. Insurers are beginning to store massive amounts of customer information in large databases. And you pay for groceries or a Spotify subscription with your credit/debit card or digital wallet.

Despite what seems like peak digitalisation, there is still a lot of room for change and growth. Even in developed economies. For example, despite the significant digitisation of its financial sector, the United States only recently launched its real-time payments (RTP) network. Almost 20 years after its southern neighbour, Mexico launched a national RTP in 2004. RTPs change what a bank transfer means—from a days-long process to a near-instantaneous activity.

Clearly, the future of financial services is not only digital; it is how progress in basic areas such as faster payments will change how the everyday person interacts with the remaining pillars of financial services.

With the financial services sector receiving or managing trillions of dollars in investments, transactions and system failures every day. These changes will impact:

  1. How people and businesses save and borrow.
  2. How people and businesses invest in capital markets.
  3. How people and businesses get insurance protection.
  4. And how people and businesses raise capital.

Some of this is already happening. Especially in more developed countries. But in the African context, we have not made much progress beyond how digital technology has changed how people receive payments or pay for services or products. And there is a history behind this.

From microfinance to digital financial inclusion

From the late 1990s to the first decade of the 2000s, microfinance banking dominated the approach towards increasing participation in formal financial services. Especially in developing and low-income parts of the world. Propelled by the advocacy and example of Pakistani economist, banker and Nobel prize winner, Muhammad Yunus, development banks supported the micro-finance model as a pathway to increasing formal financial access.

As big money flowed into the nascent industry, mixed results trickled out. Small successes were hailed as exemplary, social costs like increased indebtedness were downplayed, and massive profits were collected.

Digital financial inclusion is an outgrowth of this era, as innovations such as M-Pesa caught on. Mobile technology and better access to the internet promised to help scale access to financial services. As a result, increasing the number of formal financial accounts mainly through digital payment wallets became a priority for the development industry. And ultimately the priority of private sector investors and entrepreneurs.

From financial inclusion to financial health

Unfortunately, contrary to popular narrative, access to one form of financial services that mainly sought to replace cash with digital options, has not created consistently positive upliftment. “Since 2010, financial inclusion has been a great focus for our community. Today, however, I would like to make the argument that it is time to move on from financial inclusion because it has not fulfilled its promise of helping the poor make their way out of poverty,” Iyin Aboyegi who co-founded one of Africa’s most valued payments company and has invested in several more, said at the Inclusive Fintech Forum.

A lot more people now agree that Africa needs to move beyond the singular focus on payments which is only one pillar in the financial services sphere. Financial inclusion advocacy institutions, like Financial Sector Deepening Africa (FSD Africa), now use indicators that measure financial health instead of only financial access.

What financial health looks like

This new focus on financial health (a measure of a person’s financial soundness and economic well-being) can become the standard around which the future of financial services is built.

For the payments layer, a focus on financial health will compel governments, the development industry and private companies to evolve their policies and products. Simple access models with poorly aligned incentives will be replaced by payment products that focus on facilitating commerce. And the government’s rentier taxation of digital payments will be eliminated.

Instead of focusing on how many people are given loans, the future of digital financial services will see entrepreneurs using technology in line with government policy to extend credit in a way that supports an inclusive economic agenda. This will mean an increased use of data to monitor and measure progress towards economic well being. As a result, Africa’s data industry, as well as data protection standards, will need to evolve from where it is today.

By the same token, poorly thought-out economic policies that disincentivise financial institutions from extending credit to lower-income earners will have to be changed.

Making the financial services sector aligned with financial well-being means leveraging digital technology to extend and enhance comprehensive insurance protections to people and businesses. Economies and individuals with better risk protections and insurance portfolios tend to be more resilient in the face of sudden economic shocks. Technologies such as embedded insurance can help protect against short-term risks, while greater adoption of long-term protection such as life insurance will allow insurers to invest capital pools in businesses that can support economic growth in the medium term.

Better capital availability means a deepening of the capital markets in Africa. Deeper markets mean the ability to support local economic growth and curb capital flight from Africa, thereby ensuring long-term progress. Productive economies rely on equity capital to spur and support long-term growth. The future of a financial well-being-oriented Africa will mean capital markets reform to protect investors from predatory schemes and the broader economy from over-financialisation.

Regional integrations through policy and technology will allow investors to support African firms in multiple African markets seamlessly.

This future will require significant changes in how governments work and manage the economy. It will require new business models and will reward participants who engage transparently. The real question is whether African entrepreneurs and most importantly, government leaders are ambitious enough to pursue this vision.

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NAICOM, FSD Africa partnership yields dividend

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THE partnership entered into by the National Insurance Commission (NAICOM) with FSD Africa has yielded the desired result as the latter has embarked on capacity building for the staff of NAICOM.

Already, sequel to the NAICOM’s collaboration with FSD Africa, a two-week training on Risk Based Capital (RBC) for 70 members of staff of the Commission has been concluded.

The training was facilitated by the principal in charge of innovation at FSD Africa, Mr Elias Omondi.

According to NAICOM, other benefits of the partnership will spill over to the Nigerian Insurance Industry, and they include, the development of Risk Based Capital framework and toolkit and the incorporation of Economic, Social and Governance (ESG) Principles into their operations.

The commission added that the partnership will also lead to the development of Innovation portrait which would facilitate innovation for the regulator and insurance operators amongst others.

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FSD Africa Investments injects £10m into InfraCredit to support Nigeria’s Sustainable Climate Infrastructure

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1st August 2023, Lagos – FSD Africa Investments (FSDAi), in collaboration with InfraCredit, have invested £10m into a first-of-its-kind risk-sharing backstop facility, designed to unlock local currency funding for sustainable infrastructure development in Nigeria.

The Risk Sharing Backstop Facility (RSBF) will address the challenge of low credit enhancement by mobilising local institutional investment via bonds into viable early-stage or green-field climate-aligned infrastructure projects.

By increasing the accessibility of finance for the “climate-aligned” infrastructure projects, the facility will help Nigeria accelerate her social and economic development, green economic transition as well as deliver on its climate goals.

Backed by the UK International Development through the Foreign, Commonwealth and Development Office (FCDO), FSDAi is pleased to be undertaking this £10m investment in partnership with InfraCredit – an established player in the sustainable infrastructure financing space.

InfraCredit’s current investments and project pipeline demonstrates the breadth and variety of projects this facility will support, with projects ranging from distributed renewable energy services for urban residences, to commercial and industrial renewable projects, edge-certified green housing and e-mobility infrastructure.

The RSBF will raise funding in series, initially from FSDAi, and eventually from other funders – aiming to reach a total capital base of up to US$50m.This investment therefore aligns with one of FSD Africa’s primary objectives – developing capital markets by tackling blockages in the system

UK Foreign Secretary, James Cleverly MP said:

 “This investment further demonstrates the UK’s commitment and contribution to Nigeria’s transition to clean energy and builds on decades of UK leadership in mobilising support for climate-related infrastructure challenges.”

“Just like the successes of British International Investment (BII) and our Private Infrastructure Development Group (PIDG), I am optimistic that InfraCredit will continue to grow and mobilise even more private sector capital to invest in better, greener infrastructure.”

 Chief Investment Officer, FSD Africa Investments, FSD Africa, Anne-Marie, said: 

“FSDAi’s partnership with InfraCredit on the bridge-to-bond facility introduces a derisking financing solution to mobilize short and medium-term local institutional investment into critically needed infrastructure projects that are currently considered un-bankable without alternative credit enhancement.

 “Moreover, as Africa’s economies struggle to mobilise capital to develop key climate mitigation and sustainable power generation projects, this facility comes as a timely and much-needed intervention for Nigeria’s infrastructure landscape.’’

Chief Executive Officer, InfraCredit, Chinua Azubike, said: 

“I am delighted to work with FSD Africa Investments on an innovative facility which will support much needed but underfinanced projects realise their ultimate goals and purpose.

 “Smart use of catalytic capital can dramatically increase the role of private capital and local intermediaries in investing in Nigeria’s sustainable infrastructure space and help the country develop responses to the significant challenges which confront it from the deteriorating environment and ecology to an unstable energy mix and severe social inequality.” 

Experts Call for Increased Climate Finance to Tackle Africa’s Crisis

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Finance experts and stakeholders at the FSD Africa Capital Market Roundtable Series have underscored the critical role of climate finance in supporting sustainable development and addressing social priorities in Africa.

Dr. Evans Osano, the director of Capital Market at FSD Africa, brought to light the urgent need for increased climate finance to tackle the pressing challenges of the climate crisis on the continent.

During the roundtable discussion held in Lagos, Dr. Osano emphasized that climate finance in Africa must grow exponentially, rising nine-fold from its current level of $30 billion to an astonishing $277 billion.

This substantial increase is essential to fund the implementation of Nationally Determined Contributions (NDCs) and address the mounting costs associated with climate change mitigation and adaptation.

A significant concern raised during the discussions was the disparity in the distribution of climate finance in Africa when compared to other regions.

While African NDCs had projected that 90% of the funding would come from the private sector and international sources, the reality proved to be quite different, with the private sector’s share of climate finance amounting to a mere 14%, the lowest among all regions.

Further analysis revealed that a substantial 74% of private sector investment in climate finance was concentrated in the energy sector. To promote sustainable growth on the continent, Dr. Osano stressed the importance of diversifying investments across other climate-resilient sectors as well.

The global landscape of climate finance was also examined during the event. It was disclosed that global climate finance had doubled over the past decade, reaching an impressive $850 billion in 2021.

However, to achieve Net Zero targets, an annual investment of at least $4.3 trillion is required. While private sector investment is on the rise, it still falls short of the scale and speed necessary to transition to a sustainable future.

Notably, renewable energy dominated mitigation finance, accounting for 70% of the total over the past decade. However, there was a call for increased investment in low carbon transport, which emerged as the fastest-growing mitigation solution. The Agriculture, Forestry, and Other Land Use (AFOLU) sectors received relatively low levels of climate finance, indicating a need for more focus and support in this area.

To accelerate climate finance, several financial instruments and strategies were discussed, including Sustainable Bonds and Thematic Bonds. These regulated instruments are subject to the same capital market and financial regulations as other listed fixed income securities.

Additionally, strategies such as demonstration transactions, de-risking through blended finance and guarantees, and the development of investment vehicles like green bonds, funds, and exchange-traded funds (ETFs) were proposed.

The urgency of addressing climate change was highlighted by drawing attention to the top five global risks in terms of likelihood, all of which were environmental concerns. These risks encompassed climate action failure, extreme weather events, biodiversity loss, human-induced environmental damage, and natural resource crises.

Dr. Osano revealed that FSD is actively working to build Africa’s financial markets for sustainable development and is seeking to leverage Nigeria’s $40 billion investible funds to scale up impact.

He stated, “We develop Africa’s capital markets to increase the availability of long-term finance for economic development, to achieve a sustainable future for Africa’s people.”

Oguche Agudah, the CEO of the Pension Fund Operators Association of Nigeria, stressed the need for innovative approaches to address the country’s challenges using the capital they manage.

Agudah emphasized the importance of deploying capital in a manner that compensates providers for their risk and time, as well as incentivizes fund managers to continue tackling these issues.

The roundtable served as a crucial platform for stakeholders in Africa’s financial sector to come together and discuss practical solutions to tackle the climate crisis while prioritizing social needs.

By aligning investment strategies with sustainable development goals, the financial sector can play a pivotal role in shaping a greener and more prosperous Africa for the future

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Timing of Financial Liberalization Perfect to Realize Ethiopia’s Growth Ambitions: Kenyan Expert

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  • Eyes carbon credit, biodiversity, women-owned firms for fund
  • Agency helped to raise $423m green, gender bonds for continent

FSD Africa, a UK development agency headquartered in Kenya, said it is helping issuers raise at least $1 billion in green and gender-based bonds over the next year to support sustainability projects across the continent.

The organization, backed by the UK’s Foreign, Commonwealth & Development Office, has already supported green and gender bonds that it says have raised $423 million in Africa.

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Timing of Financial Liberalization Perfect to Realize Ethiopia’s Growth Ambitions: Kenyan Expert

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  • Eyes carbon credit, biodiversity, women-owned firms for fund
  • Agency helped to raise $423m green, gender bonds for continent

FSD Africa, a UK development agency headquartered in Kenya, said it is helping issuers raise at least $1 billion in green and gender-based bonds over the next year to support sustainability projects across the continent.

The organization, backed by the UK’s Foreign, Commonwealth & Development Office, has already supported green and gender bonds that it says have raised $423 million in Africa.

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For success, planned Ethiopian capital market needs patience and smart policy

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hen coming to power in 2018, a new Ethiopian government embarked on an ambitious path of reform, inspiring widespread optimism at home and abroad.

After political changes backfired, oppressive practices returned, and the efforts at economic modernization have suffered from the turbulence.

Amid these efforts, Ethiopia’s economy has been grappling with severe challenges, both exogenous, like the disruption to global supply chains and high energy prices, and endogenous, such as conflicts and chronic drought.

Yet the government’s approach, including inconsistent fiscal and monetary policies, aggravates the problems.

According to Fitch Ratings, which again recently downgraded Ethiopia’s credit rating, the country is now at “significant risk of default”, directly attributed to low foreign currency reserves and lack of a convincing strategy to replenish them.

The projected deficit of the 2022/23 budget is 281 billion birr out of an approved 800 billion birr. Underlining the constraints, State Minister for Finance Eyob Tekalign recently hinted that the government payroll may have to be slimmed down.

In addition, the Civil Service Commission has approved a bill that allows public servants to hold two roles at the same time. The state minister also confirmed that the Ministry of Finance will not be able to meet any supplementary budget requests.

Capital Policies

It is in this environment that the government is seeking to establish a capital market for the government, businesses, and individuals to buy and sell securities, such as bonds, stocks, and derivatives.

The National Bank of Ethiopia’s 2021 Capital Markets Proclamation proposed a ten-year implementation plan structured around four pillars: market development, capacity development, infrastructure development, and policy reviews.

The law established the Ethiopian Capital Market Authority and led to the creation of the Ethiopian Securities Exchange in late 2022 under the supervision of the Ministry of Finance and guidance of FSD Africa.

The ESX launched fundraising efforts in May 2023 by selling 75 percent of its equity with 25 percent held by Ethiopian Investment Holdings, a new sovereign wealth fund.

While these policies are geared towards a desirable goal—as a fully functioning capital market would eventually boost investment—given Ethiopia’s currently challenging socio-economic landscape, it is a risky move, and so needs to be carefully prepared for and sequenced with other economic policies.

Monetary Fragility

First of all, Ethiopian policy makers need to address the risk of a sovereign default. The government has been struggling to meet interest payments on its debt in recent years as hard currency reserves dwindled.

The balance of payments crisis emerged as growth, loans, grants, investments, and exports all slumped or stagnated, the latter not helped by the U.S.’s removal of duty-free market access on textiles and other selected goods due to Washington’s concerns over the conduct of the Tigray war.

Furthermore, reforms have been impeded not just by economic conditions and political turmoil but also by restrictive regulatory action.

In early 2021, Ethiopia appealed to the International Monetary Fund (IMF) for help. The negotiations, partly over debt restructuring, have progressed since and, since April 2023, Ethiopia was rumored to be in line for a $2-billion bailout.

Devaluation Dangers

While this would provide much-needed hard currency, the IMF is likely to urge liberalization of the exchange-rate regime, which in Ethiopia’s case would surely mean a drop in the over-valued birr.

This would bring its own set of challenges.

In the long run, devaluation might attract foreign investment by lowering production costs and making Ethiopian exports more competitive. However, in the short run, a rise in import and debt-servicing costs could exacerbate the foreign exchange crunch and reinforce inflationary pressures.

Therefore, Ethiopia’s central bank would need to impose higher interest rates to curb inflation, increasing borrowing costs for businesses and consumers. This would deter some of the foreign investors that the Ethiopian stock market aims to attract.

These worries partly explain why the government has so far resisted exchange-rate liberalization or another major central bank-driven devaluation.

Real Risk

Fortunately, there are measures to mitigate these risks, such as the government intervening in currency markets to shore up the value of the birr (which may explain reports that Addis is seeking as much as $12 billion from the IMF and other sources), and investors seeking assets like real estate that tend to increase in value during inflationary periods.

But this latter remedy comes with yet another bitter pill: while it might work for investors, it may well not for the public.

In fact, as Ethiopia’s real estate sector has become one of the main magnets for investment, it poses a concentration risk, meaning the simultaneous and heightened losses that arise when unfavorable circumstances hit a portfolio largely consisting of a single asset.

hen coming to power in 2018, a new Ethiopian government embarked on an ambitious path of reform, inspiring widespread optimism at home and abroad.

After political changes backfired, oppressive practices returned, and the efforts at economic modernization have suffered from the turbulence.

Amid these efforts, Ethiopia’s economy has been grappling with severe challenges, both exogenous, like the disruption to global supply chains and high energy prices, and endogenous, such as conflicts and chronic drought.

Yet the government’s approach, including inconsistent fiscal and monetary policies, aggravates the problems.

According to Fitch Ratings, which again recently downgraded Ethiopia’s credit rating, the country is now at “significant risk of default”, directly attributed to low foreign currency reserves and lack of a convincing strategy to replenish them.

The projected deficit of the 2022/23 budget is 281 billion birr out of an approved 800 billion birr. Underlining the constraints, State Minister for Finance Eyob Tekalign recently hinted that the government payroll may have to be slimmed down.

In addition, the Civil Service Commission has approved a bill that allows public servants to hold two roles at the same time. The state minister also confirmed that the Ministry of Finance will not be able to meet any supplementary budget requests.

Capital Policies

It is in this environment that the government is seeking to establish a capital market for the government, businesses, and individuals to buy and sell securities, such as bonds, stocks, and derivatives.

The National Bank of Ethiopia’s 2021 Capital Markets Proclamation proposed a ten-year implementation plan structured around four pillars: market development, capacity development, infrastructure development, and policy reviews.

The law established the Ethiopian Capital Market Authority and led to the creation of the Ethiopian Securities Exchange in late 2022 under the supervision of the Ministry of Finance and guidance of FSD Africa.

The ESX launched fundraising efforts in May 2023 by selling 75 percent of its equity with 25 percent held by Ethiopian Investment Holdings, a new sovereign wealth fund.

While these policies are geared towards a desirable goal—as a fully functioning capital market would eventually boost investment—given Ethiopia’s currently challenging socio-economic landscape, it is a risky move, and so needs to be carefully prepared for and sequenced with other economic policies.

Monetary Fragility

First of all, Ethiopian policy makers need to address the risk of a sovereign default. The government has been struggling to meet interest payments on its debt in recent years as hard currency reserves dwindled.

The balance of payments crisis emerged as growth, loans, grants, investments, and exports all slumped or stagnated, the latter not helped by the U.S.’s removal of duty-free market access on textiles and other selected goods due to Washington’s concerns over the conduct of the Tigray war.

Furthermore, reforms have been impeded not just by economic conditions and political turmoil but also by restrictive regulatory action.

In early 2021, Ethiopia appealed to the International Monetary Fund (IMF) for help. The negotiations, partly over debt restructuring, have progressed since and, since April 2023, Ethiopia was rumored to be in line for a $2-billion bailout.

Devaluation Dangers

While this would provide much-needed hard currency, the IMF is likely to urge liberalization of the exchange-rate regime, which in Ethiopia’s case would surely mean a drop in the over-valued birr.

This would bring its own set of challenges.

In the long run, devaluation might attract foreign investment by lowering production costs and making Ethiopian exports more competitive. However, in the short run, a rise in import and debt-servicing costs could exacerbate the foreign exchange crunch and reinforce inflationary pressures.

Therefore, Ethiopia’s central bank would need to impose higher interest rates to curb inflation, increasing borrowing costs for businesses and consumers. This would deter some of the foreign investors that the Ethiopian stock market aims to attract.

These worries partly explain why the government has so far resisted exchange-rate liberalization or another major central bank-driven devaluation.

Real Risk

Fortunately, there are measures to mitigate these risks, such as the government intervening in currency markets to shore up the value of the birr (which may explain reports that Addis is seeking as much as $12 billion from the IMF and other sources), and investors seeking assets like real estate that tend to increase in value during inflationary periods.

But this latter remedy comes with yet another bitter pill: while it might work for investors, it may well not for the public.

In fact, as Ethiopia’s real estate sector has become one of the main magnets for investment, it poses a concentration risk, meaning the simultaneous and heightened losses that arise when unfavorable circumstances hit a portfolio largely consisting of a single asset.

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Nature depletion threat to Kenya’s economic stability – lobby

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In Summary

  • According to ANCA Economic activity is depleting nature with nearly 75 percent of land surface significantly altered.
  • The dependence of Africa’s economy on natural capital exceeds the global average, with over 70% of people in sub-Saharan Africa depending on forests and woodlands for their livelihoods.

The lack of proper data, legal and regulatory structure to fund nature-related risks has seen investors shy off from pumping resources into the sector.

This has further exposed the sector, despite being a key anchor of Kenya and a majority of the African economies.

FSD Africa and African Natural Capital Alliance Lead, Dorothy Maseke says that going forward, regulators will need to identify nature-related risk concentrations for regulated entities and assess whether they are being managed effectively.

According to Maseke, this will streamline the sector and prevent the loss of $195 billion (Sh27.7 trillion) in annual natural capital in Africa.

“Enhanced transparency of nature-related risks is fundamental to managing them effectively. This is the case for individual financial institutions, which need visibility of the nature-related risks in their lending, underwriting, and investment portfolios,” said Maseke.

In Kenya currently, green financing has been concentrated in areas such as lending to renewable energy projects and providing credit lines for energy efficiency projects such as solar installations.

Speaking during the release of a report on “Improving the transparency of nature-related risks in Africa”, the lead said that if not addressed, risk assessments show that five percent of Africa’s banks risk portfolio could experience losses up to 2023.

The report outlines how financial sector stakeholders, including regulators, are increasingly recognising that the depletion of nature poses risks to financial and economic stability.

In February this year, Kenya announced a plan to set up an investment bank to increase commercial lending to environmentally friendly projects by absorbing part of the risks associated with such ventures.

Treasury in its draft National Green Fiscal Incentives Policy Framework, noted that the planned bank is part of efforts to steer Kenya’s economy onto a low-carbon climate-resilient green development pathway.

The green bank—to be referred to as Kenya Green Investment Bank (KeGIB) —will incentivise private sector investments in green projects.

According to ANCA, economic activity is depleting nature with nearly 75 percent of land surface significantly altered and over 85 percent of wetlands having been lost, threatening economies and businesses that depend on nature.

African economies are highly exposed to nature-related risks because they are especially dependent on nature and quickly losing natural capital.

Africa is home to 65 percent of the world’s arable land, and 20 percent of the global tropical rainforest area .

These natural endowments offer large natural-capital opportunities

The dependence of Africa’s economy on natural capital exceeds the global average, with over 70 percent of people living in sub-Saharan Africa depending on forests and woodlands for their livelihoods.

This is compared to about half of the worldʼs total GDP generated in industries that depend on nature.

Africa’s loss of natural capital also exceeds the global average, having seen a decline in its Biodiversity Intactness Index (BII) score of 4.2 percent between 1970 and 2014, considerably higher than the global BII score decline of 2.7 percent over the same period.

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SEC repositioning for investors’ confidence, competitiveness

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The Securities and Exchange Commission(SEC) has the onerus responsibility of regulating and developing the Nigerian capital market, especially in the areas of ensuring that the market provides an important channel of financing for the real economy, allocating risk, supporting financial stability as well as smoothening transmission of monetary policy. The executives of the commission have taken up this duty since the inauguration of the board in 2019.

At the moment, the SEC regulates and supervises all capital market operators including the eight main Exchanges in Nigeria: AFEX Commodity Exchange Ltd, FMDQ Securities Exchange Ltd, Lagos Commodities & Futures Exchange Limited, Gezawa Commodity Market and Exchange, National Association of Securities Dealers OTC Plc, Nigeria Commodity Exchange, Nigerian Exchange Ltd, and Prime Commodity Exchange.

Indeed, the activities of the commission help to protect investors and market operators thereby ensuring the integrity of the securities markets. This is done through registration, surveillance, regulation, and enforcement of ethical market conduct.

The Commission has also supported market development through the introduction of robust frameworks for new products and processes in collaboration with market stakeholders, which has led to the introduction of derivatives, green bonds and Sukuk. It has also created a world class capital market in Nigeria capable of contributing to the attainment of socio-economic development in the country.

The capital market is a key determinant of the financial system in any model economy, providing essential facilities for companies and the government to raise funds for business expansion through investors. Ultimately, members of the society and not just the investors, derive some benefits.

Indeed, the nation’s capital market has played a fundamental role in enabling businesses to raise capital, often looked upon as the most significant source for companies to raise additional financial capital for expansion by selling shares of ownership in a public market.

However, the 2007-2008 global financial crisis instigated a worldwide economic recession, bringing to a halt more than a decade of increasing prosperity for western economies and wiping a staggering $1 trillion off the value of the world economy.

The Nigerian capital market was not insulated from the crisis as the market capitalisation of quoted companies crashed from an all-time high of N13.5 trillion in March 2008 to less than N4.6 trillion by the second week of January 2009. Similarly, the All-Share Index, which measures the performance of listed firms, plummeted from about 66, 000 points to less than 22,000 points in the same period.

Consequently, many investors experienced investment depletion, while prospective shareholders were scared of investing in the market. As a result, the market became unattractive for businesses to raise additional capital for expansion.

Since the crisis, the Securities and Exchange Commission (SEC), the apex capital market regulator, alongside other stakeholders have undertaken a number of initiatives through the introduction of its 10 year Capital Market Master Plan (CMMP) (2015-2025) a blueprint, which outlined broad initiatives that are considered the main policy framework guiding the capital market development to boost investors’ confidence.

Indeed, with a far-reaching reform programme embarked upon by the current executives of the SEC, under the leadership of the Director-General Lamido Yuguda, the nation’ capital market is currently well positioned to serve as a source long-term finance as well as enablers of socioeconomic development the facilitation of capital formation and creating opportunities for Nigerians to participate in wealth creation process.

The board, in collaboration with the current Executive Management team of the commission has continued to make tremendous strides and achieved a good number of set goals. The achieved goals are expected to improve the Commission’s capability in adapting to changing economic and market conditions and ultimately delivering on its mandate.

Notably, the establishment of the National Investors Protection Fund (NTPF), to cushion the adverse effect of losses suffered in the capital market and the e-dividend policy designed to minimise cases of unclaimed dividend. Others are the Direct Cash Settlement scheme, which ensures that investors receive their money directly whenever securities are sold, and corporate governance scorecard for companies listed on the Nigerian Exchange Limited (NGX).

There is also the recapitalisation of stockbroking firms, which has gone a long way in curbing sharp practices in the market.

Efforts to achieve full implementation of the master plan, which was also instituted to help catalyse the emergence of Nigeria as one of the Top 20 global economies has been intensified to meet the delivery target and realise its objective for the market while the initiatives already implemented in the first five years of its commencement have strengthened market development and innovativeness.

To align with current developments in the dynamic capital market and improve its relevance to the aspirations of the market, the CMMP was revised in November 2022.

According to the Commission, the process involved an assessment of progress made since the plan’s implementation to date and engagement with stakeholders for input.

This would also result in the introduction of more stringent tools to measure the plan’s progress against objectives and the inclusion of new challenges, opportunities and risks related to the current environment into the plan.

Intelligence reveals that the review of the CMMP was in response to changes in the economic realities upon which the plan was anchored when it was launched in 2015.

The CAMMIC, which oversees implementation of the Master Plan, was inaugurated by the Minister for Finance, Zainab Ahmed.
At the unveiling of the Revised CMMP, Ahmed described investor confidence as a major factor that will accelerate growth and stimulate activities in the capital market.

She pledged Federal Government’s commitment to continue to support the SEC in performing its regulatory function in a more efficient manner.
According to her, the market should be characterised by high level of compliance, ethical standards, in-depth liquidity, good corporate governance and a strong domestic investor base to boost confidence.

“Nigeria needs a capital market that broadens access to economic prosperity by enabling the emergence of financially responsible citizens, accelerating wealth creation and distribution, while providing capital for small and medium-scale enterprises.

“I consider the revised capital market master plan a veritable tool, which the capital market must use as it drives key initiatives towards achieving the country’s economic growth objectives,” she said.

Ahmed also stated that implementation of the master plan was one of the key initiatives in the 40-deliverables of the presidential mandate of the Federal Ministry of Finance, Budget and National Planning. Ahmed commended the SEC, CAMMIC and the capital market community for the laudable achievements, especially, in the areas of dematerialisation of share certificates, e-dividend mandate management system, facilitation of access to alternative investments and enhancing the commodities trading eco-system.

She said: “I am also aware of ongoing efforts on other initiatives, like the direct cash settlement, introduction of derivatives, financial literacy, enhancing market liquidity, incentives for listings, growth of collective investment schemes and leveraging fintech solutions in the capital market.

The revised edition also included the zero tolerance on infractions, which emphasised the need to rid the market of all forms of infractions.

This responsibility mandates the commission to continuously strengthen and maintain a stronger enforcement posture and revamp its rulemaking processes/procedures. There was also provisions for crackdown on illegal fund managers and ponzi schemes, in line with the SEC investor protection mandate

to continue to crack down on promoters of fraudulent investment outfit and illegal fund managers as part of its commitment to ensure an environment that is governed by the appropriate regulatory framework, timely and affordable access to market, zero tolerance for infractions, and heightened investor confidence/awareness.

Also, for the safety and security of the capital market, and to address the deficiencies in the Nigeria’s Mutual Evaluation Report (MER), the commission issued new AML/CFT regulations and guidelines, which mandates CMOs to comply with stringent reporting obligations, such as, application of Risk Based Supervision (RBS) by reporting entities, screening of clients against Nigeria’s sanction list before on boarding, and continuous monitoring of clients among others. All these have been considered and added to the revised capital market master plan to make it more relevant and enable the SEC to realise the goals of the capital market master plan as quickly as possible.

Publicity Secretary, Independent Shareholders Association, Moses Igbrude, the other day said the plan outlines broad initiatives that are considered the main policy framework guiding the capital market development, efforts to achieve full implementation must be intensified to meet the delivery target and realise its objective for the market.

Director Capital Markets at FSD Africa, Evans Osano, said: “This review will give market stakeholders in Nigeria a unique opportunity to not only take stock of the plan’s results so far but also grow and respond to previously unforeseen economic developments.

“As FSD Africa works to support and regulate financial markets in Sub-Saharan Africa, we are excited to be partnering with SEC Nigeria to enable them to strengthen the country’s capital markets at this time.”

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FSD Africa, NAICOM strengthens partnership with Risk-Based Capital training, others

Posted on by TIMOTHYRADIER

In its quest to foster growth and innovation in the Nigerian insurance industry, the Managing Director of Financial Sector Deepening Africa (FSD Africa), Mr Mark Napier, led his management team on a visit to the Commissioner for Insurance Nigeria, Mr Olorundare Sunday Thomas, recently in Abuja.

A statement received from the Commission affirmed that the visit was another step towards strengthening the partnership that has existed between the two organisations to enhance the Commission’s capabilities and sustainability.

The high point of the partnership was the implementation of a Risk-Based Capital (RBC) training program, offered by FSD Africa to 70 staff members of NAICOM, aimed at boosting their capacities.

According to the statement, the two weeks training facilitated by Mr Elias Omondi, Principal in charge of innovation at FSD Africa, was beneficial to NAICOM in the following ways: Development of Risk-Based Capital framework and toolkit, Incorporation of Economic, Social and Governance (ESG) Principles into NAICOM’s operations and Development of Innovative portrait which would facilitate innovation for the regulator and insurance operators amongst others.

Stakeholders (including policyholders) in the insurance value chain are thirstily waiting to see a positive change that would follow. As a mentally fortified and knowledgeable regulator for responsible and innovative practices, the future of the Nigerian insurance landscape appears auspicious, poised to offer better protection and services to Nigerians.

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