Financing Africa Through the Crisis and Beyond

by Beck, Thorsten; Maimbo, Samuel Munzele; Faye, Issa; Triki, Thouraya

• ISBN13: 9780821387979
• ISBN10: 0821387979
• Format: Paperback
• Copyright: 2011-09-07
• Publisher: World Bank Publications

Summary

Financing Africa takes stock of Africa'¬"s financial systems in light of recent changes in the global financial system '¬ ;including the greater risk aversion of international investors, a shift in economic and financial powers towards emerging markets and the regulatory reform debate - and the increasing role of technology. Using a wider and more detailed array of data than previous publications, we observe a trend towards financial deepening, more stability and more inclusion leading up to the crisis; serious challenges, however, continue, including limited access to financial services, focus on short-term contracts and hidden fragility, related to weak regulatory frameworks, undue government interference and governance deficiencies. Our policy analysis therefore focuses on (i) expanding outreach, (ii) fostering long-term finance and (iii) improving regulation and supervision. We identify the positive role of innovation and competition, a stronger focus on non-traditional financial service providers, and more emphasis on demand-side constraints as priority areas for policy actions. Specifically, competition from new players outside the banking system, including telecomm companies can increase outreach with technological innovation that changes the economics of retail finance. Moving beyond national stock exchanges that are not sustainable in most African countries towards regional solutions and over-the-counter trades can help foster long-term finance, as can addressing governance challenges in contractual savings institutions, including life insurance companies and pension funds. Finally, there is a need to look beyond supply-side constraints towards users of financial services, focusing more on financial literacy of households and firms, but also consumer protection. In formulating policy messages, we carefully distinguish between different country groupings, differentiating '¬ ; among others '¬ ; between low- and middle-income and small and larger economies, with a special focus on resource-based economies and post-conflict countries. This book reaches out to both policy makers concerned about a more inclusive and effective financial system and other stakeholders, including practitioners and development partners. With this book we aim to contribute to the on-going financial sector debate on Africa, with the ultimate goal of faster economic development and poverty reduction.

Table of Contents

Foreword	p. xi
Acknowledgments	p. xiii
Abbreviations	p. xv
Financing Africa: Setting the Stage	p. 1
Introduction	p. 1
Financing Africa, the Book	p. 3
An Analytical Framework	p. 3
The Main Messages and a Caveat	p. 7
Financial Sector Development: Why Do We Care?	p. 9
Time for New Solutions to Old Problems	p. 16
The Outline of the Book	p. 23
Landscaping African Finance	p. 2
Introduction	p. 27
The Effect of the Crisis	p. 27
Africa's Financial Systems in International Comparsion	p. 36
Explaining Financial (Under)Development in Africa	p. 59
The Firm and Household Usage of Financial Services	p. 68
Conclusions	p. 74
Expanding Financial Systems	p. 77
Introduction	p. 77
What Do We Know about Access to Finance?	p. 78
Broadening Finance: A Reality Check	p. 85
Landscaping the Providers: How to Get to the Frontier	p. 88
Demand-Side Constraints	p. 102
Technology: The New Silver Bullet?	p. 105
Pushing Out the Frontier: The Role of Governments and Donors	p. 111
The Role of Government: Looking beyond Institution Building	p. 113
From Agricultural Credit to Rural Finance	p. 119
SME Finance: Continuing Challenges	p. 127
Conclusions	p. 137
Lengthening Financial Contracts	p. 141
Introduction	p. 141
Africa's Long-Term Financing Gap	p. 142
Optimizing the Current Possibilities for Expanding Long-Term Finance	p. 145
Tapping International Markets	p. 164
The Changing Global Environment: Tales of Dragons and Elephants	p. 178
Pushing toward the Frontier and Beyond: A Long-Term Agenda with Tricky Shortcuts	p. 180
Conclusions	p. 190
Safeguarding Financial Systems	p. 193
Introduction	p. 193
Stability: We Have Come a Long Way	p. 194
Bank Regulation and Supervision: New Challenges in a Changing Environment	p. 197
Looking beyond Banks: How to Regulate Which Segments of the Financial System	p. 213
Focusing on Users: Consumer Protection	p. 218
Conclusions	p. 223
All Financial Sector Policy Is Local	p. 227
Introduction	p. 227
Modernist Reform Policies: Africa's Achilles Heel	p. 227
The Activist Reform Agenda Revisited: Larger, More Efficient, and Stable Financial Markets	p. 229
The Politics of Financial Sector Reform	p. 234
The Stakeholders	p. 240
Redefine the Role of Government: with the Necessary Safeguards	p. 245
One Size Does Not Fit All	p. 247
Conclusions	p. 256
References	p. 259
Index	p. 279
Boxes
What's New?	p. 4
Performance on Selected Stock Markets during 2008-09	p. 31
The Real Economy Impact of the Financial Crisis in Zambia	p. 32
Bank Consolidation: Learning from the Nigerian Experience	p. 45
The Egyptian Exchange	p. 55
Benchmarking Financial Development	p. 66
Measuring Access to Financial Services: Recent Advances	p. 78
Financial Capability Programs	p. 106
Examples of Transformative Technology-Based Products	p. 110
Malswitch	p. 116
Financial Innovation: The Opportunities and Risks in Expanding Outreach	p. 117
Examples of Value Chain Finance	p. 122
Malawi: Development Finance Institutions	p. 128
NAFIN's Productive Chains	p. 135
The Housing Finance Frontier: An Approximation for Africa	p. 146
The Role of the Housing Bank in Mortgage Finance in Tunisia	p. 149
International Labour Organization Best Practice Guidelines for Board Members in Africa	p. 160
The Experience with a Secondary Board in Egypt: Nilex	p. 161
Capital Markets in Latin America	p. 163
Private Equity Funds: The Benefits and Experience in Africa	p. 166
Sovereign Wealth Funds	p. 175
Diaspora Bonds	p. 181
Competition and Stability	p. 203
Bank Resolution	p. 206
The Consumer Protection Framework in South Africa	p. 220
Learning from the East Asian Miracle	p. 280
Financial Journalism	p. 236
What to Do with State Financial Institutions?	p. 248
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