Financial exclusion in Africa is high, but financial exclusion of African women is even higher: While about one third of the population is completely excluded from the financial sector in Botswana, Namibia and Uganda, this figure amounts to more than half of the population in Rwanda, Malawi and Zambia – and in all six countries more women than men do not have access to services such as bank accounts or payments.

Why is there a persistent gap in the usage of financial services by men and women? Do women find it harder to access formal financial services? What are the obstacles that women face when approaching these providers? What could be the reasons for choosing informal services over formal ones?

The recent set of country studies conducted by GIZ on behalf of the German Ministry for Economic Cooperation and Development (BMZ) can help us gain a better insight into the very different financial lives that men and women lead in each of the six countries.

The largest gender gaps were found in the usage of formal savings products, particularly in Botswana (14.6 % more men than women access formal financial services), Uganda (12%), Rwanda (9.5%), and Zambia (9%). Compared with credit and insurance, the difference in the ‘savings’ category is relatively high. Several reasons were identified in the course of the research: First, women tend to have lower incomes and higher expenses. They are often financially responsible for the whole family and therefore have less money available for savings. If they do save, they prefer informal savings groups over formal financial institutions. Women feel more comfortable talking about their financial matters to people they know, such as other women from the same neighbourhood who often set up these informal savings groups. It also is a question of trust: In some countries, people mistrust in institutions because of bad experiences in the past, e.g. of depositors losing money because of bank closures. In Zambia, only 22% of adults trust in banks. Besides, when income is irregular and excess cash is hard to find, flexible repayment schedules and regular small payments are very important advantages of informal services. The costs of transport and time for travelling to the nearest bank, particularly in rural areas, are other issues that can easily be overcome by using local informal services.

With the exception of Rwanda, the financial sectors in the countries researched have a very high concentration of foreign banks, mainly located in urban centres. Formal service providers, particularly these foreign-owned banks, find it hard to adapt to the local market. They still take a rather conservative lending approach, focusing on salaried employees with stable income, and requesting collateral. Since more men than women have salaried jobs, access to formal financial services is difficult for women. For example, by asking for payslips as precondition for loan appraisal, banks automatically exclude the self-employed and non-salaried segments of the work force. Obtaining significant assets that can serve as collateral (e.g. land property) is another major constraint for women, as customary laws still prevail in many regions of the countries studied. These laws can require that the head of the household (mostly the husband) is registered as the property owner, not his wife. Often customary inheritance laws are also found to be discriminatory against women.  

Similar constraints can be found with micro and small enterprises: formal banks tend to focus on medium or large businesses that have attained a certain degree of formalisation. Many women-owned enterprises tend to be small or micro, are often informal, and face severe difficulties in accessing formal credit – for example if they are not able to provide financial statements and proof of formal business registration. At the same time, almost no financial institutions target this niche of underserved potential clients – unmet demand among women-owned enterprises in sub-Saharan Africa ranges from an estimated 30% for medium-sized enterprises to more than 60% for micro enterprises.  

Insurance providers, but also banks and other formal financial institutions, fail to target women as a clientele; e.g. in advertisements that clearly address the male (working) population. Long and complicated claims procedures and a widespread perception that the costs are too high for no apparent (immediate) do not help to convince people to buy insurance either. Providers need to react by improving their marketing and costumer education and by making their processes more transparent.  

Action needs to be taken, not only by service providers but also by regulators. On April 25th 2013, Central Bank Governors and high-level political and private-sector decision makers from the SADC region were invited to the South African Reserve Bank to discuss the ‘Advancing African Women’s Financial Inclusion’ policy recommendations which were drafted during a MFW4A expert round table in 2012. Mrs Graça Machel, the founder of the New Faces New Voices network summed up the recommendations as follows: ‘Regulators and policy-makers need to play a more transformative or developmental role in deepening financial access for women, and financial institutions need to have clear strategies for targeting women in order to expand their access to financial services[…]”. The conference encouraged participants to take the discussions to the national level and push forward Women’s Financial Inclusion in Africa.  

If you would like to find out more about why men and women don’t use financial products in the same way and what should be put on the policy agenda in each of the countries, please have a look at our Synthesis Report or the detailed country reports:

Botswana Rwanda Namibia Uganda Malawi Zambia

Judith Frickenstein is financial sector advisor at GIZ’s programme Promoting Financial Sector Dialogue in Africa: Making Finance Work for Africa, where she is in charge of Gender and Agricultural Finance. Prior to her current position she led the economic empowerment component of GIZ’s gender sector programme, where she helped to design a regional programme in the MENA region and consulted economic development programmes in Albania, Montenegro and Uganda. Before joining GTZ (now GIZ) in 2007, Judith worked for the Retail Development Group in Cologne, Germany and for the German DEVK insurance company. She holds a diploma in economics from the University of Cologne and completed a vocational traineeship at an insurance company.

Sharissa Funk is part of the GIZ team supporting the Partnership MFW4A. She mostly focuses on gender finance issues in her work. Previously, Sharissa worked on agricultural finance with the Frankfurt School of Finance and Management and with Peruvian agricultural cooperatives and Microfinance Institutions for Oikocredit, a social investor. She holds an Economics degree from University of Tuebingen, Germany.

The importance of risk management mechanisms and with it microinsurance has grown tremendously over the past couple of years. Whereas all different stakeholders involved in financial sector development have focused on credit in the earlier days and later on as well on savings and payments, nowadays insurance is generally mentioned at the same time with the more traditional financial services and products. Its importance for poor people’s lives and in the alleviation and prevention of poverty has been recognized widely.

The emerging stage of development of microinsurance and its complexity make it difficult to get an overview of what is happening in microinsurance in Africa. The Landscape of Microinsurance in Africa 2012, a new study by Making Finance Work for Africa (MFW4A) and the Munich Re Foundation, supported by the African Development Bank, ILO’s Microinsurance Innovation Facility and the Microinsurance Network, is an effort to take stock of the current state of and recent trends in the microinsurance market in Africa. The study identifies gaps in the access to and the supply of microinsurance, an emerging industry in Africa that involves many stakeholders ranging from insurers to delivery channels, policy makers, regulators, and donors.

The research finds that at the end of 2011 more than 44 million people or properties are covered by microinsurance products. Compared to 2008, the African microinsurance industry has grown by 200%. In other words, microinsurance products were accessed by 4.4% of all Africans. Still, a huge challenge remains: 38 million insured people are concentrated in Eastern and Southern Africa, while in Central and North Africa the microinsurance sector remains rather limited. South Africa alone accounts for 60% of coverage and only eight more countries cover more than one million lives each. Together, these nine countries account for approximately 90% of total coverage in Africa. West Africa has experienced the highest growth rate since 2008, growing by more than 250% to cover 4.4 million.

Due to the culturally-rooted widespread use of funeral insurance in Southern Africa, life insurance still dominates the market, covering 34 million people. Additionally, credit life products cover almost 9 million lives, showing some growth, although slower than before. Health microinsurance coverage has mostly stagnated with just 2.4 million Africans covered. Though still in a nascent stage covering 1 million people only, property and agriculture products have experienced important innovations. Contrary to the supply analysis, focus group studies show that the demand people express centers around health, agriculture, accident and property—demand that is largely unmet.  

More than three quarters of all microinsurance risk carriers are community-based organizations. However, they only account for 9% of all covered lives and properties identified. The second most common type of microinsurance providers are regulated commercial insurers (13% of organizations identified). Yet, they account for 78% of all covered lives and properties. These numbers show that massive growth in the microinsurance sector will need to come from the commercial insurance industry, whereas member groups remain the largest channel assuring outreach to otherwise uncovered customers.

The major growth experienced in microinsurance in Africa, should however not hide the fact that over 650 million Africans live in countries where microinsurance products are either absent or coverage is below 1% of total population. There is massive potential for microinsurance to expand across the continent, not just in terms of volumes but also in terms of innovative products offering both real value to clients and a business case for insurers. The research carried out shows that:

·         New distribution channels, such as life insurance products embedded into savings accounts or bundled into mobile phone subscriptions, have helped microinsurance to grow in terms of covered lives in the past two years. These types of developments hold great potential to dramatically increase coverage, but also raise questions from the perspectives of consumer education, protection, and regulation.

·         While the collected data do not allow for sophisticated client value analysis, the reported loss ratios seem to offer ample room for improved products if the microinsurance industry is truly to serve the low-income population effectively.

·         Although microinsurance regulation does not seem to have driven market development, the absence of clear legal frameworks has been identified as a barrier for expansion. Some African countries are currently developing legal frameworks specific to microinsurance, however, there is room for increased attention to this area. Clarity in the microinsurance legal framework is an important component to insurers’ having the confidence to invest in the paradigm shift needed for microinsurance success. Legal ambiguity is holding back innovative expansion.

·         Microinsurance providers were confident about the past and future short-term growth of the sector but expressed concern regarding consumer knowledge, their own knowledge of the low-income population’s needs, and product affordability.

·         The maturation of the microinsurance “industry” is evolutionary. Good examples are seen by others. They get copied, sometimes improved. Slowly but surely the industry progresses, more people are covered, better products are offered, and clients, insurers, distribution channels and others benefit. Continued and expanded inputs from donors, governments and others should help to accelerate the rate of microinsurance expansion – in terms of volumes, products and value.

If you want to find out more about microinsurance in Africa check out the interactive map and the Comprehensive Study as well as short Briefing Notes in English and French on www.mfw4a.org or www.microinsurancelandscape.org.

Claudia Huber is advisor in Financial Systems Development at the Gesellschaft für Internationale Zusammenarbeit (GIZ), where she is responsible for the microinsurance component within the team managing the German contribution to the partnership Making Finance Work for Africa (MFW4A). Claudia is a member of the Advisory Committee of the Access to Insurance Initiative (A2ii) and a member of the Joint Working Group on Regulation, Supervision and Policy of the IAIS and the Microinsurance Network.

The global financial crisis has stimulated renewed interest among academics and policymakers in early warning systems (EWSs) or models able to provide risk alerts on the potential for systemic banking crises on an objective and systematic basis. Most of the attention has been devoted to advanced economies, which have been at the epicentre of the recent turmoil. With the notable exception of the IMF, which has recently initiated a research program aimed at enhancing its financial sector surveillance framework, low income countries (LICs), particularly in Sub-Saharan Africa (SSA), have not been explored as of late.  

SSA LICs’ banking systems have on average proved resilient to the recent episodes of global financial stress. This is primarily the result of the structural reforms implemented by many countries over the past decade within a context of sound macroeconomic policies. Most countries have improved the regulatory framework for supervision, bolstering prudential requirements and supervisory rules. However, as banking systems deepen and new sources of risks materialise SSA LICs need to move ahead with their plans to strengthen supervisory capacity and financials sector resilience. Further actions are warranted to explore the impact of macroeconomic and financial developments on systemic banking risk. In this respect, EWSs can represent a valuable tool for policymakers and regulators in the region.  

In a forthcoming paper co-authored with Giovanni Caggiano (University of Padua) and Leone Leonida (Queen Mary University of London) we develop an EWS of new generation to predict systemic banking crises in SSA LICs. In particular, we focus on a sample of 38 countries during 1980-2008. Focusing on a group of homogenous economies contributes to improve the predictive power of EWSs. Moreover, despite having experienced a number of systemic distress episodes, especially during the 80s and 90s, SSA LICs have received no attention in the relevant empirical literature. We test for a number of macroeconomic and financial variables that have been widely used in the literature as well as for indicators proxying the structural characteristics of SSA LICs’ banking systems.  

We find that a decline in real output, a depreciation of the nominal exchange rate, high domestic credit growth, and banking system illiquidity are all positively correlated with the probability of incurring a systemic banking crisis in SSA LICs. Our findings indicate that banking distress in SSA LICs is typically preceded by weakening macroeconomic fundamentals, in particular a slowdown in economic activity and a depreciation of the currency. Given the low economic diversification of SSA LICs, any decline in GDP growth is felt by the banking sector through a generalised deterioration in asset quality, which increases the probability of a systemic banking crisis, other things being equal.  

On the other hand, a depreciation of the exchange rate lends credence to the hypothesis that banking crises in SSA LICs may be driven by excessive foreign exchange (FX) risk exposure. Our results show that currency turmoil can indeed trigger a banking crisis when banks are highly exposed to FX risk. This can affect the banking system directly, through currency mismatches in the balance sheet, or indirectly, through exposures to unhedged borrowers. Moreover, the high dollarization of most SSA LICs exposes them to the risk of a generalized run on their foreign currency deposits. Given that our proxies for currency mismatch in the banking system’s balance sheet (net open FX position) and for liability dollarization (M2 to reserves) are not statistically significant, we can infer that the channel through which a currency depreciation works in SSA LICs is primarily indirect, i.e. via exposures to FX risk by bank borrowers.  

Our results also show that rapid domestic credit expansion relative to GDP precedes banking crises. This may signal the peak of a credit cycle, where relaxed credit standards and build-up of financial imbalances in the real economy lead to widespread defaults and therefore systemic banking problems. Related to this, we find that the banking system in SSA LICs is crisis-prone if it engages in excessive credit activity relative to the deposit base. In other words, the probability of a systemic banking crisis increases when banks tend to finance an increasing share of their loan portfolio with non-core liabilities, resulting in low liquidity and/or vulnerability to deposit withdrawals.  

Our results have important policy implications at a time when financial regulators and central banks in SSA LICs are reassessing their financial regulatory agenda in the context of recent reforms spurred by the global financial crisis, in particular Basel III. Our findings underline the need to implement an effective macroprudential framework in addition to standard microprudential regulation, monetary policy and administrative measures to address the risks to financial stability emanating from undiversified and dollarized environments. In this respect, SSA LICs’ financial systems might benefit from credit-related measures such as sectoral ceilings on credit exposures and/or credit growth, and higher risk weights and/or provisioning rates on foreign currency lending to ensure adequate protection from concentration risk and currency-induced credit risk.  

In terms of microprudential regulation, implementing the liquidity requirements set out in Basel III might also be a useful complement to existing liquidity rules. On the other hand, our results do not warrant tightened capital requirements, which represent the cornerstone of recent international regulatory reforms. Finally, it is important that financial regulators in the region, with the assistance of international financial institutions, continue efforts to strengthen supervisory capacity, especially in contexts of sustained credit growth, as was the case in Nigeria before the 2009 banking crisis . Ultimately, EWSs are useful tools for policymaking but should never substitute the judgment of financial regulators.  

Pietro Calice is Principal Investment Officer with the African Development Bank

Sub-Saharan Africa has the least developed financial sector in the world. With the exception of South Africa, the total African bank assets amount to less than USD 300 billion, which is nearly ten times less than the largest Chinese bank and about the size of the third largest Swedish bank. Even after taking into account the differences in GDP, the African financial sector remains very much underdeveloped, with a penetration rate around 30 %, twice inferior to the average figure in developing countries. In addition to its very small size, the African banking sector remains very much fragmented: the largest banking group in SSA totalled USD 17 billion – three times less than the first Cypriote bank – and only a dozen banking groups have total assets in excess of USD 5 billion.

Africa hosts more than 500 banks, including plenty of very small sized banks that are inefficient since they are unable to generate returns of scale, are not very innovative, and often display poor performances. These banks therefore cannot generate a healthy and competitive environment, and occupy low risk in very profitable niche markets, such as public debt, change or money transfer markets (Western Union, etc.), with hardly any impact on private sector financing. As a result of this underdevelopment in Africa’s banking sector, the amount of private sector credits does not exceed 20% of the African GDP, the lowest rate in the world. Furthermore, a significant portion of the financing needs of African economies – particularly in the areas of agribusiness, building and civil engineering, petrol and mining industries – are covered by external financial systems (donors, international banks, suppliers’ credits, etc.).  

Fostering New Pan African “Leaders”  

In order to fully benefit of the opportunities in the continent, the African banking sector should identify pan African “leaders” capable of carrying the pan-African capital-intensive operations. Development Financial Institutions (DFIs) can contribute, through targeted actions in order to support some banking groups that are well positioned to play this role. Apart from existing groups (Ecobank, BOA, UBA) – which already receive help from DFIs – two kinds of players are likely to prove good candidates: regional groups with an already critical size, and major banks in the African financial centres. Players in the first group include Orabank or BGFI Bank in Central and West Africa, I&M, Equity Bank or Kenya Commercial Bank in East Africa, and BancABC in South Africa. These banks have good knowledge of the markets but are limited in their means. They could benefit from capital injections by DFIs, such as FMO in Afriland First Bank, Proparco in I&M, and Orabank or IFC in Equity Bank. As for the main African financial centres, three countries could lead the way at a regional scale: Nigeria, Morocco, and South Africa. If the last two do not belong to sub-Saharan Africa, their geographical area represents their natural growth territory. Banks in these countries traditionally stayed within their geographical boundaries, and their pan African expansion is a recent development: Moroccan banks in Francophone West Africa, and Nigerian or South African banks in Anglophone Africa. However, their expansion over not well-known and not very accessible markets remains limited. The largest banks in these countries remain still very much interested in their domestic markets. This is where DFIs have a role to play in encouraging and supporting these banks outside their borders. Proparco and FMO supported BMCE's regional growth in this very approach, by contributing to the establishment of closer ties with the BOA Group. In the same way, Société Financière Internationale (SFI) invested in BCP Maroc to finance Group Banque Atlantique's buy-back in West Africa.  

Long Term Financing Needs  

Given the fact that DFIs contribute to the development of a local, pan African banking sector, their main actions up until now were essentially based on very traditional funding based on long-term debt and equity, in order to provide banks with the missing long-term resources. Today however, other forms of support solutions that are more innovative should be considered. First of all, giving the banks access to international markets could permit to lower their long term refinancing dependency of DFIs. Groups such as Ecobank offer fundamentals, that would enable them to obtain good financing solutions in these markets, but that are too little known by investors outside Africa. DFIs could help by integrating African banks in the international financing systems, for example by guaranteeing their first bond offerings. DFIs could also help local banks to better exploit home market available resources. For example, insurance companies and other social security funds dispose of important long term capital but – due to their missing knowledge of the banking sector –may be reluctant to invest them long term with banks. A significant portion of these resources, when not invested in developed countries banking markets, are placed locally in government debt securities. By guaranteeing loans lent by these institutions to local banks, DFIs would contribute to feed these long-term resources to the banking sector and finance a more productive sector. Similarly, most African banking sectors have excess short-term resources, which although very stable, cannot be used to finance long-term investment due to cash banking regulations. In order to make better use of these resources, DFIs could explore the possibility of offering liquidity guarantees: providing banks with refinancing in case of a liquidity crisis, which would enable them to transform a greater share of short-term resources into long-term ones. Finally, in order to help banks increase their resources' maturity, DFIs should also consider stimulating long-term interbank market refinancing, or encourage banks to develop local bond markets.   

Developing synergies between the various markets  

Developing the bank's resources is not the only way to increase their response capabilities. Better use of resources would also overcome the constraints imposed by their limited size. Developing the syndication market could prove especially useful in this regard. As syndication develops on a per country base, “transnational” syndication remains very rare: only bank groups with subsidiaries in several countries (like Ecobank, BOA Group, Standard Chartered, Standard Bank, etc.) are able to initiate them and these syndications generally remain within the group. DFIs certainly have a role to play to organise this market and encourage increased bank cooperation. They could, for example, develop their coordination capabilities by offering local banks intermediation services. This path has been little explored by DFIs, whose syndication attempts are usually limited to the projects they are involved in, bankable in hard currency. Yet, it would stimulate local currency finance markets, over which DFIs have very little control. From a more general point of view, and always with a view to develop the capacity of local banks, it seems possible to increase cross-border cooperation by encouraging banks operating in different markets to develop synergies between them. There are very few partnership examples, such as the one developed between Nedbank (based in South Africa) and Ecobank (present in the rest of sub-Saharan Africa). Most Ghanaian banks, for example, have no partner banks in the WAEMU region, even though Ghana is located in the middle of the area, which greatly limits the scope of the operations they can perform with their active clients in this region. DFIs could, for example facilitate regional trade by guaranteeing African vis-à-vis their banking counterparts in neighbouring countries (as they do for international trade between Europe and Africa, for example). Generally speaking, a transverse DFI approach would enable them to gather banks likely to develop synergies, and thereby stimulating regional banking integration and dissemination of knowledge between different markets. Such support would allow banks to know their neighbouring markets, and thus contribute to strengthening the capacity of African banking systems.

Julien Lefilleur joined Proparco in 2004, a French development financial institution that is a member of the French Development Agency Group. Having occupied a series of positions in Proparco - mainly in the Banks and Financial Markets department - he opened in 2010 Proparco's regional office for West Africa in Abidjan. Julien Lefilleur is also the Chief Editor of the Proparco magazine Private Sector & Development, which he founded. He graduated at École Centrale de Paris with a PhD in economics from the Sorbonne University.

Poverty. How much of it can be avoided with simple financial skills? If there is anything we have learned over the years, it is that poor financial decision-making by the average economic citizen can be the foundation of financial crises and the root of poverty. The problem is that poor decision-making seems to be inherent in everybody – at least, that is what Economics Nobel Prize winner Daniel Kahneman wrote. This is why the world needs to increase financial education and financial inclusion for individuals, when they are young and are still able to form positive financial habits. After all these youngsters are future leaders, investors, policy makers, and parents.

African Development Bank President Donald Kaberuka stressed at this year’s World Economic Forum that the prevalence of poverty is especially pertinent in African countries with a large youth population. As Africa’s projected youth will represent 75% of the total population by 2015, a large segment of the African population will be entering the labor market in the next few years and will need the education and access required for proper savings and asset building. Contrastingly, in sub-Saharan Africa for example only 16.8% of youth between the ages of 15–25 years hold accounts at formal financial institutions.

Both scholars and policymakers have started to recognize that young people need to learn about managing financial matters at the same time as they are provided with the tools to actually participate in it. The lacking national infrastructures for children and youth to partake in the financial system remains an obstacle. On the one hand, formal savings mechanisms remain unattractive for young people due to heavy document requirements, including identity cards, recommendation letters and wage slip. On the other hand, legal age restrictions and compulsory parent consent can hinder opening an account. Changing the manner in which financial institutions deal with the unbanked, financially vulnerable population of children requires a review of certain social regulations and effective collaboration.

It does appear that this change is on the way. Over 80 countries celebrated Global Money Week last month organized by Child and Youth Finance International. 20% of these were from Africa. The overwhelming success was created by the partnerships formed between national stakeholders and was a testimony to the fact that African countries were ready, willing and able to put financial access and education of youngsters on the map. Zambia set the pace for nationwide initiatives on financial capability for children and youth under the patronage of the Central Bank of Zambia and the Financial Sector Development Program. In Ghana the first local stakeholder meeting on education and access for children was held and HFC Bank opened savings account for more than 200 high school students in Accra. The Central Bank of Nigeria (CBN) and the Financial Literacy and Inclusion Forum (FLIF) jointly organized Global Money Week, creating media campaigns, financial literacy shows and school outreach programs. It was recognized that the average Nigerian child is not introduced to money early enough and is therefore prone to making bad financial decisions. The CBN has now named financial inclusion a national agenda point.

The efforts during Global Money Week are the first step to creating national strategies that will reshape financial landscapes both in Africa and across the world. It is only through collaboration and knowledge-sharing among national stakeholders that the necessary frameworks can be built that will educate and empower entire generations. In Africa, many countries are now creating their strategies for financial education and inclusion of their citizens. We must ensure that children are not forgotten in these efforts.

By reshaping the norms of financial behavior we will be able to empower the next generation and help them become the sound financial decision makers we need them to be.  

Akwasi Osei is Child and Youth Finance International's (CYFI) Africa Regional Coordinator. CYFI is leading a global movement to increase financial education and financial inclusion of children and youth. It is working with over 100 partners in over 83 countries worldwide. The CYFI network has a goal of reaching 100 million children in 100 countries by 2015, as a first step to eventually reaching all children and youth across the world. The Movement has the support of the United Nations Secretary General and the G-20.