• Use of financial services key to sharing wealth, promoting inclusion
• New technologies help widen access to financial services
• Financial inclusion, supervision should advance together to manage risks
Improving access to financial services can make a difference in Africa’s economic performance, Central African policymakers noted at a conference in Brazzaville, Republic of Congo.
Phone stall in Kinshasa, Dem Rep Congo: some 85 percent of region’s people are outside formal financial
system (photo: Benedicte Kurzen/MCT/Newscom)
Concluding a conference organized by the Banque des États de l’Afrique Centrale (BEAC) and the IMF, policymakers stressed the need for Central African countries to promote financial inclusion in order to achieve more inclusive growth.
The event, held on March 23, 2015, brought together more than 200 participants from ten Central African countries, from central and commercial banks, finance ministries, microfinance institutions, universities, and civil society. Participants heard from decision-makers and practitioners—from countries including Cameroon, Congo, the Democratic Republic of the Congo, and Rwanda—who recounted their efforts to increase financial inclusion in their countries.
Access to finance is still relatively low in sub-Saharan Africa, with around 85 percent of the population excluded from the formal financial system. Speaking during the opening session of the joint conference, Gilbert Ondongo, the Congolese State Minister in charge of economy, finance, planning, public portfolio and integration, acknowledged that financial inclusion in Central Africa is lagging the rest of sub-Saharan Africa and comparable countries in other regions. Access to credit in the region is weak and concentrated in a few sectors and among a few large companies.
According to a recently published IMF paper, only 9 percent of Congo’s adult population holds a formal bank account—below the average for countries of the Central African Economic and Monetary Community. “Three main causes have been identified—specifically, the low level of national income and real GDP per capita; underdevelopment of financial services; and constraints on access to banking services,” explained Finance Minister Ondongo.
“The lack of financial inclusion limits the participation of large segments of the population in economic activity and restricts the access of small and medium-size businesses to the credit needed for their development,” said Anne Marie Gulde-Wolf, Deputy Director of the IMF’s African Department. “Because of this handicap, those groups and businesses are confined to the informal sector, with all the disadvantages that entails.”
Where saving starts
Participants unanimously agreed that access to financial services can play a decisive role in reducing inequality and promoting inclusive growth. In fact, greater access to financial services allows the poor to overcome the rigid constraints of conducting transactions in cash, to begin to save, and to obtain microcredit to invest.
Greater financial inclusion is also important for small and medium-size businesses to finance their growth. However, the participants observed that access is relatively limited in most Central African countries.
Providing financial services in Central Africa requires stronger guarantees from businesses than in the rest of sub-Saharan Africa; bank intermediation costs are high because of the lack of credit reporting systems and weak competition in the banking sector; and the legal and institutional frameworks have not kept up with rapidly evolving financial transactions.
To address these obstacles, speakers called for the promotion of new technologies, such as mobile banking and the Internet, electronic signatures, and biometric identification, which have been successfully deployed in other countries, including in Eastern and Southern Africa.
Participants also discussed the importance of financial literacy, which in turn can promote financial inclusion. Many in the audience called for expanding and better tailoring financial education.
Conference delegates agreed that every technological advance has its advantages and disadvantages and entails risks for financial stability. Many also argued that the use of innovative technologies should not escape proper regulation. Gulde-Wolf said that “managing technological challenges can pose difficulties in often weak institutional and governance environments. Hence, the importance of financial supervision to advance in tandem with financial inclusion to promote the benefits and manage the associated risks.”
Finance for all
Participants were unanimous that governments need to draw up coherent national strategies to foster inclusion In his closing remarks, BEAC Governor Lucas Abaga Nchama noted that the BEAC had adopted a number of measures in this direction, in particular establishing a guarantee fund, making bank-held claims eligible for refinancing, and reducing its policy rates by almost half.