Imagine Johannesburg, with its highways, traffic signals, shopping malls, chain restaurants and supermarkets. Now picture Nakuru, a small Kenyan town, filled with old, narrow roads clogged with tuk-tuks and street vendors, pushing themselves shoe-less into the traffic and hauling heavy hand-drawn carts stacked with goods that will fill the small, owner-operated shops and kiosks, 10 on every block. If you were getting by on $5 per day, where would you rather live?
Reproduced from CGAP
The past five years or so have seen a number of exuberant studies and predictions that Africa’s rapid growth was creating a new middle class. This new group of consumers, it was argued, would become an engine of domestic demand, reducing reliance on exports and sustaining economic growth in the same way as they have in China. There were even predictions that this new middle class would transform governance and politics. This was the hopeful and optimistic story of “Africa Rising.”
Commercial Bank of Africa Limited (CBA) is the largest privately-owned bank in East Africa, with representation in Kenya, Tanzania and Uganda. In addition to providing services to the Corporate and Personal Banking market segments there is now also strong focus on targeting the Small and Medium Enterprise (SME) segment.
Executive coaching is the delivery of structured one-to-one support, usually by conversation, by professional executive coaches to enable leaders to achieve specific organisational or leadership objectives over a defined period; and it closes the gap between potential and performance and enables the individual to optimise their contribution to the organisation.
This publication presents the case of a leading African financial services firm, CBA, that has made the strategic decision to invest intentionally in the development of a coaching culture. CBA’s leadership is determined that a culture of employee engagement, empowerment and the use of coaching in leadership and management will enhance employee productivity and contribute to business performance.
Yesterday, Zambia’s central bank announced it had taken over a commercial bank, Intermarket, after the latter failed to come up with the capital it needed to satisfy new minimum capital requirements. Three weeks ago, a Mozambican bank – Nosso Banco – had its licence cancelled, less than two months after another Mozambican bank, Moza Banco, was placed under emergency administration.
At the end of October, the Bank of Tanzania stepped in to replace the management at Twiga Bancorp, a government-owned financial institution which was reported to have negative capital of TSh21 billion. A week before that, just over the border in Uganda, Crane Bank, with its estimated 500,000 customers, was taken over by the central bank, having become “seriously undercapitalised”. In DR Congo, the long-running saga of BIAC, the country’s third largest bank, continued in 2016, forced to limit cash withdrawals after the termination of a credit line from the central bank. And in Kenya, Chase Bank collapsed in April, bars after the failure of Imperial.
How are we to interpret this? It seems that 2016 is the year in which latent fragility in Africa’s banking sectors is being laid bare. After years in which observers have favourably contrasted the relative stability of African banking with the financial sector chaos in Europe and the US, it seems that three critical perils – mismanagement, political interference and economic woes – are conspiring to transform the landscape of African banking into a decidedly treacherous place for depositors and investors.
We have had remarkably few bank failures in Africa in recent years and yet this sudden uptick in stories like Crane and Chase, against a backdrop of economic challenges in many places, raises the question as to whether there is worse to come.
Mismanagement and/or political interference have been at the root of most bank collapses over the past few decades. Martin Brownbridge’s grimly fascinating analysi”https://fsdafrica.org/knowledge-hub/blog/harbingers-of-doom-bank-failures-in-africa-how-to-interpret-these/#_ftn1″ name=”_ftnref1″>[1] on this subject from 1998 concluded that “moral hazard, with the adoption of high-risk lending strategies, in some cases involving insider lending” was behind most of the bank collapses in the 1990s. This certainly resonates today. Catastrophic lapses in governance rather than economic malaise are alleged to be behind the recent Kenyan bank failures (although their shareholders and directors vigorously refute this) – but how else can you explain why a small number of banks fail when the sector as a whole has been returning well over 20% on its equity for the past several years?
There are some excellent programmes like “http://www.centerforfinancialinclusion.org/programs-a-projects/abf” target=”_blank” rel=”noopener”>Accions’s Africa Board Fellowship Program, which aims to strengthen capacity at financial institutions because their promoters understand that weak governance undermines trust in the financial system and is therefore very bad for financial inclusion. But it is one thing to know what you’re supposed to do as a bank board director – quite another to actually do it.
Each bank failure seems to have its own special story – and we derive comfort from this. It is somehow reassuring to think that that might be the case because the prospect of a system-wide failure is so awful.
And each country context has particular features that impinge on the stability of the financial system. There are deep concerns in Kenya, for example, that the recent imposition of interest rate caps is going to result in a very messy period of bank failures and/or consolidation.
But are there common patterns that we should be taking note of? Is there a system-wide issue that we should be facing up to?
Well, one pattern might be positive – that central banks are intervening more, and more quickly, to weed out the miscreants, less cowed by the politicians than they might have been in the past and more concerned to protect their well-earned professional reputations. Another is that central banks are finally implementing the increases in minimum capital requirements which many have been talking about for years with the inevitable intended consequence that some banks will be forced to get out of the market.
These might be two good reasons why we are seeing more collapses. You could say that’s excellent news for the future of African banking. But perhaps only to a point. There is still the risk that the cumulative effect of bank failures as a result of zealous supervisory action causes a loss of faith in the entire system resulting in mass panic and the withdrawal of deposits and credit lines.
Also, the inevitable result of this would be fewer, bigger banks which may have negative consequences for competition and access – altht worth pointing out that Tanzania, which has 55 commercial banks, still only manages to bank around 12% of its adult population (FinScope).
The more concerning issue is the impact of underlying economic weakness. Leaving aside the paradox that some of these bank failures are taking place in economies that are growing quite fast (Kenya and Tanzania forecasting 6-7% GDP growth), lower commodity prices and their pervasive impact across African economies are going to make life much tougher for banks – especially if they are poorly managed and have political skeletons in their cupboards.
One problem we have, especially when economic conditions are changing fast and for the worse (as in Mozambique), is that data is often out of date and is not sufficiently disaggregated. So, when we look at Africa as a whole, or even the banking system of one country as a whole, the averages we tend to look at create a blithely benign picture which masks dramatic variations.
So, non-performing loans (NPLs) across Africa up to014 were a little over 5% but NPLs in Ghana were more like 11-12%. NPLs in Tanzania are currently a little over 8%, yet Twiga Bancorp’s NPL’s were – unbelievably – at 34% in early 2015, according to media reports.
We think the African banking sector is in for a rocky ride in 2017 and 2018 and, in the short term, this is not good news for the real economy. However, one industry that is set to grow, surely, is central banking supervision.
“https://fsdafrica.org/knowledge-hub/blog/harbingers-of-doom-bank-failures-in-africa-how-to-interpret-these/#_ftnref1” name=”_ftn1″>[1] Brownbridge, M (1998): “Financial distress in local banks in Kenya, Nigeria, Uganda and Zambia: Causes and implications for regulatory policy” Development Policy Review, vol. 16, no.
In March 2016, the Zambian government approved proposals to redesign the royalty regime for mining companies. This involved introducing a new methodology for calculating Mineral Royalty Tax (MRT), linked to the prevailing copper price. Because mines can take several years to become profitable and start paying tax on those profits, MRT is an effective way for the government to get some tax revenue up front, rather than having to wait for mining operations to turn a profit. The lack of clarity around MRT had been another major problem for an industry which had been battling to adjust to a collapse in global commodity prices and which had had to lay thousands of workers off.
For the 900,000 Zambians in formal employment, many of whom are mine workers, having a job also means having access to credit. Banks like lending to salaried workers especially when they can do a bulk deal with the employer to make loans available to an entire workforce and collect the repayments through the payroll. It’s efficien for the banks, more secure.
In fact, as FSD Africa research now shows, payroll lending now accounts for a third of all loans in the Zambian banking system and has emerged as the largest contributor to commercial bank loan portfolio growth every year since 2011. For several banks, payroll loans account for well over half of their total loan book. Government employees are responsible for nearly three quarters of outstanding loan schemes in mid-2014 and had the highest incidence of multiple borrowing.
Always controversial, payroll lending undoubtedly fuels consumer spending but, for those who have a payslip, it also provides financial access and a measure of economic empowerment. For example, spending on housing in Zambia rose by 117% from 2006 to 2010, and much of this can be attributed to the availability of payroll loans. But the reality is that lenders pay little attention to the reasons for borrowing. They make credit decisions based on the creditworthiness of the employer rather than of the borrow And so an environment develops in which in which the credit assessment process is relatively simple and there are strong incentives to over-lend.
Getting the right regulatory balance is therefore a big challenge. Easy credit in an unfettered environment sees consumers “dance with the devil”, and with little protection. Stifle access to credit and consumers are denied the opportunity to, quite literally, put a roof on their house.
Take, for example, the case of Mopani Copper Mines. Mopani is the biggest mining employer in Zambia according to Bloomberg, Africa’s second-largest copper producer, with 20,000 workers. At the end of 2015, the Lusaka Times reported that 3,051 workers were being laid off in response to the fall in the price of copper as part a debt reduction strategy by Glencore, Mopani’s owner. Many of those laid off had loans outstanding to commercial banks. These banks, it was alleged, had prior access to the retrenchment compensation that the workers were entitled to, with the rorkers received far less cash compensation than they were expecting.
The devil is the detail but it is the detail that can create disastrous outcomes for people in living in vulnerable circumstances. Events like Mopani shine a spotlight on the relationship between labour markets and financial markets (is Mopani a story about workers’ rights or consumers’ rights?) and on the effectiveness of the contractual arrangements behind these loans. What did the loan agreements actually say? When the mine worker signed the loan agreement confirming that he understood all the terms and conditions (T&Cs), did he really understand them? Did anyone test that? Who actually explained the T&Cs to him – the bank? The employer? – and how much time did anyone actually take to explain the T&Cs?
The Zambian authorities have moved to deal with the threats posed by payroll lending. The Banking and Financial Services Act limits the total amount of debt repayments and other deductions to 60% of gross i a minimum of 40% of gross pay as take-home or disposable pay. Interest rate caps were imposed on micro-lenders in January 2013 in a well-meant attempt to keep the lid on the cost of borrowing for consumers: the caps have, rightly, been removed now because they seemed to be having no dampening effect on the payroll lending industry and were even encouraging lenders to pursue lending strategies that were introducing systemic risk into the market.
Now, the Bank of Zambia, with support from FSD Africa, has launched a Market Monitoring System that will regularly gather much more granular data on credit market developments and trends so that problems can be picked up at an early stage.
It goes without saying that consumer protection is vital but so too is access to finance and we must strive to put in place a framework which allows credit markets to develop responsibly but which also safeguards borrowers’ legitimate interests and rights.
What is critical is that there should be proactive and well-informedulation of credit markets with appropriate weight given to market conduct regulation, alongside the traditional approach of supervising the soundness of financial institutions. Today, too few financial market regulators in Africa have the right institutional structure or capacity to manage the development of credit markets effectively. Central banks should not think they can do this in their spare time. This is a significant problem at a time when there is a need for more responsible credit in Africa and when digital finance is introducing all sorts of opportunities but also threats
Less than a month ago, on 15 June 2016, the crowdfunding industry in East Africa came together for the first time in Nairobi. This East African Crowdfunding Indaba & Marketplace was co-hosted by FSD Africa and the Kenya Capital Markets Authority, and attended by 65 representative from across the crowdfunding industry in Kenya, Rwanda, Tanzania and Uganda.
But, what did we learn? We boil it down to seven key points:
So, what’s next?
First of all, for more facts and figures, please find all the presentations delivered during the crowdfunding indaba and marketplace here.
Second, we’re keen to move beyond discussion towards new partnerships and deal-making. With this in mind, please find a full list of participants here. If you’d like specific contact details then email Fundi Ngundi (fundi@fsdafrica.org), who will ask permission from the counterpart before connecting you.
Third, through partnership, FSD Africa will continue to support the development of crowdfunding markets in East Africa. The Allied Crowds platform landscaping research is scheduled for publication in July 2016. A regulator support exercise has been launched and will conclude in September 2016. It will be led by Anjarwalla & Khanna and the Cambridge Centre for Alternative Finance. Where beneficial to the poor and the wider crowdfunding market, FSD Africa will also provide light touch support to platforms themselves. If there’s demand, there could be scope for a follow-up Indaba and Marketplace in early 2017. If you’d like to collaborate then please be in touch.
Lastly, thank you to all the speakers, panelists, facilitators and participants for your lively contributions last week. Albeit steadily, crowdfunding markets are on the move in East Africa!
In March 2016, the Zambian government approved proposals to redesign the royalty regime for mining companies. This involved introducing a new methodology for calculating Mineral Royalty Tax (MRT), linked to the prevailing copper price. Because mines can take several years to become profitable and start paying tax on those profits, MRT is an effective way for the government to get some tax revenue up front, rather than having to wait for mining operations to turn a profit. The lack of clarity around MRT had been another major problem for an industry which had been battling to adjust to a collapse in global commodity prices and which had had to lay thousands of workers off.
For the 900,000 Zambians in formal employment, many of whom are mineworkers, having a job also means having access to credit. Banks like lending to salaried workers especially when they can do a bulk deal with the employer to make loans available to an entire workforce and collect the repayments through the payroll. It’s efficientfor the banks, more secure.
In fact, as FSD Africa research now shows, payroll lending now accounts for a third of all loans in the Zambian banking system and has emerged as the largest contributor to commercial bank loan portfolio growth every year since 2011. For several banks, payroll loans account for well over half of their total loan book. Government employees are responsible for nearly three quarters of outstanding loan schemes in mid-2014 and had the highest incidence of multiple borrowing.
Always controversial, payroll lending undoubtedly fuels consumer spending but, for those who have a payslip, it also provides financial access and a measure of economic empowerment. For example, spending on housing in Zambia rose by 117% from 2006 to 2010, and much of this can be attributed to the availability of payroll loans. But the reality is that lenders pay little attention to the reasons for borrowing. They make credit decisions based on the creditworthiness of the employer rather than of the borrower. And so an environment develops iich in which the credit assessment process is relatively simple and there are strong incentives to over-lend.
Getting the right regulatory balance is therefore a big challenge. Easy credit in an unfettered environment sees consumers “dance with the devil”, and with little protection. Stifle access to credit and consumers are denied the opportunity to, quite literally, put a roof on their house.
Take, for example, the case of Mopani Copper Mines. Mopani is the biggest mining employer in Zambia according to Bloomberg, Africa’s second-largest copper producer, with 20,000 workers. At the end of 2015, the Lusaka Times reported that 3,051 workers were being laid off in response to the fall in the price of copper as part a debt reduction strategy by Glencore, Mopani’s owner. Many of those laid off had loans outstanding to commercial banks. These banks, it was alleged, had prior access to the retrenchment compensation that the workers were entitled to, with the result that workers received far less ation than they were expecting.
The devil is the detail but it is the detail that can create disastrous outcomes for people in living in vulnerable circumstances. Events like Mopani shine a spotlight on the relationship between labour markets and financial markets (is Mopani a story about workers’ rights or consumers’ rights?) and on the effectiveness of the contractual arrangements behind these loans. What did the loan agreements actually say? When the mineworker signed the loan agreement confirming that he understood all the terms and conditions (T&Cs), did he really understand them? Did anyone test that? Who actually explained the T&Cs to him – the bank? The employer? – and how much time did anyone actually take to explain the T&Cs?
The Zambian authorities have moved to deal with the threats posed by payroll lending. The Banking and Financial Services Act limits the total amount of debt repayments and other deductions to 60% of gross income, leaving a minimum of 40% of gro-home or disposable pay. Interest rate caps were imposed on micro-lenders in January 2013 in a well-meant attempt to keep the lid on the cost of borrowing for consumers: the caps have, rightly, been removed now because they seemed to be having no dampening effect on the payroll lending industry and were even encouraging lenders to pursue lending strategies that were introducing systemic risk into the market.
Now, the Bank of Zambia, with support from FSD Africa, has launched a Market Monitoring System that will regularly gather much more granular data on credit market developments and trends so that problems can be picked up at an early stage.
It goes without saying that consumer protection is vital but so too is access to finance and we must strive to put in place a framework which allows credit markets to develop responsibly but which also safeguards borrowers’ legitimate interests and rights.
What is critical is that there should be proactive and well-informed regulation of credit markets with appiate weight given to market conduct regulation, alongside the traditional approach of supervising the soundness of financial institutions. Today, too few financial market regulators in Africa have the right institutional structure or capacity to manage the development of credit markets effectively. Central banks should not think they can do this in their spare time. This is a significant problem at a time when there is a need for more responsible credit in Africa and when digital finance is introducing all sorts of opportunities but also threats
This is the second of a four-part serialisation of the full Impact Oriented Measurement (IOM) guidance paper.
In the first serialisation, the principle objectives of IOM and the background to its development was provided. The first, second and third chapters were also discussed.
This second serialisation (Chapter 4 of the full IOM guidance paper) draws attention to the Theory of Change (ToC), a critical tool in the IOM system.
In particular, this Chapter:
In the next installment – the third of the four-part serialisation – IOM will explore how to measure changes (including systemic changes at the market-level) resulting from FSD interventions and how to determine the causes of such changes.
In July 2014, FSD Africa began an FSD network-wide consultative process to improve monitoring and results measurement (MRM) for financial market facilitation.
Its specific objectives were two-fold: a) to strengthen MRM processes within individual FSDs at the project and programme level, and b) to develop a more consistent approach to MRM across the FSD network.
Through their participation and with the support of specialists from Oxford Policy Management (OPM) and the Consultative Group to Assist the Poor (CGAP), DFID and the Donor Committee for Enterprise Development (DCED), FSDs explored key MRM issues together. Topics included, for example:
The result of this extensive consultation is the Impact Oriented Measurement framework, or IOM.
IOM is a comprehensive resource that helps FSDs, or FSD-like organisations, manage the challenge of measuring their contribution to changes in the market systems they seek to influence. IOM offers guidance, not a prescription.
There is a high degree of consensus built-in to the model, which is informed by practical insights derived from FSD practice over a decade or more, but also OPM, CGAP, DFID and DCED.
This impact-oriented measurement (IOM) guidance paper has two key objectives that are designed to assist FSDs in their measurement processes. First, to understand how FSD programme investments have contributed to observed changes in the financial sector, and how these changes have improved the livelihoods of the poor. Second, to track and improve the performance of FSD investments, by improving the evidence base regarding what works and what does not.
