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financing Africa

How to Deepen Financial Systems in Africa: All financial sector policy is local

Thorsten Beck's picture

Editor’s Note: This is the fifth and final contribution in a series of posts that preview the findings of the forthcoming Financing Africa: Through the Crisis and Beyond regional flagship report, a comprehensive review documenting current and new trends in Africa’s financial sectors and taking into account Africa’s many different experiences. The report was prepared by the African Development Bank, the German Federal Ministry for Economic Cooperation and Development and the World Bank. In this post, the authors argue that all financial sector reform has to start locally, taking into account political constraints, but also aiming to create a constituency for financial sector reform.

What has the recent crisis taught us about the role of finance in the growth process of countries? The global crisis and the ensuing Great Recession have put in doubt the paradigm that financial deepening is good for growth under any circumstance. For students of financial systems, the bright (growth-enhancing) and dark (instability) sides of financial development go hand in hand. The same mechanism through which finance helps growth also makes finance susceptible to shocks and, ultimately, fragility.

Lengthening Financial Contracts in Africa

Thorsten Beck's picture

Editor’s Note: This is the third in a series of posts that preview the findings of the forthcoming Financing Africa: Through the Crisis and Beyond regional flagship report, a comprehensive review documenting current and new trends in Africa’s financial sectors and taking into account Africa’s many different experiences. The report was prepared by the African Development Bank, the German Federal Ministry for Economic Cooperation and Development and the World Bank. In this post, the authors focus on the challenges and opportunities in providing long-term finance for enterprises, households and governments. Long-term finance is a critical element for financial systems to fulfill their growth-enhancing role.

Despite recent encouraging innovations in banks, contractual savings institutions, and the capital market, we find that lengthening financial contracts remains a challenge for financial systems across Africa. Figure 1 illustrates the short-term nature of African banking; more than 80% of deposits are sight deposits or with a maturity of less than one year and less than 50% percent of loans have a maturity of more than one year. Providers of long-term finance that are well developed in the industrialized world, such as insurance companies, pension and equity funds and venture capitalists are small in most African countries and inefficient in their operation. This goes hand in hand with a limited supply of long-term equity and debt instruments across the continent.

Expanding Financial Services in Africa: Exploiting new opportunities with a sense of realism

Thorsten Beck's picture

Editor’s Note: This is the second in a series of posts that preview the findings of the forthcoming Financing Africa: Through the Crisis and Beyond regional flagship report, a comprehensive review documenting current and new trends in Africa’s financial sectors and taking into account Africa’s many different experiences. The report was prepared by the African Development Bank, the German International Cooperation (GIZ) and the World Bank. In this post, the authors focus on the challenges and opportunities for expanding access to finance in Africa, a central issue for Africa’s financial sector development.

Traditionally, we have observed low access levels by households and enterprises across the African continent. Sadly, these low access levels persist. Less than one in five households have a formal bank account (Table 1) and, on average, only 23 percent of enterprises have loans or lines of credit, while the corresponding share among enterprises in non-African developing countries is 46 percent (Figure 1).

Financing Africa: Through the Crisis and Beyond

Thorsten Beck's picture

In mid-September, the African Development Bank, the German Federal Ministry for Economic Cooperation and Development and the World Bank will launch Financing Africa: Through the Crisis and Beyond , a comprehensive review documenting current and new trends in Africa’s financial sector and taking into account Africa’s many different experiences. During the coming weeks and leading up to the formal launch of the book in Ethiopia on September 15, we will give a sneak peek of the book’s main findings and recommendations. In this first post, we’ll summarize our main messages.