Lessons From A CEO In The Banking Sector In Africa

According to James Mwangi, Head of Kenya Equity Bank, “Across the African continent only about 18-24% of the population (uses) banks…So, it shows that there is a huge opportunity.”

One of the reasons that banks are important is because they loan money to small companies and entrepreneurs to start business, which then pay taxes and help the overall economy of the country. More banks mean more opportunities in financing, more employment opportunities, and, over time, a developing nation can transition from an informal to a formal economy. “We (Banks) are, in one way or another, empowering every citizen on the African continent to make a contribution economically to aid the transformation of the continent,” Mwangi remarks.

The major issues facing the banking industry in Africa are access, convenience, and education. The development of technology is playing a key role in giving more people access to banking, primarily through advancements such as mobile and agent banking. Not only do these advancements give more people access to banking, but it also lowers the costs associated with operating a bank.

One of the programs that earned Kenya Equity Bank an award from Africa investor is for education. Mwangi explains that, “What Equity has done is launched a financial literacy (program) targeting one- million people. It involves training the targeted people for 15 weeks, so that they become financially literate and they are able to use the financial products in a way that is impactful either in their businesses or in their lives.”

Another way that Kenya Equity Bank is expanding the banking system and winning over the support of locals, especially rural villages, is by appointing local shops as bank branches. Shopkeepers, who are traditionally trusted individuals in the community, run small bank branches from their shops: they receive deposits, make withdrawals, open accounts, and originate credit. Because shop keepers have been working with credit and performing similar services for decades, people are very comfortable with them and this system. “They (shopkeepers) speak their own language, and they have a lot of information about the people that they have been studying for a long time,” explains Mwangi. “We are leveraging on that to make financial services much more accessible.”

Operating this way, as well as other banking innovations, turns out to be a winning scenario for everyone involved. The bank doesn’t have to invest all of the money needed to open banks in rural areas, the shopkeepers get a new line of business, and the customers don’t need to spend upwards of a day to travel to and from a bank. The bank is now where the client is.

Featured image is James Mwangi, CEO of Kenya Equity Bank. Image provided by Initiative for Global Development.

Source: Afribiz

  1. Raj Reply

    Devin,Thanks. That’s actually pterty clear the way you’ve written it.I’m interested mostly in trying to visualize the institutional configuration. Is the system integrated (credit and deposits in the same institutions) or is it bifurcated (credit and deposits in separate institutions)?Viewed this way, the issue of reserves is quite separable from the question of who creates new money. That’s notwithstanding the preference of some to conflate requirements for both characteristics (as well as that for maturity transformation) in the definition of a 100 per cent reserve system. That may be a definition of choice, but it doesn’t follow analytically. That is what I meant in the opening paragraph you quoted.E.g. it’s quite possible to visualize an integrated institutional system with 100 per cent reserves that is the same as the prevailing institutional system we have in every way with the exception of the magnitude of the required reserve ratio. That is exactly what I did with the extreme example in my comment whereby $ 7.4 trillion in deposits is 100 per cent reserved. You may object to such an example because it doesn’t refer to such characteristics as maturity transformation. But that’s exactly my point regarding the arbitrary configuration of multiple characteristics that is given the label of a single characteristic. My first order of business is examining the variable of 100 per cent reserves. I’m quite interested in the parameter of maturity transformation beyond that, but there is nothing analytical or logical that demands a particular association between the reserve ratio variable and the maturity transformation parameter in all cases.As another example, it is quite possible to visualize a bifurcated institutional system with 100 per cent reserves held against deposits in one set of institutions and credit extended against non-deposit liabilities in another set of institutions. However, there are important issues regarding payment system surrounding such a set of credit institutions. What is the institutional mechanism whereby this set of institutions effects payments across its members? In what account does it temporarily store the payment medium in order to settle such transactions? How does it clear and settle these payments? And most importantly, how does it handle a potential shortfall in payments in any one institution? Because it is extremely doubtful that such a set of institutions could exist indefinitely without experiencing any payment shortfall at some point. If perfectly matched, I suppose this is theoretically possible. But the idea that all credit is renewable at maturity only on the basis of a pre-existing renewed liability seems to be quite a tightrope to walk. It suggests massive uncertainty as a permanent structural feature in the supply of credit. Any breach in this assumption requires some lender of last resort. And whether that lender of last resort is a central bank or merely one of the depository banks acting as clearing agent for a customer credit bank, the jig is up in terms of maintaining a pristine maturity matched credit system. And the jig is up the first time it happens.I’m familiar with various Moldbug discussions going back several years on this issue, and others like Kling. Moldbug in particular is impressive. But I’m not convinced that the subject has received the full analytical vetting it warrants yet.

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