A Regional Seminar on Non-Bank Financial Institutions Development
in Africa
December 9 – 11, 2003
Mauritius
Welcoming Remarks by World Bank
Mr. Gujadhur, Mr. Rajahbalee, distinguished speakers, Ladies and Gentlemen; on behalf
of the World Bank I would like to welcome you to this Regional Seminar on Non-Bank
Financial Institutions Development in Africa. I would also like to express our deep
appreciation to the Government of Mauritius, and to the Financial Services Commission
in particular, for inviting us to their beautiful home and for the impeccable and efficient
arrangements made to accommodate us.
I too am from an island – Trinidad – and walking around Grand Baie yesterday I felt very
much at home. Our islands – while very different in terms of the economic base – share
one goal in common: the aim of diversifying our economies to reduce our dependence on
a single commodity. In your case it is sugar and in ours it is petroleum. We also share
the objective of developing our financial services industry as one element of the
diversification strategy. In this, Mauritius has enjoyed remarkable success, and it is only
fitting that we should now be here to learn – as we shall later today and, I am sure,
throughout the seminar – about some of the features of Mauritius’s strategy.
It is also very appropriate that we are here practically in the midst of the Indian Ocean in
a country that truly provides a bridge between Africa and Asia. In Asia we see the
financial markets of Africa’s future. In Asia, despite the blips of the late nineties, we see
a dynamism that reflects the potential of Africa’s financial markets. Potential. In
Africa, we see financial markets that, on average, have been implementing major reforms
for 15 to 20 years. The foundation for the sector’s development has been built. Interest
rates have been liberalized, central banks are more independent, supervisors are stronger,
the markets are more open to entry, most state-owned banks have been privatized and, by
and large, Governments’ direct involvement in the commercial aspects of the financial
sector have been substantially diminished..
Nevertheless, despite this very impressive reform performance – even in comparison to
other developing regions - the impact has been very limited. As a result, we see African
financial market reforms that are under siege. Why do I say so? In most countries, our
bosses – the politicians – see that most of the population still do not have access to
financial services after fifteen to 20 years of implementing reforms. In one country that I
visited last month, only 6 percent of households are able to deposit their savings after the
successful implementation, for over ten years, of some extremely difficult and painful
reforms. Indications are that this number is lower than it was prior to the start of the
reform program!
In most countries, spreads are very high and financial institutions are able to earn large
profits by investing in treasury bills; and by financial institutions I am referring to the
commercial banks that still constitute by far the bulk of most financial markets. Their
core activity - which is to intermediate between savings and investment – is instead
geared towards directing the relatively low pool of private savings towards Government
consumption. Competition amongst banks is limited to competition for a select number
of blue chip customers. In these environments, the lengthening of maturities to facilitate
private investment remains a dream.
This dismal picture has led to some perhaps understandable questioning of the direction
of the reforms. The newspapers of many countries are filled with vitriol about the evil
behaviour of bankers - and especially foreign bankers. There is a plethora of
Government initiatives throughout Africa all aimed at increasing access, reducing the
costs of financial services and making medium term finance available. Without
exception, all of these initiatives are very risky and, in some cases, ill-informed. All of
you know probably of one such initiative either being discussed or already launched in
your respective countries. At the risk of being undiplomatic, these range from the Donde
Bill in Kenya (which is now in limbo), to the Bank Solidarite in west Africa, to the
discussion of reviving development banks in several countries (Kenya, Tanzania, Zambia
and there are others), to the creation or revitalization of housing banks, and to tax
initiatives in several countries to encourage lending to small and medium enterprises.
The initiatives – sometimes less public – also include using national pension or social
security schemes to finance dubious investments that are seen to be socially beneficial.
It is not that all of these initiatives are wrong (although some of them obviously are).
However, tremendous care is needed to ensure that if they are launched that this is done
in a manner that is as market friendly as possible. The market should perceive these
measures as attempts to fill a gap, rather than as a reversal of the ongoing reform strategy.
Ladies and Gentlemen – Friends - the proper response to the apparent lack of impact of
reforms to-date is very easy to articulate. We can tell our bosses that further
improvements are required in the regulatory framework; that we need much more
Government discipline so that banks have to find alternative investments to treasury bills;
that more needs to be done to reduce the large overhang of non-performing loans in many
countries; that more needs to be done to develop the private sector and to create a larger
pool of creditworthy borrowers so that collateral requirements can be reduced; that
judicial reform is desperately needed so that contracts can be enforced. Most
importantly, we can note that more competition is required both within the banking sector
and to the banking sector. And it is in the need to increase competition to the banking
sector that this seminar is very timely. For the competition to the banks must come from
the non-banking sector.
So, let me conclude by noting that the continued reform and development of the financial
sector are critically dependent on the growth of non-bank financial institutions. I hope
that by the end of this seminar each and every one of you is motivated and appropriately
equipped to return home and actively participate in the discussion of the direction of the
reforms, and further contribute to implementing the reform agenda. As you hear over the
next few days from the leading experts in the field, challenge them. Bring your national
and regional perspectives to the discussion and challenge the relevance of their remarks.
Are they helping you to fight the battle. Are they helping you to withstand the siege?
Ladies and Gentlemen, many of you know Trinidadians and you know that above all else,
we like to enjoy ourselves. So, please – above all else- enjoy the next few days and the
hospitality of our gracious hosts.
Thank you.