Samuel Stallone-Obaraemi: African banks are fast pursuing their international rivals
Banks are meant to do the basic functions of lending, deposit taking, and making payments. It is almost impossible to differentiate one bank from another on the above grounds, except one begins to look at the different strategies banks take to withstand competition, globalisation, disruptive technologies, the peculiarities of emerging economies as it relates to Africa, new laws etc.
Today the tide of globalisation is defining and in some cases redefining the future of the financial world. This is evident in the massive global consolidation exercises here and there, the growth and spread of electronic banking in growing economies.
While African banking market is huge with vast potential, the current penetration rate is comparatively low and at great variance across the different African countries. In fact, scores of people living in different parts in most African countries have no access to formal banking.
The gaps within countries are also staggering. In some African countries while world-class banking services are dished out from cosy offices in some cities, just a few miles away you will find some poverty-ridden settlements and towns where people still stash cash under their mattresses.
The use of technology and partnerships with firms like MasterCard has given a lift to African banks. It is fair to say that in some aspects African banks are fast pursuing their international rivals, especially in investing in ICT, sometimes from scratch. Good examples of banks that have truly embraced technology eagerly and using same to expand regionally are banks like Standard bank, Ecobank and United bank For Africa (UBA), just to mention a few. It is worthy of note that several international banks are also peering into the prospect of buying over smaller banks or merging with banks in Africa.
Another area that African banks must look at is the area of using big data to solve problems. This is the era in which actionable insight is most valuable. For banks to be able to effectively support Africa’s future, they must be able to design customer-focused solutions using statistical models and information gathering techniques. For banks to be able to understand clients and potential clients, their ability to effectively use big data is crucial. Unfortunately, Africa appears to still have a long way to go in gathering high quality usable data, consequently service delivery issues are still lingering, penetration is still low. Fixing this problem will enable banks to personalise their selling approach, streamline their infrastructure costs, increase customer satisfaction and bank profitability.
Africa is bejewelled with a myriad of small businesses that are yet adequately unsupported, but have enormous potential to skyrocket the African economy. When banks understand these customers through the use of data, they can better manage credit risk, including granting of facilities.
According to Arancha Gonzalez, Africa faces daunting challenges. Africans don’t just need more jobs; they need better jobs. Prosperity hinges on getting people out of subsistence and marginal self-employment into more productive activities. Growth without diversification, technological improvement, and increased productivity is easily reversed: all it takes is a dip in commodity prices. This is where SMEs fit in. Small and Medium Enterprises (SMEs) have been described all over the world as the bedrock of every nation’s economic success as they account for the income of the larger percentage of the population.
According to the Deputy Director of the Enterprise Development Centre (EDC), Nneka Okekearu, there are more than 17 million SMEs in Nigeria, which employ more than 30 million people. Today in Africa the growth of SMEs has led to the improvement of several key areas of development such as trade, mobilization of government revenue, infrastructures and provision of social services. However, these achievements need to be made sustainable. The SMEs must be empowered. The emergence and growth of SMEs in Africa are being stifled because they are inadequately funded.
Banks should play a significant role here, and I think Africa knows this. For instance, The African Development Bank Group just approved on March 2, 2015 a US $3 million line of credit (LoC) equivalent in the local currency (Zambian Kwacha) to Madison Finance Company Ltd with a view to massively supporting SMEs. Sterling Bank Plc in Nigeria is partnering with LEAP Africa to help SMEs to deal with risk factors that impact their businesses negatively.
Governor of Central Bank of Nigeria (CBN), Godwin I. Emefiele, even attests to the fact that MSMEs in Nigeria do not have the adequate financing needed to play this pivotal role in the country’s development trajectory. This trend runs throughout Africa as experts have shown that many SME operators are still grappling on how to survive in the economy. Banks appear to be reluctant due to several issues such as the high risk of financing SMEs, poorly articulated business plans, inadequate loan collaterisation, and the short-term nature of funds held by commercial banks. Be that as it may, the good news is that banks in Africa are beginning to take SMEs seriously as they acknowledge the very crucial role they play in the growth of the African economy.
I do think that there are numerous challenges facing the African continent from the economic axis. The banks are an intrinsic part of the African future and they are taking great strides to compare and compete at a global scale. The banks have also recognised and are increasingly showing signs of appreciating the engine of the African economic future – SMEs. More importantly, any support given should be clearly targeted to reach the bottom of the African Populace.
Samuel Stallone-Obaraemi, Senior Human Resources Manager TNS RMS