FAIRNESS | INTEGRITY | PROTECTION
“Ensuring Investor Protection”
STRENGTHENING FINANCIAL MARKETS AND
INSTITUTIONS IN AFRICA
A PRESENTATION
BY
ADU A. ANTWI
DIRECTOR-GENERAL
SECURITIES AND EXCHANGE COMMISSION
AT THE 2ND AFRICA CONGRESS OF ACCOUNTANTS (ACOA)
ACCRA, MAY 14, 2013
“Ensuring Investor Protection”
Presentation Outline
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Introduction
Financial Sector Reforms
Making Financial Markets and Institutions
Strong: Some Recommendations
Conclusion
“Ensuring Investor Protection”
Introduction -1
• Economists have long recognised the importance of the financial
sector in the economy. The financial sector plays a central role to
support the real economy.
• A financial market is described as a market in which financial assets
such as shares and bonds can be bought or sold.
• Financial institutions facilitate the purchase and sale of the financial
assets by allocating capital to meet the transactions.
• Financial institutions in general intermediate by accumulating
capital from excess funding units and giving it out as loans to deficit
funding units like individuals, businesses and governments.
“Ensuring Investor Protection”
Introduction -2
• The financial sector has a vital role to play in the ongoing
transformation of our society, and our desire to bring a
better life to all of our people.
• Over the years strong, robust and comprehensive financial
systems have played very vital roles in the economic growth
and development of many countries.
• Well-functioning and efficient financial institutions and
markets are central to the optimal allocation of capital to
new areas of growth and to facilitate economic
transformation.
• Strengthening financial markets and institutions means
promoting principles and sound practices for financial
stability through the development of well-functioning
financial systems and market discipline.
“Ensuring Investor Protection”
Financial Sector Reforms -1
• In recent years several African countries have
undertaken extensive restructuring and
transformation of their financial sector.
• Ghana’s financial sector has for example
undergone extensive restructuring and
transformation starting with the implementation
of the Financial Sector Adjustment Programs
(FINSAP I and II), from the late 1980’s through to
the mid 1990’s.
• The implementation of FINSAP I and II resulted in
the privatization of the banking sector and the
establishment and licensing of several new banks
and non-bank financial institutions.
“Ensuring Investor Protection”
Financial Sector Reforms -2
• The Ghana government in the early 2000’s developed
the Financial Sector Strategic Plan (FINSSP).
• After
the
implementation
of
the
FINSSP
recommendations there were improvements in the
country’s macroeconomic performance.
• In order to consolidate the gains of the FINSSP and
address emerging challenges including regulatory
issues arising from the global financial crisis, the
Government in 2012 adopted the second phase of the
Financial Sector Strategic Plan (FINSSP II) to serve as
the blueprint for Ghana’s financial sector development.
“Ensuring Investor Protection”
Financial Sector Reforms -3
• The FINSSP II document identified the following
weaknesses in the financial system of Ghana:
Low Capital Market liquidity
► Substantial amount of money outside the banking system.
► Low financial capacity of banks and insurance companies to
undertake large deals. e.g. financing of the oil and gas sector.
► Relatively few listed equities
► Mostly cash based transactions
► Little activity in corporate and Government bonds.
► Small size of many rural and community banks
► Very little medium to long term credit
►
“Ensuring Investor Protection”
Financial Sector Reforms -4
• The FINSSP II report also identified the following six key objectives to be
pursued to enhance the financial sector to which various strategic
initiatives have been designed to facilitate the achievement of the
objectives and strengthen the financial market and institutions in the
country.
► To make the domestic financial sector the preferred source of finance for
Ghanaian companies.
► To promote efficient savings mobilization.
► To enhance the competiveness of Ghanaian financial institutions within a
regional and global setting.
► To ensure a stronger and more facilitative regulatory regime.
► To promote a diversified financial sector within a competitive environment
► To promote education, public awareness, capacity building and financial
literacy
• With many African countries sharing similar economic characteristics with
Ghana, it is believed the above issues identified in the FINSSP II report are
relevant for other African countries.
“Ensuring Investor Protection”
Making Financial Markets and Institutions
Strong
• Various researchers have studied the financial
sector in many countries around the globe and
have made several recommendations to make
financial markets and institutions stronger and
more efficient.
• Some of these recommendations and others that
can strengthen financial markets and institutions
in Africa are discussed below.
Ensuring Investor Protection”
Further financial sector reforms
• There is still a need for more reforms in many African
countries.
• Pensions Reform
• Reforms should promote the establishment of new
financial institutions and the introduction of new
financial products.
• Reform should be geared towards setting up a
system of rewards and penalties such that market
participants perceive (correctly) that it is in their own
best interest to behave in efficient and prudent ways.
‘’Ensuring Investor Protection”
Strengthen corporate governance in
financial institutions
• Strengthen corporate governance in financial
institutions and the role of market discipline in
ensuring effective oversight over financial institutions.
• Good corporate governance and an appropriate
corporate structure are vital for ensuring that the
incentives of managers of financial contribute to the
soundness of the institution and reflect a professional
assessment of all risks involved.
• Enhance production and dissemination of information.
A crucial component of financial sector reform is
improvement in the quality and quantity of reliable
and timely information.
‘’Ensuring Investor Protection”
Removal of barriers to entry in to the
financial sector
• Barriers to entry in various financial sectors
remain high, both within countries in the
region and across borders. This leads to higher
costs and inefficiencies.
• In view of the key role of the financial sector
in allocating savings and investment, this
represents a significant constraint on growth
prospects in Africa and must be addressed.
‘’Ensuring Investor Protection”
Strengthen the foundations for a sound
risk culture in the financial sector
• A strong risk culture that promotes prudent risk
taking and the long-term viability of financial
institutions will become more important in the
future financial landscape which is expected to be
more diverse and competitive.
• This can be advanced through; a) implementing
measures to promote more risk-aligned executive
compensation, and b) developing codes and
practices, and training programmes that support
a sound risk culture.
‘’Ensuring Investor Protection”
Develop the capacity of financial industry
workforce
• The capacity of industry workforce should be built through
training. Upgrading the skills and competencies of the
existing workforce will ensure that they are able to meet
the changing needs of the financial industry as it
undertakes higher value-added services moving forward
and to enable them to perform in a more competitive and
globalised environment.
• More industry-ready entry-level graduates must be
produced through enhanced collaboration and
coordination between the financial industry and
institutions of higher learning to ensure seamless transition
of graduates into the financial industry workforce.
‘’Ensuring Investor Protection”
Improve efficiency in payments,
settlement and clearing systems
• Financial systems—either banking or securities
markets—cannot function without efficient
systems for payments, settlement and clearing,
as these form the essential “plumbing” of the
system.
• All countries should work to improve these
systems. E-payments infrastructure should be
enhanced in various countries in the region by
introducing improvements and new services
that will significantly improve user convenience
and access to payment services to further
facilitate the adoption of e-payments.
‘’Ensuring Investor Protection”
Enhance the mobile banking channel
• Enhance the mobile banking channel by
driving the adoption of the mobile phone as a
simple and convenient channel to conduct
banking and payment transactions, by
encouraging greater participation of financial
service providers and merchants in the mobile
banking and payments ecosystem.
“Ensuring Investor Protection”
Promote financial education
• Financial markets can hardly develop when all
stakeholders are not well informed and educated to
understand their functions, instruments/products and
how they work.
• Financial education must be used to empower the
population to understand the financial market and use
the products and services of the market.
• Financial capability must be promote through
education as an essential life skill from an early age
through the integration of financial education into the
formal curriculum at schools and higher learning
institutions.
• Enhanced financial education will increase the
participation of all segments of society in the financial
system.
“Ensuring Investor Protection”
Promote Financial Inclusion
• As a developing region, the financial systems in
African countries have serious limitations,
because it makes beneficial financial services
available only to a minority of people.
• Poor people – who, unfortunately, still constitute
the vast majority of the region’s population –
have only limited or no access to financial
services.
• Efforts ( including the use of microfinance
concept) should be made at promoting financial
inclusion in the region.
“Ensuring Investor Protection”
Strengthen the informal financial sector
• Governments should exploit the comparative
advantage of the informal financial sector and
strengthen the complimentarity between the
formal and informal financial sectors.
• Ghana’s example of strengthening
microfinance, susu, money lending, etc
institutions.
“Ensuring Investor Protection”
Develop depositor protection schemes
(including deposit insurance)
• Deposit protection schemes should be
developed. This will provide a mechanism that
ensures that small depositors (i.e. those
whose deposits fall within an explicit ceiling)
do not suffer when the institutions keeping
their deposits fail.
“Ensuring Investor Protection”
Promote the bond market
• Governments in the region should use
infrastructure bonds to finance their
infrastructural needs.
• The issue of municipal bonds by local
authorities should be encouraged.
• Private sector companies must be encouraged
to issue bonds to raise huge capital for their
expansion.
“Ensuring Investor Protection”
Encourage self-policing in the sector
• Through the history of trade and finance, market
participants have established institutions that ensure
honest and prudent behaviour, lower transactions
costs, and reduce risks.
• Some of these self-policing bodies may eventually
develop into full-fledged self regulatory
organizations.
• The government can help by providing the
supporting legal and supervisory infrastructure.
“Ensuring Investor Protection”
Promote regional financial institutions
• These institutions play key role in the growth
of intraregional trade and direct intraregional
investment flows.
• Regional financial institutions are
complements for global financial institutions.
They are better able to coordinate with other
international financial institutions in order to
promote initiatives with a view to furthering
the region’s financial development.
“Ensuring Investor Protection”
Encourage the mobilization of regional
savings
• The issue of regional bonds must be promoted
within the region. Regional bonds would allow
companies and governments to raise huge capital
outlays from the region to finance their
expansion and infrastructure without depending
on donors.
• Such bonds would attract international investors
resulting in capital inflows into the region. To the
companies, the huge capital outlays would see
them become larger and more competitive by
serving larger and better diversified markets.
“Ensuring Investor Protection”
Strengthen prudential regulation and
supervision
• Governments should complement the creation of
franchise value by adopting a regulatory regime based
on rules designed to align the private incentives of
market players with the social goal of financial stability,
and by strengthening supervision.
• Build the capacity of financial regulators and ensure
their independence.
• The use of peer review mechanism must be
encouraged within the region. This process may have
the potential to broaden the pool of experts available.
Peer review will ensure the development of the
financial supervisory and regulatory systems in the
region.
“Ensuring Investor Protection”
Strengthen regional and international
financial integration
• Countries in the region must strengthen ties with
regional and international economies as these are key
foundations in various African countries’ transition
towards becoming high value-added and high-income
economies.
• Stronger cross-border linkages will serve to enhance
trade and investment opportunities by expanding the
market for final demand, increasing capital
accumulation and improving factor productivity.
• Such cross-border linkages will also enhance
opportunities for African countries to capitalise on the
diverse comparative advantages in the region.
“Ensuring Investor Protection”
Deepen cross-border coordination and
cooperation among financial regulators
• To promote the orderly provision of financial services
in the region, cross-border coordination and
cooperation among regulators must be deepened.
• This will ensure financial stability within the region is
preserved while realising efficiency gains from
increased activities of local financial institutions
abroad as well as promote regional and international
financial conglomerates in the various countries.
• Countries in the region must pursue cross-border
arrangements with other regulatory authorities with a
view to achieve mutual recognition or to promote
consistency of prudential and market conduct
standards.
“Ensuring Investor Protection”
Conclusion
• As the world economy becomes more interlinked and more
complex the nature of financial institutions has to evolve.
But is has to evolve with care.
• Given the economic importance of the financial sector and
the dangers when it functions poorly, it is not surprising
that governments in both developed and emerging market
countries alike take a keen interest in regulating and
supervising financial institutions and markets.
• Sharing lessons, experiences, and challenges among policymakers and regulators in the region will further enhance
co-operation, which will eventually strengthen financial
markets and institutions in Africa and lead to greater
financial stability in the region.
“Ensuring Investor Protection”
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References
Cœuré,B. (2012). Challenges facing financial integration and financial stability
Financial Sector Strategic Plan II Report, Ghana, (2012)
Fullani, A. (2009). Financial supervision and measures to strengthen financial stability
Junbo, X. (2005). Medium-term strategy to strengthen financial stability and promote
financial development
Kawai, M. (2013). Strengthening the Asian Financial Sector toward Sustainable and
Inclusive Growth
Kuroda, H. (2002). How to Strengthen Banks and Develop Capital Markets
Morgan, P. J. and Lamberte. M. (2012). Strengthening Financial Infrastructure.
Mulya, B. (2009).The need to strengthen Indonesian financial market
Nienhaus, V. (2010). Capacity Building in the Financial Sector: Strategies for
Strengthening Financial Institutions
Pomerleano, M., Litan, R. E. and Sundararajan, V. (2002). Strengthening Financial
Sector Governance in Emerging Markets
Rambarran, J. (2012). Strengthening financial stability in Trinidad and Tobago – staying
ahead of the curve
Sin, N. N. (2012). Strengthening Asia Financial Markets Through Regional
Collaboration
Stiglitz, J. (1998). The Role of the Financial System in Development
Winkler, A. (2010). The Financial Crisis: A Wake-Up Call for Strengthening Regional
Monitoring of Financial Markets and Regional Coordination of Financial Sector Policies
“Ensuring Investor Protection”
STRENGTHENING FINANCIAL MARKETS
AND INSTITUTIONS IN AFRICA
END
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“Ensuring Investor Protection”