SERIOUS MONDAY: PARTNERSHIP TO DEVELOP AFRICAN FINANCIAL SYSTEM

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A new partnership was launched this week between Germany, the World Bank, and the African Development Bank to support stronger financial systems in Africa. The new effort would support economic growth, job creation and poverty reduction.

“Economic development is only possible if there is a thriving financial sector which accords both men and women access to appropriate financial services, enabling them to save, while allowing businesses to invest and create lasting employment,” said Heidimarie Wieczorek-Zeul, Federal German Minister for Economic Cooperation and Development. “The lack of financial services is one of the main obstacles to private sector development in Africa.”

In a recent study by the World Bank, Making Finance Work for Africa finds there are emerging opportunities for increasing the availability of affordable finance. It also found that in the past ten years, African finance has been strengthened by a wave of reforms which included the diminishing financial repression, foreign banks entering the market, and state-owned banks becoming privatized.

The study also pointed out challenges that need to be addressed such as interest costs, administrative expenses and collateral requirements for loans are significantly higher in Africa-8% on average compared to 4.8% worldwide, only 20% of adults hold a bank account at formal or semi formal institutions in Sub-Saharan Africa, a low share of deposits flow to loans to private firms, and access to finance is one of the biggest constraints to enterprise growth in Africa.

“Financial sector development will be a strategic driver of growth and employment in Africa. African firms view access and cost of finance as two of three primary constraints to doing business,” stated Robert B. Zoellick, President of the World Bank.

AfDB President Donald Kaberuka noted, “We need to move beyond business as usual in order to strengthen African financial sectors. By making financial sector development a priority in Africa, we are getting serious about providing the support that African enterprise needs to grow and generate jobs. We are determined to see steadily wider access to financial services, and at reasonable costs.”

Currently, total credit for enterprises and households is about 14% of the collective Gross Domestic Product in Africa, insufficient to ignite accelerated growth and poverty reduction. An increase to 25% GDP would translate to $70 billion of additional investment resources for households and firms.

During the G-8 Summit held in Heiligendamm, Germany, in June of this year, representatives from Germany, France, Russia, UK, USA, Sweden, the African Development Bank, the World Bank Group, CGAP, EU, and the UN committed to the financial sector development in Africa and their support for the partnership.

The partnership will support three primary objectives. (1) Expanding access to financial services by all sectors in the economy, (2) increasing financial depth, diversity, and efficiency and (3) strengthening institutional and regulatory capacity.

Dawn

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1 Response to “SERIOUS MONDAY: PARTNERSHIP TO DEVELOP AFRICAN FINANCIAL SYSTEM”


  1. 1 adambeltane October 29, 2007 at 3:58 am

    could this also be about rich countries putting poor countries into debt?


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