Making Finance Work for Africa March 5, 2007 Nairobi, Kenya

2 Asia and Africa Source: Angus Maddison The World Economy: A Millenial Perspective. Per Capita GDP growth rates (in percent)

3 Sub-Saharan Africa: Macroeconomic Indicators Source: IMF, April 2004, World Economic Outlook.

4 Net Interest Margins in Africa higher than for banks in the rest of the Word 800 bps 480 bps Lack of property right protection 130 bps Inflation 100 bps Smaller bank size 70 bps Other 20 bps Higher margins driven by:

5 Market-friendly growth – The hope for poverty reduction — Catch-up is possible — Time to double income: Pre-industrial: 350 years Britain ( ) 175 years Britain in 19th century 65 years Fast growers since WWII (Japan, China, Thailand, 10 years Botswana, Ireland, Chile….) or less POSSIBLE “CATCH-UP”

6 The Ngorongoro Crater

7 cellphone

8 Vast Coverage Source: GSM Association

9 Fastest-growing markets Source: Wireless Intelligence

10 No Bank Branches/ATMs No MFIs Autazes - AM 140km & 14 hours by boat to branch Santa Rosa do Purus - AC 500km to branch by boat or plane How to reach the unbanked?

11 Branchless Banking

12 Lessons from Brazil  Agents are used widely  90% of sample (especially in urban areas)  61% of users, use lottery houses  50% of users have used primarily branches before  Illiterates show same profile as literates  Usage primarily for bill payments (95% of transactions)  Bank accounts opened to only receive benefits, salary, etc.  51% have a bank account (of which 50% simplified account) Banking agents reach new customer segments (C, D, and E); however, many of these clients do not see the value of financial services.

13 Two cases: SMART Money (2000  ) GLOBE G-Cash (2004  )

14 What are the regulatory issues? Are agents liable for meeting AML/CFT? Should her telco be allowed to take deposits? Can this agent safely handle cash for a bank? How easy for a startup to offer anywhere transfers? Can others use her credit history to assess risk? Should the telecoms regulator care? What can she do if de-frauded? Is her PIN valid as signature? Will a leading mobile co become a monopoly? Are there FX constraints on transfers?

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16  “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things”  Adam Smith, 1755