Financing Africa: Through the crisis and beyond

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This book, a  joint  effort  of  the  African  Development  Bank,  the  German  Federal  Ministry  of  Economic  Cooperation  and  Development,  and  the  World Bank, demonstrates that Africa  is  making  progress  in  relaxing  these  constraints. New players and products, enabled by new technologies and business models, have helped broaden access to financial services, especially savings and payment products. Critically, African finance has been stable for quite a while now; after a peak of banking crises in the 1980s, there have been few systemic banking crises since then. Despite the recent global financial crisis, banks in Africa are, on average, well capitalized and liquid. At the  same  time,  Africa  faces  persistent  but  not  insurmountable  challenges, namely its small scale, informality, volatility, and poor governance. Many firms and most households are still excluded from access to financial services, especially long term  finance.  Infrastructure  financing  needs  remain  largely  unmet.  Agricultural  finance  has  been  ignored  by  commercial  financiers  for  being  too  high-cost  and  high-risk, aggravated by the same challenges enumerated above.

Financing  Africa:  Through  the  Crisis  and  Beyond is  a  call  to  arms  for  a  new approach to Africa’s financial sector development. First, policy makers should focus on increasing competition within and outside the banking sector to foster innovation.  This  implies  a  more  open  regulatory  mindset,  possibly  reversing  the  usual  timeline of legislation-regulation-innovation for new players and products. It also implies expanding traditional infrastructure, such as credit registries and payment systems beyond banks. Second, the focus should be on services rather than existing institutions and markets. Expanding provision of payment, savings and other financial  services  to  the  unbanked  might  mean  looking  beyond  existing  institutions, products, and delivery channels, such as banks, traditional checking accounts, and brick-and-mortar branches. Third, we should focus on the demand constraints as well as the supply ones; expand financial literacy programs for households and enterprises;  and  address  nonfinancial  constraints,  especially  for  small  enterprises  and in rural areas.

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