Sound financial systems

ACCESS TO CREDIT
Sound financial systems:
the backbone of Africa’s
economic development
With average annual GDP growth of over
5% since 2000, Sub-Saharan Africa is one the most economically vibrant
regions in the world today. That trend can be attributed in large part
to strong commodity exports, improved macroeconomic policies and
a burgeoning middle class. But the continent needs to diversify its growth
drivers, and that requires efficient financial institutions able to help
businesses invest. Especially small businesses.
S U B -S A H A R A N A F R I C A –
S
ince the 1990s, Africa’s financial systems –
the banks, stock exchanges, microfinance
organizations and other institutions providing
financial resources to the broader economy – have
undergone major change. Although long-dominated by a handful of institutions, undermined by
serial liquidity and solvency crises, the financial
sector has gradually become healthier and deeper.
Resilient and efficient private-sector banks have
taken advantage of a more effectively regulated
environment to extend their reach and offer new
services and financial instruments to companies
and individuals alike. Some of them have adopted
regional strategies that have given them the critical
mass they need to be able to finance infrastructure
and other large-scale projects.
SMALL BUSINESSES – STILL CONSIDERED
TOO RISK Y
Half of all small businesses south of the Sahara still
suffer from inadequate access to funding, however,
as a number of banks continue to classify them as
high-risk clients. Moreover, those 50 million African
SMEs play a vital role in the local economy, generating nearly 60% of total employment and one third
of the region’s combined GDP (source: IFC).
Funding for energy, water, transport, telecommunications and other such infrastructure is likewise
in short supply on the continent, even as financing
needs have mounted steadily to an estimated €80bn
a year. Another significant indicator is that two out
of three adults are “unbanked” and therefore have
no access to financial services. Yet the ability to
save money, access credit and take out insurance is
often a prerequisite for starting a business, buying a
home and insuring against the risk of illness.
Despite noteworthy progress over the past two
decades, local banks still have only limited ability
to make large-long-term loans or, for that matter,
to assess complex projects such as public-private
partnerships. At the same time, the bond market,
B A N K I N G COV E R AG E R AT E
IN SUB -SAHAR AN AFRICA
2 billion
unbanked adults in 2014, including
350 million
SMEs in Sub-Saharan Africa
generate nearly 60% of total
employment and one third of the
region’s GDP. Yet they have been
left out of the banking system.
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P R O PA R C O A C T I V I T Y R E P O R T 2 015
in Sub-Saharan Africa
24 %
34 %
2011
2014
another source of long-term funding, has yet to
move beyond the initial stage in Africa.
Only one out of three adults
in Sub-Saharan Africa has a
bank account.
FINANCIAL INTERMEDIARIES
AS SDG PARTNERS?
Financial intermediaries have a vital role to
play in achieving the Sustainable Development
Goals (SDGs) adopted by the United Nations in
2015, above all because they are able to mobilize resources and expand their service offer for
small businesses, infrastructure projects and retail
customers.
Like its peers, Proparco assists banks in making
the most of that ability. The institution helps them
gain a clearer view of small business credit risk by
putting in place special analytical tools, provides
the long-term resources (up to 20 years) in local or
foreign currency (euro or dollar) needed to finance
investments and supports their efforts to promote
financial inclusion.
Proparco also extends dedicated lines of credit to enable banks to invest more extensively in
renewable energy, agriculture and healthcare –
areas that typically receive little in the way of commercial bank financing.
In addition, development finance institutions can
contribute to capital market expansion by
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ACCESS TO CREDIT
guaranteeing debt issuance. Proparco, for example,
is authorized to guarantee financial market transactions in the West African Economic and Monetary
Union (UEMOA). With 39 companies listed and total
capitalization of €1.17bn, the Bourse Régionale des
Valeurs Mobilières (BRVM), the securities exchange
shared by the UEMOA’s eight member countries,
was established to make it easier for companies to
access the resources they need to grow.
H I G H E R E D U C AT I O N
Serving the
47%
MSME ACCESS
TO CREDIT
in Sub-Saharan Africa
Unserved
8% Underserved
3% Have access to credit
42% Make no use of credit
89% of all micro-, small and
medium-sized enterprises have
no access to credit and make
no use of it.
S U B -S A H A R A N A F R I C A
40%
DISSEMINATING RESPONSIBLE
BUSINESS PRACTICES
As essential participants in the African economy,
financial intermediaries are also instrumental in disseminating responsible business practices among
the companies they finance. Proparco therefore
assists them in setting up systems for managing the
environmental and social risks associated with their
operations and those of the companies in their portfolios, in adhering to principles for the protection of
microfinance clients and in combating money laundering and terrorism financing. general interest
6%
Private commercial
bank
State-owned bank
and/or governement agency
MSME SOURCE
OF FINANCING
Sub-Saharan Africa
26%
28%
Non-bank financial
institution
Other source
Source: IFC Enterprise Finance Gap Database.
TA N Z A N I A
The National Microfinance Bank gives
priority to mobile services and SMEs
Only 6% of adults and 8% of SMEs in Tanzania have access to bank credit. The National Microfinance Bank
(NMB) was founded in 1997 with the aim of reversing that trend. In five years’ time, the NMB doubled the
number of its retail clients and expanded its branch network into rural areas. It has become the country’s
leading bank. The NMB’s current ambition is to increase its SME client base and develop new mobile banking
services to facilitate transactions for people with no nearby bank branches or ATMs.
The NMB also aims to extend its financial education program for school children, based on the reasoning
that greater familiarity with financial products and risks will help young people understand their economic
environment and make sensible choices.
In conjunction with its Dutch counterpart, FMO, Proparco made a $30m loan to NMB to support the rollout of
that strategy.
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€554
m
committed by
Proparco in 2015
D O M I N I C A N R E P U B L I C – To secure the future of the country and its youth,
the government of the Dominican Republic aims to “democratize higher
education”. However, lacking the resources to finance universities and
further education for teaching staff, the authorities have turned to the private
sector. The Pontificia Universidad Católica Madre y Maestra (PUCMM)
has been performing a public service function for over 50 years.
to the financial
sector in the
developing world
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