Africa Finance Forum

Revolutionizing access to finance for African SMEs

12.09.2014Jean-Michel Severino

Over the past decade Africa has experienced a 5% growth across the continent. This surprising and spectacular growth attracts investors from around the world. They are both forced to change their perception about what contains profound upheaval, and seduced by what is now considered as the emerging new frontier. Among the ten countries in the world where economic growth was the fastest between 2000 and 2010, five were located in sub-Saharan Africa: Equatorial Guinea (12.3% per year), Angola (9.3% per year), Chad (8.8% per year), Nigeria (7.4% per year) and Ethiopia (6.9% per year).

But this growth remains fragile, uneven and carries huge challenges: how to ensure that it benefits to the greatest number of people and allow millions to get out of the poverty trap?

In 2050, Africa will not only account for 4% of the global economy, it will also make up 23% of the world's population. This new world pole will be facing major issues such as the employment of a young and dynamic population that will be increasingly numerous in the labour markets. In this context, African small and medium sized enterprises (SMEs) are best positioned to create jobs and local added value, as well as develop the local economic fabric. They stand for essential drivers for social and political stability by spreading the wealth created and structuring local economies.

Nevertheless, SMEs appear as missing links in most African economies. They desperately need to find ways to meet their needs for growth despite a latent lack of access to finance. Too small and too costly to manage for large banking institutions, they are also too large to meet the investment criteria of microfinance institutions. They often are in a deadlock and do not fully benefit from the growth of the continent.

In this context, what solution one could bring to these key actors for responsible and sustainable growth in Africa in order to enable them start their business or scale up?

The solution lies in the emergence of new financing capacities that will offer entrepreneurs the opportunity to strengthen their capital stock under conditions compatible with certain constraints in terms of management fees, transaction costs, etc. It consists of developing a new industry of capital investment, 100% African, which can rely on a network of local investment funds, promoted by African investors and managed by locally recruited teams. This new device will revolutionize the access to finance for small African entrepreneurs through new sustainable funding solution.

But this capital will not be sufficient for African entrepreneurs to reach their growth potential and maximize their economic, social and environmental impacts. It should be complemented by strategic guidance for establishing solid fundamentals and ensuring sustainable development in due respect of all stakeholders. Finally, technical assistance missions will be essential to build and strengthen the financing capacities, through the transfer of know-hows, methodologies and the development of local skills.

The creation of this network of African investment funds will draw lessons from successes and failures of microfinance and will bring to private equity the same kind of revolution as the one microfinance has brought to the debt. It will require a real education for not only existing African finance players: banks, development agencies, private institutions, so that everyone contributes to the success of this new funding; but also with entrepreneurs as private equity is sometimes looked at with distrust and its benefits are not fully appreciated today!

Jean-Michel Severino is Chairman of the private finance company Investisseur & Partenaire pour le Développement (I&P). He is the former Director of France's international development agency, AFD. Jean-Michel Severino is General Inspector of Finances at the French Finance Ministry and served as Director in charge of international development at the French Ministry of Cooperation. He has also worked at the World Bank, first as Director for Central Europe and then as Vice President for Asia.

Pension Funds and Private Equity: Unlocking Africa’s Potential

21.07.2014Stefan Nalletamby

Dear Readers,

A resounding thank you to everyone who joined us in Dakar, Senegal, last month for our Partnership Forum. I hope you found the event as engaging and stimulating as we did. One of the lessons for the Secretariat that emerged from the Forum discussions is the need to deepen our engagement with key stakeholders in support of financial sector development in Africa. This means that we will be doing things differently, rather than doing different things. Our emerging work programme with pension funds is an example of this.

Pension funds play a critical role in finance through the mobilisation and allocation of stable long-term savings to support investment. Recent reforms in many African countries have created private pension systems, which are rapidly accumulating assets under management (AUM). The Nigerian pension industry, for example, grew from US$7 billion in December 2008 to US$25 billion in December 2013[1]. Similarly, Ghana's pension industry is expected to expand by up to 400 per cent in the four years from 2014 to 2018[2]. Pension assets now equate to some 80 per cent of GDP in Namibia [3] and 40 per cent in Botswana[4]. How can Africa mobilise these domestic resources to support private sector development, as well as the investment in infrastructure and social services that need to drive continued growth and transformation? How can these long-term savings support the development of capital markets on the continent?

In the coming days, we will be releasing a joint publication, "Pension Funds and Private Equity: Unlocking Africa's Potential" with the Commonwealth Secretariat and the Emerging Markets Private Equity Association (EMPEA). The report provides information that is crucial to a better understanding and appreciation of the pensions industry in Africa. In addition to outlining the latest data and regulatory profiles for 10 African countries, the report estimates how much capital could be available to support private equity in these countries as well as how much has already been mobilised to date. We chose to focus on private equity in particular because in the context of underdeveloped capital markets and a lack of long-term financing, private equity is an attractive option for African companies in search of capital and can be a catalyst for job creation and economic growth.

The report profiles the pension industries of Botswana, Ghana, Kenya, Namibia, Nigeria, Rwanda, South Africa, Tanzania, Uganda and Zambia, in addition to providing expert insights from practitioners in the industry. The aim of this comparative analysis is to advance the dialogue among African pension fund managers, pensioners, regulators and other industry stakeholders about private equity and further the exchange of best practices across the region and with other emerging and developed markets. Whilst this publication focuses on private equity, the lessons learned are applicable to other sectors such as infrastructure and housing, as well as how these long term savings can be used to support the development of capital markets.

In that vein, and based on the publication, we are engaging with pension fund managers, through our recently launched Africa Pension Funds Network (APFN), to explore how the various barriers to unlocking domestic capital can be addressed. APFN was inaugurated during the Partnership Forum in Dakar in June, and membership currently includes industry associations and pension fund managers from Botswana, East Africa (covering Burundi, Kenya, Rwanda, Uganda, Tanzania and Zambia), Namibia, Nigeria, and South Africa, with more countries expected to join in the coming months. The network will provide a platform for exchange of knowledge and expertise amongst industry participants across the continent. The network will also facilitate cross-country collaboration through co-investments, peer-to-peer learning and provide a forum for engagement with other financial sector stakeholders at the pan-African level. We are already in discussions with the International Organisation of Pension Supervisors (IOPS) about the possibility of organising a meeting between African Pension Supervisors and APFN at the IOPS Global Forum in Namibia in October.

We will be building on these foundations over the summer using new tools such as our Online Collaborative Platform, an interactive and secured social networking platform aimed at supporting and catalysing MFW4A networks and working groups, the African Partners Directory, a database repository of key stakeholders active in Africa's financial sectors, and the more traditional tools like the bi-weekly newsletter.

To conclude, I would like to extend special thanks to all our partners for the constructive and stimulating collaboration that is driving us towards our common goal of promoting Africa's financial sectors. I would also like to thank the Secretariat team for their sterling efforts and achievements so far.

To all our readers, sincere and best wishes for an enjoyable and restful summer/winter break.

Stefan Nalletamby
MFW4A Partnership Coordinator



[1] National Pension Commission Nigeria (PenCom).

[2] According to National Pensions Regulatory Authority officials, pension industry assets could grow from ¢1.06 billion to ¢5.5 billion in this period.

[3] Namibia Financial Institutions Supervisory Authority Annual Report, 2013.

[4] Based on Non-Bank Financial Institutions Regulatory Authority (NBFRIA) and World Bank figures.

Challenges of Integrating Payment Systems in Africa

07.07.2014Charles Augustine Abuka and Belinda Baah

When Alan Greenspan, the then Chairman of the United States Federal Reserve, heard of the terrorist attacks on September 11, 2001, his immediate reaction to the event's potential effects on the financial system was the impact it could have on the payment systems in America, and the knock on affects this would have on the rest of the world. He stated, "We'd always thought that if you wanted to cripple the US economy, you'd take out the payment systems. Banks would be forced to fall back on inefficient physical transfers of money. Businesses would resort to barter and IOUs; the level of economic activity across the country could drop like a rock."[1]

Payment systems form an integral part in any society; by facilitating the payment of goods and services, payment systems' increase the pace of economic expansion, improve the functioning of regional integrated financial markets and contribute to the pursuit of sound macroeconomic policies. Thus, African governments have, like the rest of the world, begun to recognise the sheer importance of sound payment systems and the benefits that could be accrued with their successful integration. Integration of African payment systems has lagged that of the rest of the world partly due to the culture of cash use and technological deficiencies. The original European regional Real-Time Gross Settlement System (RTGS), the Trans-European Automated Real-time Gross settlement Express Transfer (TARGET), started operations in January 1999, more than 15 years ago. In order to be a real force in the expanding global economy, consumers, small and medium-sized enterprises and large corporations alike, must be able to make payments efficiently and safely. Thus, African governments need to improve their payment systems' capabilities to enhance domestic, regional and international trade.

The challenge posed by technical and technological deficiencies in many African nations is one of the greatest obstacles to full integration of payment systems in Africa. This challenge creates obstacles when attempting to link regional payment systems at vastly different stages of development across the continent. The East African Payment System (EAPS), a regional payment system linking the five member countries of the East African Community (EAC) namely; Kenya, Uganda, Tanzania, Burundi and Rwanda, has adopted a phased integration process due to the differing level of advancement with regards to the Real Time Gross Settlement (RTGS) systems in each country. Currently, Burundi and Rwanda are yet to join EAPS. The COMESA Regional Payment and Settlement System (REPSS), has also adopted a phased integration approach, with only 5 of its 19 member states currently linked to the system. The regional payment system to cater for South Africa; the Southern African Development Community Integrated Regional Settlement System (SIRESS), has so far linked the SADC Common Monetary Area (CMA), namely, South Africa, Namibia, Lesotho and Swaziland, to SIRESS (July 2013), with the aim of the rest of the SADC, non-CMA member countries to join in due time.

It is evident that a large number of regional payment systems in Africa have had to adopt a two-stage, or more, implementation programme to ensure integration can take place sooner rather than later. Furthermore, many banks in Africa do not have adequate infrastructure to cater to growing technology requirements. In Uganda, only three (3) out of twenty six (26) commercial banks use Straight Through Processing (STP)[2] technology for processing RTGS transactions, often preventing very quick settlement of transactions due to manual intervention in the processing of transactions.

To combat these challenges, there is a need to put in place harmonised technological standards, regulations and policies that ensure adequate supporting pillars for the payment and settlement systems to be integrated throughout the region and in order to protect payment flows. Additionally, assistance should be provided so that banks are better placed and incentivised to upgrade their systems and keep abreast of the improvements being made within the payment systems sector. There is also need for a drive for greater private sector involvement in payment systems, once the basics have been implemented, such as the implementation of an RTGS system in countries where they do not exist. Private sector involvement will encourage competition and innovations and thus induce competitively priced services, efficiency and hopefully greater accessibility. Moreover regulation that not only ensures adequate oversight of payment systems and their associated instruments, but also promotes an enabling environment for positive change, innovation and safe and efficient practices, must be implemented.

There are a number of fully integrated regional payment systems in Africa that demonstrate that the effective implementation can be achieved. In the West African Economic and Monetary Union (WAEMU), payment system reform saw the Central Bank of West African States (BCEAO) implement a 3-way plan to establish an RTGS system, an automated multilateral clearing system and the development of regional inter-bank card based system, in its member states where these features were lagging. The Economic and Monetary Community of Central Africa (EMCCA) member states are fully integrated in terms of monetary policy, laws and trade rules, partly due to their use of the same currency, the CFA Franc. In 2003, BEAC, the regions Central Bank, launched a reform project for their payment and settlement systems'. EMCCA now has two regional payment systems; SYGMA, operational in all member states since November 2007, is EMCCA's high value RTGS system and the Central African Tele-clearing System (SYSTAC) is an automated deferred net settlement system for retail payments comprised of national clearing centres installed in each of the EMCCA member states.

In our forever-expanding and forever-advancing global society, Africa must ensure that it keeps abreast of all the advances and improvements being made within the payment systems arena to ensure it does not get left behind, and thus fully benefits from being truly connected to the rest of the world. As aforementioned, African nations understand the necessity of sound, interconnected payment systems and in May 2014, the Association of African Central Banks (AACB) committed to strengthening the process of integration of African payment systems by agreeing to a number of initiatives to facilitate the process of regional and eventual continental, integration. The technical staff from AACB member countries have proposed to work together by commissioning a continental body to accelerate integration by, for instance, establishing working groups that will, but are not limited to, ensuring all existing deficiencies in technology, technical capacity, legislative and regulatory frameworks are identified and addressed with strategic plans devised and eventually implemented. Strengthening the legal and regulatory environment will clarify the role of the regulator, the users and the operators of payment systems, improving confidence and thus increasing the use of non-cash payment systems. In addition, the successful implementation of the necessary components of a multilateral clearing mechanism and institutional framework for the development and interconnection of African payment systems will speed up the process of integration. By improving payment systems, barriers to trade are reduced whilst links and networks are strengthened and thus trade and exchange of capital, goods, services and labour across the region will be expanded, promoting economic activities and growth.

[1] Excerpt from, ' The Age of Turbulence by Alan Greenspan,'

[2] 'Ability to receive and process financial transactions from start to finish utilizing an electronic system and without intervention of any sort.'


Charles Augustine Abuka is the Director Financial Stability Department at the Bank of Uganda. He has been involved in the implementation of Uganda's macroeconomic policies since 1998. 
Belinda Baah is an Economist and Principal Banking Officer working in the Bank of Uganda's Financial Stability Department, in the Financial Market Infrastructure Oversight Division.



  • Geva, B., 'Payment System Modernisation and Law Reform in Developing Nations: Lessons from Cambodia and Sri Lanka ', The Banking Law Journal, 2009.
  • 'Payment Systems and Intra African Trade', UNECA, September 2010.
  • 'EAPS Project Appraisal Report', AfDB, October 2012.· 'The Evolution of Payment Systems', the European Financial Review, February 2012.
  • 'The Southern African Development Community Integrated Regional Settlement System (SIRESS): What? How? And Why?', Central Bank of Lesotho, Economic Review, July 2013.
  • TARGET Europe:
  • Wentworth, L., 'SADC Payment Integration System', European Centre for Development Policy Management, August 2013
  • 'Electronic Payments in Africa', the Economist, September 2013.
  • 'Wamz Payments System Development Project in the Gambia, Guinea and Sierra Leone: Progress Report', West African Monetary Institute, November 2013.

Making Cross-Border Banking Work for Africa

29.05.2014Cross Border Banking

While cross-border banking has been historically important in Africa, its face has changed over the past decade. African banks have not only substantially increased their geographic footprints on the continent (Figure 1), but have also become economically significant beyond their home countries and of systemic importance in a number of jurisdictions across Africa. Today, eight banks headquartered in Africa are represented through subsidiaries or branches in more than 10 African countries each and in at least 9 instances do these banks individually hold more than 30 percent of banking system assets in a host country.

Figure 1: Cross-Border Expansion of African Financial Groups over Time, 1990-2013

This growth and expansion of African banks has in recent years reduced the relative importance of traditional, mostly European, banks on the continent and has shifted the onus of managing the risks and reaping the benefits of cross-border banking from the traditional home countries in Europe towards African policymakers. Yet there continues to be a lack of comprehensive research and analysis on this topic. "Making Cross-Border Banking Work for Africa", a new policy report sponsored by the Association of African Central Banks, the German Development Corporation and the World Bank, aims to fill this gap and to contribute to the on-going conversation among regulators, donors, and policymakers on the benefits and risks of further cross-border integration of banking in Africa. Authored by Thorsten Beck, Michael Fuchs, Dorothe Singer and Makaio Witte, the report documents the emergence of cross-border banking in Africa, reviews the literature on the benefits and risks of cross-border banking, assesses regulatory frameworks and current arrangements for cross-border supervisory cooperation in Africa, and provides policy recommendations for balancing the benefits with the risks of deepening cross-border linkages across Africa.

Policymakers across Africa are faced with the challenge of pursuing two policy objectives with inherent trade-offs: leveraging the benefits from further financial integration while effectively safeguarding banking systems against fragility and cross-border contagion. In view of the low level of financial sector development in many countries, Africa stands to gain especially from further cross-border integration.

The benefits for financial systems in Africa can take the form of financial innovation, more efficient intermediation and deepening of financial markets. Given the low levels of financial intermediation in most African banking sectors, considerable upside potential lies in the transfer of know-how, IT infrastructure, and risk-management skills relating to low-income, retail banking and products suited to small savers and enterprises. Most cross-border banks are still reluctant to engage in servicing the lower end of the market, but exceptions exist. Strengthening financial infrastructure, including payment systems and credit registries, can help deepen the benefits from cross-border banking, especially if undertaken in a coordinated manner across countries. A move towards allowing more integrated banking models, whereby integration of IT and risk-management systems, transfer of human resource skills and innovation are encouraged, in contrast to the 'fortress banking' of stand-alone subsidiaries preferred by many host country regulators for stability reasons, may also help by lowering the cost of doing business and thus making service provision to the lower end of the market more cost-effective and attractive. Finally, it may also be beneficial to encourage the entry of banks that are experienced in servicing underserved market segments.

To effectively safeguard banking systems against fragility and cross-border contagion, the report calls for stronger national supervision and enhanced cross-border cooperation. The challenging, but essential task of establishing or improving frameworks for consolidated supervision tops the agenda in this respect. Improving the availability and regular exchange of relevant information is critical and can be fostered through Memoranda of Understanding and Colleges of Supervisors. While considerable progress is being made in Africa in establishing such formal structures, the true challenge is to make them effective and enable regular cooperation based on trust and mutual recognition. It is also important to look beyond these tools of cooperation in normal times towards crisis preparation. While there is again an important agenda on the national level - putting in place effective mechanisms for bank exit at the national level is a prerequisite not only for strengthening cooperation among African countries, but also for enhancing the effectiveness of banking supervision at the national level - measures to strengthen bank resolution frameworks and crisis preparation should be extended across borders and can include joint crisis simulation exercises and crisis management groups.

The policy agenda on cross-border banking issues is extensive and action will be required both on the national as well as on the regional level. Given the widely varying circumstances of African countries, including in terms of financial sector development and intensity of cross-border linkages, policy recommendations need to be adapted to the context of individual countries. But an overarching conclusion arising from the report is that information exchange needs to be strengthened considerably in the face of expanding cross-border banking activity. The report therefore recommends establishing a platform for regular information exchange that makes publicly available a basic set of data about cross-border banking activities in Africa to address the lack of timely information in this area. This will not only be an important first step in facilitating better supervision of cross-border activities and thus contribute to the safeguarding stability and preparing for bank fragility but also in fostering closer collaboration between national authorities.

The "Making Cross-Border Banking Work for Africa" report was launched at the Partnership Forum in Dakar, Senegal, on June 12, 2014. It is available for download in either PDF or eBook friendly tablet reader formats: 

Challenges in Implementing Macroprudential Policy in Africa

26.05.2014Mrs. Justine Bagyenda and Mr. Charles Augustine Abuka

Like several advanced economies, policymakers in Africa have identified the need to address systemic risks, not through the traditional mix of macroeconomic policies and microprudential measures aimed at individual financial institutions, but through combining policies and measures that target whole financial systems while considering inter-linkages with the macroeconomy. A new approach needed to fill the policy gap and ensure financial stability in both advanced economies and emerging markets is currently being considered, in the form of macroprudential policy.

Making macroprudential policy operational is a prime policy challenge for financial regulators in Africa. One of the steps involved is to specify a policy strategy, which links the high level objectives of macroprudential policy to intermediate objectives and presumptive indicators for risk identification and instrument selection. In addition, regulatory authorities attempting to operationalise macroprudential policy have found that the inaction bias inherent in macroprudential policymaking underscores the need for a strong mandate with adequate policy instruments and accountability. Therefore, African central banks should recognise the need for the institutional setting to merge with their core responsibilities for financial stability. Essentially, the overall policy frameworks need to be made more flexible and should be further developed as knowledge on the transmission mechanism between objectives, indicators and instruments is deepened.

African central banks will need to put in place effective governance arrangements to ensure that agencies tasked with setting macroprudential policy have a clear mandate. That is, the objectives of macroprudential policy, the tools available to the macroprudential agency and the interaction of macroprudential policy and other public policies must be clearly set out. This is necessary to ensure that there is no ambiguity about the macroprudential agency's role, the macroprudential agency can be held accountable for its actions (or lack of action) and, any overlaps between policy areas or agencies can be better handled. It may be desirable to set out the macroprudential mandate (and objectives) explicitly because this could make it easier for the macroprudential agency to defend unpopular but necessary interventions.

Central banks and other financial regulatory authorities in Africa still lack access to the information and analytical capability needed to quickly identify system-wide risks and to determine when and how instruments should be used in response to these risks. Much of the information on exposures between institutions and on exposures commonly held by institutions will need to be obtained from individual institutions and may overlap with the type of information collected for microprudential purposes. Therefore, memorandums of understandings or information-sharing protocols should be used to ensure the free sharing of information between agencies. In the meantime, the analytical skills and tools required for macroprudential policy are likely to draw on those used for macroeconomic analysis and, to a lesser degree, microprudential analysis. In this respect, many central banks have begun to develop system analysis that is required for macroprudential supervision, applied in the assessment of interdependencies and systemic risks, although the analytical techniques remain in their infancy.

As system-wide risks can arise in a wide range of ways and from a wide range of sources, the range of macroprudential instruments must be equally broad in scope. Discussions of macroprudential instruments should emphasise the need for instruments that operate in two dimensions: the time or cyclical dimension, in which instruments are designed to counteract elements that amplify cycles; and the cross-sectional dimension, in which instruments are required to isolate or dampen the transmission of risks across the financial system. While it is important that macroprudential agencies have control over instruments to prevent and mitigate system-wide risks, it is not essential for the agencies to implement these instruments itself.

Another major challenge to the design of effective governance arrangements is the overlap between different policy areas. The use of an instrument for one objective may conflict with or amplify the effect of instruments used to achieve a different policy objective. This is best illustrated by considering the relationship between macroprudential policy and monetary policy. While the effects of monetary and macroprudential instruments may overlap, they are not perfect substitutes. The macroprudential policy toolkit is likely to include a diverse range of instruments that operate in different ways on different elements of the financial system. And the effect of these instruments on policy objectives other than macroprudential policy will also vary. In general, it is desirable to use instruments with a narrower focus to address specific problems, as they can be better tailored to the problem and will have fewer unintended consequences on the real economy and on other policy objectives. However, there will be times when instruments with a broader scope will be desirable - for example, when there is a danger that developments in the financial system will enable agents to circumvent more narrowly focused instruments.

Communication of macroprudential policy also remains a challenge because it is not easily understood; it relies on a range of instruments that may appear technical and yet are often politically controversial. African economies could learn from the evolving nature of communication by leading central banks, which have expanded their range of policy levers. In addition, macroprudential policy is subject to a strong bias in favour of inaction. While the benefits of macroprudential action are not visible as they only accrue in the future, the costs are typically felt immediately-by potential borrowers as well as the financial industry. Lobbying pressures and political interference further increase the inaction bias. Strong and explicit governance and institutional arrangements will be essential, but their implementation may have to overcome significant political hurdles.

In conclusion, macroprudential policy needs to be complemented by appropriate macroeconomic policies as well as other financial sector measures. In particular, the appropriate range of macroprudential policy tools may be better able to address the undesired side-effects of monetary policy on financial stability. It thus allows for greater room for manoeuvre for the monetary authority to pursue price stability. Also, to the extent that macroprudential policy reduces systemic risks and creates buffers, this helps monetary policy in the face of adverse financial shocks. For countries where macroprudential policy is missing or is insufficiently effective, monetary policy, while continuing to aim at price stability, needs to take financial stability more into account by leaning against the build-up of financial imbalances.

Justine Bagyenda is an Executive Director in charge of the Directorate of Supervision at Bank of Uganda. Charles Augustine Abuka is the Director Financial Stability Department at the Bank of Uganda.


  • Houben, A, van der Molen, R, Wierts, P, "Making macroprudential policy operational", Financial Stability Review 2012, Central Bank of Luxembourg
  • "Making macroprudential policy work", Remarks by José Viñals at Brookings Event, 26th September 2013
  • "Challenges to implementing macroprudential policy", Remarks by Nicolae Dănilă, National Bank of Romania, 23rd April 2012
  • "Challenges for the design and conduct of macroprudential policy", Stefan Ingves, BIS Papers, Bank for International Settlements, 2011


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