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ISSUE 34
ISSUE 34
Edoh Kossi Amenounve, CEO of the Bourse Régionale des Valeurs Mobilières SA A CPI Financial Publication
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COUNTRY FOCUS
CRDB’s winning strategy
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POLICY SPOTLIGHT
Twin peaks in South Africa
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TRAILBLAZERS T RAILBLAZERS
Immunisation Imm mmun unis issat atttio a io io on n as as a an n economic foundation eco cono nomic miic ffo m oun und da ati tion on
Dubai Technology and Media Free Zone Authority
A new class for BRVM Edoh Kossi Amenounve, CEO of the Bourse Régionale des Valeurs Mobilières SA
A new class for BRVM
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CONTENTS
ISSUE 34
Editor’s Letter Hello readers,
D
ays before we wrapped this issue of Banker Africa, I was in Cameroon attending the ‘Investing in Cameroon’ conference—more on that, and Cameroon’s outlook, in the next issue. But while the country struck me as primed for business, getting there did not come without challenges. There is no Cameroon embassy or consulate in the UAE (where this magazine is based) or in fact anywhere in the Gulf except for in Riyadh, Saudi Arabia. There also are no direct flights, despite Emirates Airlines’ extensive coverage of the rest of Africa. For the average Gulf-based investor, many of whom are keen to enter the continent, hitches like these could be the difference in choosing where to go next. Bringing the opportunities to investors is key, as the West African Monetary and Economic Union (WAEMU, or UEMOA) and their regional stock exchange the Bourse Régionale des Valeurs Mobilières SA (BRVM) demonstrated in the recent “BRVM Investment Days” in Dubai (pg. 12). The Union is making a huge push for Gulf investors alongside their similar roadshows in Europe and the US. On the cover this month, BRVM CEO Edoh Kossi Amenounve talks scaling up and bringing investors and companies alike into the fold (pg. 16). Attracting investors into infrastructure, transport and agricultural projects may never be more important than now—as oil prices refuse to rally and global market conditions remain tough, the IMF has scaled back its projections for the region and urged a “policy reset” (pg. 11). In some countries already struggling with economic growth, policy changes have been on the board for awhile—this issue, Hogan Lovells’ team sheds light on South Africa’s adoption of the ‘twin peaks’ model (pg. 28). Also in this issue, Alex Trepelkov of the United Nations and Michael Keen of the IMF break down the essentials of a new joint initiative between the two organisations, the World Bank and the Organisation for Economic Cooperation and Development (OECD) to harmonise international taxation policies. Among the platform’s ambitious goals is the inter-state taxation of multinational companies— promising more regulations on the horizon. With that, I’ll let you get to reading. Until next time,
16 IN THE NEWS 6 News analysis: hidden debt comes to light in Mozambique
7
Essential financial news from around the continent
10
Spotlight: Algeria
10
HAPPENINGS 11 It’s time for a policy reset,
says Sayeh The IMF warns of another difficult year for African economies
12
12
An economic community, an investor opportunity The fourth “BRVM Investment Days” took place in Dubai
OPINION 14 Hanging in the balance
Banks need to lead the way for cashless technology, writes Katia Hilal of RedCloud
COVER STORY 16 A new class for BRVM
WAEMU has been bumped to MSCI’s Frontier Markets and the BRVM has set its sights on climbing the rankings, says CEO Edoh Kossi Amenounve
COUNTRY FOCUS: RWANDA 20 The ‘transformative power’ of ICT
14
Through a series of government initiatives and public-private partnerships, Rwanda seeks to lead digitalisation in Africa
22
COUNTRY FOCUS: TANZANIA 22 Continuing to win
Dr. Charles Kimei, CEO of CRDB Bank, on the fast-changing needs of the Tanzanian banking market
COUNTRY FOCUS: UGANDA 25 Is Uganda ready for Islamic finance?
A regulation passed at the beginning of the year has opened the door for the sector
Sarah Owermohle
http://cpifinancial.net/blog/author/78/sarah-owermohle
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CONTENTS
ISSUE 34
INVESTMENTS 26 AFSIC: investor interest continue
30
to grow The fourth AFSIC in London brought together an audience from across the African continent
www.bankerafrica.com Chairman SALEH AL AKRABI
POLICY SPOTLIGHT 28 Twin peaks: the summit
of financial regulation Is the ‘twin peaks’ regulatory model a right fit for South Africa? Hogan Lovell’s Louise Lamb, Catherine Robert and Rashi Lordan discuss
SECTOR FOCUS: ISLAMIC BANKING 30 Driving Sudan forward
Bank of Khartoum CEO Fadi Al Faqih sheds light on Sudan’s banking challenges
TRAILBLAZERS 34 Consumer data on a dime
A Kenya-based start-up is changing the way we collect data
TECHNOLOGY 36 Analysing analytics for the Islamic
banking opportunity The sector brings specific needs for data leverage, writes Fadi Yazbeck, Product Manager for Temenos IslamicSuite
36
38
Are Africa’s banks ready for biometrics? Where mobile is king, biometrics can bring security and usability, says Dewald Nolte, VP of Business Development at Entersekt
Four major international organisations have convened on a tax revenue platform
OUTLOOK 44 Taking steps in the right direction
Renaissance Capital assesses where Egypt is on currency devaluation and investor attractiveness
40
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COUNTRY FOCUS
A new dawn for Sudan?
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Twin peaksSPOTLIGHT in South Africa
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NEWS ANALYSIS
Hidden debt comes to light, lending hangs in suspense International lenders reacted swiftly when Mozambique’s Prime Minister revealed more than $1 billion in undisclosed debt The so-called ‘tuna bond’ for the state fishing company has plunged Mozambique further into debt (CREDIT: ITTIPHATR SATIENBUT/SHUTTERSTOCK).
M
ozambique authorities have confirmed that the country has about $1.3 billion in previously undeclared debt, leading several multilateral lenders and aid-giving countries to freeze their assistance. According to Prime Minister do Rosario in a press conference on 28 April, total public debt at end-2015, was $11.64 billion, of which $9.89 billion is foreign debt. The International Monetary Fund (IMF) was first to suspend its lending programme following a meeting between Carlos Agostinho do Rosario, Prime Minister of Mozambique and Christine Lagarde, IMF Managing Director, as well as a technical team led by the ViceMinister of Finance, Isaltina Lucas. “The authorities acknowledged that an amount in excess of $1 billion of external debt guaranteed by the government had not previously been disclosed to the Fund,” Michel Lazare, the IMF Mission Chief for Mozambique, said. “Staff welcomed the authorities’ extensive disclosure of information
6 page 6 News Analysis 034.indd 6
which constitutes an important first step toward full restoration of trust and confidence. Looking ahead, the Fund and Mozambique will continue to work together constructively to evaluate the macroeconomic implications of this disclosure of information and identify steps to consolidate financial stability, debt sustainability and enhance governance and oversight of public enterprises,” Lazare continued. The World Bank, United States, United Kingdom, Portugal, Canada and Switzerland have all suspended at least a portion of their aid in the wake of the Prime Minister’s disclosure. In most cases, general budget support to the Government that has been suspended, with development assistance left untouched. The debt spiral is being blamed on significant loans to the state-owned fishing company, EMATUM. Earlier this year, Mozambique restructured the $850 million bond for EMATUM after the company struggled to make previous profit projections and therefore repayments on the 2013 issuance.
EMATUM is responsible for 41 per cent of the debt, for which an estimated $697 million is currently outstanding, and the government recognises the rest on its own balance sheet, according to Moody’s Investor Services. The restructuring drew Standard & Poor’s (S&P) to raise Mozambique’s foreign currency sovereign ratings to ‘B-/B’ with a stable outlook, but Moody’s downgraded the country’s issue rating to Caa1 (stable) on the same action, noting that despite possible positive implications of the bond restructuring it was a “distressed exchange, and therefore a default on government debt”. In March 2016 Moody’s also downgraded Mozambique’s issue ratings to B3 from B2, citing its diminished balance capacity to meet outstanding debt and its increasingly weak balance of payments. The IMF approved in December 2015 a $283 million rescue loan package for Mozambique, but the suspended lending went into effect immediately, including the next $55 million disbursement.
www.bankerafrica.com
26/05/2016 11:11
IN THE NEWS
RATINGS REVIEW BANKS AND BUSINESSES S&P revised AngloGold Ashanti’s ‘BB+’ rating to stable outlook from negative on stronger credit metrics.
South Africa’s major retailer Edcon was lowered to ‘SD’ from ‘CCC+’ by S&P due to a missed interest payment, and lowered to ‘CCC+’ from ‘B-’ its issue rating on Edcon’s super senior secured debt.
SOVEREIGNS S&P affirmed Kenya’s ‘B+/B’ ratings with negative outlook, noting that exchange rate depreciation and an increased external debt are threatening its stance.
Moody’s downgraded Zambia’s issuer rating to B3 with negative outlook due mainly to greaterthan-anticipated fiscal slippages in 2016 leading to material liquidity pressures and challenges to the deficit. S&P affirmed Ghana at ‘B-/B’ on its planned fiscal consolidation, noting its stable democracy and steady growth but also double-digit inflation.
ON THE RECORD
The decline in commodity prices is likely to be long lasting, as the causes seem structural rather than temporary—including the ongoing rebalancing of demand in China and, in the case of oil, technological innovation that has enhanced supply. — The IMF’s Christine Lagarde and Abdoulaye Bio-Tchané, Chairman of the African Caucus, on the downside risks to Africa.
A QUICK WORD Kenya has made remarkable progress, says IMF’s David Lipton Lipton led an IMF visit to the country and promised continued IMF support. Moody’s confirms the ratings of the five largest South African banks; negative outlook The action follows a similar sovereign rating action and concludes the review for downgrade. KCB Bank and GoSwiff roll out mobile payments in Rwanda KCB and GoSwiff said the solution will drive financial inclusion and digital payments. South Africa signs eight MoUs with Iran Minister said President Jacob Zuma’s recent visit to the Islamic Republic of Iran was a success.
S&P affirmed Ethiopia’s ‘B/B’ ratings due to strong economic growth but also continually low income levels and a weak external position.
Fitch affirms Morocco at ‘BBB-’ with a stable outlook, citing macro-stability and a narrowing current account deficit.
Fitch downgraded Lesotho to ‘B+’ with a stable outlook due to its widening deficit and knock-on effects from South Africa’s economic slowdown. South Africa President Jacob Zuma and Iran President of Iran Hassan Rouhani address the media during his visit (CREDIT: GCIS, GOVERNMENTZA/FLICKR).
www.bankerafrica.com
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IN THE NEWS
Orange acquires Tigo in DRC; Tigo Pesa reports significant profits
O
range completed the acquisition of 100 per cent of the mobile operator Tigo in the Democratic Republic of the Congo (DRC), while its Tanzanian subsidiary, Tigo Pesa, reported a quarterly profit share growth of 18 per cent with payment to customers rising from $2 million for Q4 2015 to $2.3 million for Q1 2016. On the acquisition, Bruno Mettling, Deputy CEO of Orange in charge of MEA Operations, said, “We are extremely happy to announce the completion of the acquisition of Tigo by Orange DRC in a market marked by very strong growth potential.” The DRC has a population of more than 80 million people and a relatively low mobile penetration rate of 50 per cent of the population. In Tanzania, Tigo Head of Mobile Financial Services, Ruan Swanepoel, attributed the increased profitability to Tigo’s to improved market condition and steady growth in the number of Tigo Pesa users, in particular from the merchant segment. Cumulatively, Tigo Pesa users have earned $18.5 million in profit share since the scheme started, Tigo said.
Quantum Global Group announces expansion in Africa Quantum Global Group (Quantum Global), an investment firm focusing on Africa, has announced new offices in Angola, Kenya, Mozambique and Nigeria. The firm said that the offices will channel investors to its operations headquartered in Mauritius and increase access to its funds for agribusiness, timber and mining, healthcare and mezzanine investments. “With Africa offering enormous development potential, global investors including Asian and Middle Eastern, are increasingly looking to capitalise on investment opportunities in the region in a low risk environment that Mauritius has to offer,” Jean-Claude Bastos de Morais, Founder and Chairman of the Advisory Board, said.
Africa Finance Corporation names Grant Harris as new Independent Director Africa Finance Corporation (AFC) announced the appointment of Grant T. Harris as an Independent Director. Harris comes from extensive diplomatic experience with the US Government. Dr. Sarah Alade, Chair of the Board of Africa Finance Corporation, said, “We are delighted that Grant is joining Africa Finance Corporation as an Independent Director. Grant Harris He has extensive experience and contacts in Africa, having worked in a variety of senior roles advising on continental affairs. He also brings a strong business and legal background as well as a network of contacts with entities interested in doing business with the continent. He will be a great asset to Africa Finance Corporation and to its shareholders.”
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First set of loans approved by the New Development Bank board World Bank Group President Jim Yong Kim holds a meeting with the New Development Bank in Washington DC (CREDIT: DOMINIC CHAVEZ, WORLD BANK/FLICKR).
The New Development Bank (NDB), the BRICSestablished development institution, announced that its first set of loans will be $811 million, to be disbursed in tranches, supporting 2,370 MW of renewable energy capacity. The appraised projects were presented at the fifth Board of Directors meeting held in Washington D.C. on the sidelines of the IMF and the World Bank Group Spring Meetings. K. V. Kamath, NBD President, said, “This is an important milestone for the Bank and we are delighted to have met the goals and the time schedules envisioned by the leaders of the BRICS countries. With this we embark on a journey to provide speedy assistance to projects across developing nations. We are pleased that the projects deal with green and renewable energy and hope they will act as catalysts for development in our member states.”
Ingenico Group deploys cashless revenue collection in Kenya Ingenico Group deployed, jointly with its local partner Tracom and sponsored by Equity Bank, a revenue collection solution in Nyeri County in Kenya. The services will allows for fee collections from parking, land rates, business permits and market stall fees through electronic payment. “We selected Ingenico Group and its local partner Tracom as they have shown a strong expertise in providing innovative solutions to strengthen cashless payment behaviours,” Andrew Wakahiu, General Manager-Agency Banking, Equity Bank, said.
www.bankerafrica.com
26/05/2016 11:26
Dubai Chamber visits South Africa to increase business ties
IFC invests $25 million in FNB Zambia
T
Dubai companies want to better understand South African regulations (CREDIT: DUBAI CHAMBER).
D
uring a recent trade mission to South Africa, Dubai Chamber of Commerce and Industry urged its trading partners from the public and private sectors as well as the South African Chambers of Commerce to coordinate efforts to stimulate economic partnerships between in Dubai and South Africa. During his speech on the side-lines of the panel discussion with the public sector, HE Majid Saif Al Ghurair, Chairman of the Dubai Chamber, stated that they were present to better understand the prevailing laws and regulations pertaining to taxes, arable land ownership, money movement, and to find out the most important investment sectors. South Africa ranked 33rd on the list of Dubai’s trading partners, with non-oil trade between Dubai and South Africa in 2015 reaching to AED 8.4 billion ($2.3 billion) up from AED 5.5 billion in 2010, while the Chamber currently has 106 South African businesses among its members as 51 companies joined in last year. The Chamber delegation also held a meeting with Standard Bank, which is one of the largest banks in Africa, to further explore investment opportunities.
South Africa aims to increase African trade by half a trillion by 2019
Minister Maite NkoanaMashabane pictured previously at a UN meeting in Geneva (CREDIT: JEAN-MARC FERRÉ, UN PHOTO/FLICKR).
South Africa’s International Relations and Cooperation Minister Maite Nkoana Mashabane said in a press briefing that South Africa is aiming to boost trade with African states. “We are targeting half a trillion trade with Africa by 2019,” Mashabane said. “With additional economic diplomacy efforts and enhanced national coordination, South African trade with the world can reach ZAR 2 trillion by the end of this administration….Without a doubt, an unprecedented trade expansion.” The Minister also said the work of the department has increased the country’s presence on the continent from seven diplomatic missions in 1994 to 47 in 2015.
he International Finance Corporation (IFC), announced an investment of $25 million in First National Bank (FNB) Zambia. The IFC said that the investment will go to increasing access to finance for small- and medium-sized businesses and the agriculture sector in support of inclusive economic growth. Half of Zambia’s population of 15 million live in rural areas, where formal employment is scarce and poverty is high, the IFC said. One of the main constraints on economic growth is the lack of finance for small-scale businesses, with 28 per cent of Zambian firms citing a lack of credit as their top operational constraint according to the 2013 Zambia Enterprise Survey. Oumar Seydi, IFC Director for Sub Saharan Africa, said, “By supporting the small business sector and agricultural sector, our support to FNB Zambia will contribute to the country’s efforts to improve its resilience and diversify the economy, which is especially important in economically challenging times.”
Kenya launches #YallaKenya in Dubai to attracts Gulf tourists Kenya has launched the #YallaKenya (Lets go to Kenya), a consumer campaign targeting the Gulf Cooperation Council (GCC) market to drive more tourists to Kenya during the Dubaibased Arabia Travel Market (ATM) on 26 April. The campaign involves a three-month incentive programme to the trade, which will see the incorporation of special fares and packages promoted directly to consumers GCC wide in both Arabic and English language to encourage travel across all the segments of the market. “We are certain that the efforts in this campaign will bear fruit in this market that enjoys good connectivity to Nairobi, a key hub in Africa. In the last year, Kenya’s visibility has grown in the global arena, hosting key personalities international meetings,” Kenya Tourism Principal Secretary Fatuma Hirsi said.
www.bankerafrica.com
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NEWS SPOTLIGHT ALGERIA
Strong economic growth in 2015 but a drop in 2016, according to Emirates NBD
Algeria’s first bond issuance in years met with enthusiasm
The National Bank of Algeria says the bond has been successful (CREDIT: MAINA MARJANY/FLICKR).
I
Growth will decelerate in 2016 for various reasons (CREDIT: MCIEK/SHUTTERSTOCK).
In an economic update on Algeria, Emirates NBD said that the National Statistics Office reported 3.9 per cent GDP growth last year. The bank attributed the growth to strong performance in four key sector that make up more than 50 per cent of the economy— agriculture, trade, transport/communication and the building/infrastructure sector. However Jean-Paul Pigat, Senior Economist for Emirates NBD, noted that, “Despite significant hydrocarbon resources, stagnant output from the oil and gas sector has been a key factor weighing on Algeria’s economic performance for several years.” According to Emirates NBD, there has been a steady decline in exports over nine year. The bank therefore forecasts just 2.2 per cent real GDP growth in 2016. “We do not expect to see any material improvement in hydrocarbon production, which will therefore remain a drag on headline GDP,” Pigat said, adding that agriculture would not be as favourable this year and the Government is likely to curb public spending in response to oil pressures.
10
n a bid to raise revenues after the drop in oil prices, the national authorities of Algeria announced on 17 April a bond issuance with a maturity of three to five years, with a six-month subscription period. Though authorities did not disclose the total value of the bond, the Director General of the National Bank of Algeria (BNA), Achour Aboud, said on 26 April that there had been DZD 10 billion in actual subscriptions and firm pledges. Aboud told the Algeria Press Service that he expects this amount is expected to go up day after day, adding that the subscription period could be over before the month of Ramadan, which begins in early June. Aboud attributed this enthusiasm in part the minimum buy-in of DZD 10,000 that allowed smaller investors to participate. He also alluded to a new issuance in the pipeline.
AfDB President makes first official visit to Algeria to boost ties The President of the African Development Bank (AfDB), Akinwumi Adesina, arrived in Algeria on 19 April, on his first visit since taking office in September 2015. In addition to meeting the Algerian Prime Minister, Abdelmalek Sellal, Adesina met with the Minister of Finance, Abderrahmane Benkhalfa, who is also a member of the Board of Governors of the AfDB. Algeria is a founding member of the AfDB, and the fourth-biggest African shareholder with 4.21 per cent of the Bank’s capital. The country is a major player in North Africa and the Sahel. As of 1 April 2016, the active portfolio of the AfDB in Algeria included ten operations with a total value of approximately $9 million, nine of which are funded by the Middle Income Country Technical Assistance Fund (MIC TAF).
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25/05/2016 16:49
HAPPENINGS
It’s time for a policy reset, says Sayeh The IMF’s Antoinette Sayeh warns of another difficult year for African economies, and the need for new strategies in growth and fiscal stability Antoinette Sayeh, seen here during the IMF-World Bank Spring Meetings this year, is calling for urgent policy changes (CREDIT: ROXANA BRAVO/IMF PHOTO/FLICKR).
A
fter an extended period of strong economic growth, Sub Saharan Africa is set to experience a second difficult year, according to Antoinette Sayeh, Director of the African Department of the International Monetary Fund (IMF). Sayeh spoke in a press briefing on 19 April about the challenges ahead for African countries and later—in a 3 May press briefing on the IMF’s new Sub Saharan African Outlook—called for a policy reset amongst the region’s leaders. She noted that the growth forecast for the region as a whole has fallen to a 3.5 per cent average for 2015, the lowest in 15 years. “We project growth to be even slower this year, at about three percent, about half of what has been customary over the last decade, and barely above
population growth. Indeed, both last year and this year, GDP per capita growth will be below one percent— something that has not happened since the late 1990s,” Sayeh said. Of course these projections are not uniform across the region. Many lowincome countries and oil importers, such as Côte d’Ivoire, Kenya, or Senegal, are still experiencing high economic growth. However Sayeh said that in close to half of the region’s countries, “growth has slowed down markedly” and it is not just the drop in commodities prices to blame. “For most of the region’s frontier markets, external financing conditions have tightened substantially, compared to the period until mid-2014, when they enjoyed ample access to global liquidity,” Sayeh said. “[Furthermore], several Southern and Eastern African
countries, including Ethiopia, Malawi, and Zimbabwe, are suffering from a severe drought that is putting millions of people at risk of food insecurity.” Despite these factors, Sayeh stressed that the IMF held a favourable mediumterm view of growth prospects. She recommended urgent policy adjustments, including tax base reform, subsidy removal, and in some cases, exchange rate flexibility. She concluded by noting that given the “substantially tighter external financing environment”, market access countries in which fiscal and current account deficits have been elevated over the last few years will also need to recalibrate their fiscal policies. “Such recalibration would help them to rebuild scarce buffers and mitigate vulnerabilities if external conditions worsen further,” Sayeh said.
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HAPPENINGS
Abidjan is the economic capital of Côte d’Ivoire, the largest economy in the UEMOA community (CREDIT: BRVM INVESTMENT DAYS).
An economic community, an investor opportunity The fourth “BRVM Investment Days” took place on 18 April in Dubai to bring Gulf investors to the region
T
he Bourse Régionale des Valeurs Mobilières, or West African Regional Stock Exchange (BRVM), brought the fourth session of its investment panels and discussion to the increasingly Africaoriented Gulf audience in Dubai. The Exchange represents the eight West African Monetary Union (WAEMU) countries of Benin, Burkina Faso, Côte d’Ivoire, Guinea Bissau, Mali,
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Niger Senegal and Togo. The countries together represent about 100 million consumers and some of the fastestgrowing economies in Africa, and likewise the BRVM is rapidly expanding. There are 39 companies listed and the exchange increased its all-shares index by 17.77 per cent in 2015. Of the eight member countries, Côte d’Ivoire is the biggest economy and one of the fastest growing.
The country’s Minister of Technical and Vocational Education, Paul Koffi Koffi, attended the Dubai event to speak on the importance of nurturing and developing human capital in the region. The conference also features keynote speeches by Zakiyoulahi Sow, Sukuk Project Manager for the Islamic Development Bank, and Laurence Do Rego, Executive Director of Finance for Ecobank Transnational Incorporated.
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Speeches were followed by three different panel discussions tackling first the macro-economic perspectives and opportunities for the foreign direct investment as well as the portfolio investments in the WAEMU; then the attractiveness BRVM to international investors and finally, the improvement of relations with investors. Robin Amlôt, CEO of CPI Financial, moderated the first discussion and started by asking panellists how the drop in oil prices has impacted the UEMOA countries. Though the oil prices have destabilised many economies across the globe, BRVM Investment Days participants agreed that it was largely positive for their community. “What we call the extractives sector is only 6.6 per cent of our GDP [in UEMOA],” Adrien Diouf, Managing Director of Agence UMOA-Titres, said. “The price of oil dropping, I’m sorry to say for the international investors, it is actually a good thing for us.” He added that oil and commodities’ decline allowed for focus on other sectors and needs, such as the infrastructure gap. The IDB’s Sow, who also participated in the panel, agreed. “We have more to gain from the slowdown of the oil prices; it gives an opportunity for investors to tap into the competitive advantages of West African countries,” Sow said, adding that it was now up to West African governments and investors to work in tandem to leverage the economy on the basis of its strengths. Aurélien Mali, Senior Analytics Advisor for Africa at Moody’s Investor Services, took time to discuss the outlook for economic growth in the region. Mali said that Côte d’Ivoire alone accounts for 40 per cent of UEMOA GDP and that because Côte d’Ivoire is growing so fast—with 8.5 per cent growth predicted in 2016, it is one of the leaders on the continent— the rest of the UEMOA countries will be propelled alongside it.
“It is very likely that the economic growth is going to last, because Côte d’Ivoire is doing much with its ‘catch up’ process,” Mali said, referring to the country’s significant progress in diversification and infrastructure development since political violence ended only six years ago. While the overall outlook was that strong economic growth would continue across the eight economies, panellist Didier Acouetey, President and Founder of the HR resource company AfricSearch Group, warned that much is to be done in human capital development. “Looking at the unemployment rates [in the region], they keep rising, but the education system keeps growing,” Acouetey said. He advised that authorities focus on educational programmes, particularly vocational studies, that will help the burgeoning youth population fill in needed roles in the economy. This echoed Minister Koffi Koffi's own sentiment; in his keynote, he stressed the importance of education and mentioned a potential partnership with UAE authorities for international study. Yet speakers in the second panel also emphasises that to become more attractive to investors, the regional financial market must deepen. More specifically, Diouf said that the public debt market has to become a “cornerstone”, with a strong sovereign market leading more private sector growth. Thirty-five per cent of trading per day on the BRVM is in shares of Sonatel, the principle telecommunications provider in Senegal. Mali commented that telecommunications is the only sector that is fully mobilised in terms of listing and externalities. Amadou Hott, CEO of Senegal’s sovereign wealth fund, the Fonds Souverain d’Investissements Stratégiques, went so far as to suggest that while small companies could be incentivised to list on the exchange, big companies could be penalised for not doing so, receiving
39 17.77%
Listed companies on the BRVM
Increase in all shares index in 2015
100 million Consumers in the eight UEMOA countries
different tax rates than listed companies in their same profit bracket. “Typically asset managers like a bigger sized investment, but for that you need bigger companies,” Hott said, noting that there were not many in that range just yet in the region. Hott also highlighted the opportunities that bonds, whether Euro bonds or local issuances, could bring for capital raising. There were more than 100 participants from both Gulf and West African investment funds, banks, private equity funds and brokers at the event, which sought to attract new investors and more companies to list on the regional exchange. Currently, the companies listed on the BRVM include Nestlé Côte d’Ivoire, Unilever Côte d’Ivoire, Total Senegal and Côte d’Ivoire, as well as several other regional distribution, agriculture and transport companies. There are nine financial sector listings on the BRVM, with Ecobank Transnational Incorporated in Togo taking a significant share, as well as Bank of Africa’s Benin, Burkina Faso, Niger and Senegal operations.
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OPINION
Hanging in the balance It will be a long time before we go completely cashless, but it is up to banks to lead the way, writes Katia Hilal, Chief Operating Officer, RedCloud Technologies
(CREDIT: BRAT82/SHUTTERSTOCK)
H
ard currency remains popular as a safe store of value in countries with unstable exchange rates, repressive governments, capital controls or a history of banking collapses. These states prefer big banknotes: in much of Africa and Asia, a $100 note trades at a premium to smaller denominations. The Bank of England says overseas currency wholesalers are the main buyers of GBP 50 notes, which account for a fifth of cash in circulation. Dominant as hard cash is, there is a palpable desire to widen access to financial services in these countries. Cashless systems have already seen significant (if far from universal) adoption in these emerging markets. For example, 58 per cent of Kenyan adults have mobile money accounts with providers like M-Pesa, which
14 page 14-15 Opinion-034.indd 14
processes over $2 billion of transactions per month across EMEA.
COMPLIANCE Digitalisation of currencies is high on Central Banks’ agenda, but it has not become any less of a problem in Africa, where, according to a 2015 report by the African Union and the United Nations Economic Commission for Africa GBP 33 billion is lost to fraud and tax avoidance every year and money laundering is a constant concern. In some countries, illicit cash can, according to the US Department of State, dwarf some government budgets—unbalancing the economy in favour of the criminal element. Cash is untraceable from its origin, meaning it can circumvent know your customer (KYC) and anti-money laundering (AML) regulations with relative ease. It makes laws unenforceable.
If banks begin using cashless, IT-based solutions to manage and process payments (the much heralded approach of blockchain technology to ensure that the history of each transaction is entirely visible) the result will be a safe, trustworthy, and more compliant financial environment. It’s even possible to reconcile the regulations of different countries within a digital system—allowing institutions to manage money on the national and international level.
SECURITY The inconvenience of cash is not limited to the legal sphere: as a highly valuable physical entity, it also causes issues of logistics and security. When you’re moving money around, you have to literally move money around: it must be physically counted, stored,
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25/05/2016 16:55
collected, and transported. This makes it vulnerable to both theft and human error: no matter how careful you are, any shop can be robbed, any van can be held up (ZAR 8 million was stolen from a security van in South Africa recently)—and even if you’ve no doubts about the character of your employees, anybody can make mistakes when they’re made to count for hours. Distributors, suppliers, banks, and other key stakeholders are all at risk. Cashless systems effectively solve this problem: there is no physical labour, no threat of robbery, and while human error will always be a factor, it’s limited by the presence of meaningful checks and balances on the individual user’s power.
SPEED Perhaps the most frustrating thing about cash-in-transit is that it cannot be used when it is on the move. Not only is it at risk of theft or loss, it’s effectively useless while it’s in between locations. This can make a simple transaction a complicated, frustrating, multiday endeavour for customers. If, for example, a business needs a loan and successfully applies for it, it may have to wait for weeks to receive it from their microcredit provider. During this period, that cash cannot be used: money that could contribute to the economy’s growth remains stagnant. By taking cash out of the equation, the whole process is streamlined for customers and banks alike. When companies can react to the market quickly, speed of circulation increases exponentially: loans are repaid on or ahead of schedule, invoices are paid in full, and business can be conducted more effectively— enabling significant economic growth. If banks can standardise their workflows to facilitate fast approvals,
If banks can standardise their workflows to facilitate fast approvals, processing, and authentication, they can simultaneously serve more customers and accumulate more money. — Katia Hilal, Chief Operating Officer, RedCloud Technologies processing, and authentication, they can simultaneously serve more customers and accumulate more money.
A CASHLESS FUTURE? Of course, the above is stated with the understanding that cash likely isn’t going anywhere soon. It’s too entrenched to disappear from Africa overnight and the infrastructure isn’t there to support it. If cashless systems do become ubiquitous, it will be a gradual transition; one that may take at least a decade to fully come to fruition. Still, emerging markets are more receptive to innovations—partially out of necessity—and we may see cashless payments appear more and more in the coming years. Africa’s mobile adoption
in the absence of accessible financial services suggests that it may be open to the idea of leapfrogging traditional banking systems in favour of more advanced technological solutions. Whatever the speed of change, it will be dictated by banks. Efforts from telecoms may be creditable, but financial services are at their best when they’re provided by financial institutions. The technological barriers are slowly coming down: encryption, authentication, and efficiency have vastly improved in recent years, and there is a clear opportunity for banks to recapture their lost market share and expand it even further. They should take it: entire economies hang in the balance.
Taking cash out of the equation helps banks streamline processes, says Hilal.
www.bankerafrica.com
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COVER STORY
International investors are a top priority, says BRVM CEO Edoh Kossi Amenounve.
A new class for BRVM The West African Economic and Monetary Union has just been bumped to Frontier Market status, joining just five other African markets and throwing the regional stock exchange, the BRVM, into what CEO Edoh Kossi Amenounve hopes is a new era of growth
O
n 12 May, Morgan Stanley Capital International (MSCI) announced that the West African Economic and Monetary Union (WAEMU, or its French acronym, UEMOA) had been bumped up to its Frontier Markets Index, putting the Union’s fast-growing regional stock exchange in the company of Nigeria, Kenya, Mauritius, Morocco and Tunisia’s markets.
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The exchange, the Bourse Régionale des Valeurs Mobilières SA (BRVM), is already the sixth largest stock market in Africa, but its steady capitalisation and liquidity efforts over the past few years have helped push it from the ‘standalone’ MSCI Index that it was classified in just two year earlier. Reaching Frontier Market status is just one notch in BRVM’s ambitious plan to grow as both a capital market and a
driver for its eight member countries’ domestic business growth. Upon the announcement, BRVM CEO Edoh Kossi Amenounve called it an important step for investor confidence and WAEMU’s continued strong economic growth. Amenounve took some time to tell Banker Africa about the exchange’s plans, including new strategies to bring in foreign investors and build capacity for SMEs.
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What measures have been taken to attract international investors to the exchange? What is the ideal balance of foreign to local investors for you? One of our key strategic actions is to attract international investors to the BRVM and the WAEMU zone. We seek such investors to increase the efficiency of our market and make it more attractive. Obviously, the outcomes are already there to see with the high level of increase in value traded and holdings by international investors. We have strengthened the promotion of our market internationally by organising road shows for international investors. These road shows took us to different international financial centers such as Paris, London, New York and Dubai. During the shows, we have emphasised the good opportunities offered by investment in the WAEMU zone—such as an average growth rate of six per cent in 2015 and good forecasts for the years to come. Furthermore, the WAEMU regulations allow free repatriation of capital, dividends, and interest, etc. for international investors. We also continue to implement all of the needed reforms. The current ratio is 25 per cent foreign and 75 per cent local investors which, from my point of view, is the ideal balance.
How have external global factors, like the drop in oil prices, impacted the BRVM and/or its listed companies? BRVM and its listed companies have been protected from the effects of falling oil prices, as have the economies of the WAEMU countries when compared to other markets that include oil-producing countries. This can be explained by the fact that our economies are less dependent on oil than others. Furthermore, our currency, the CFA Franc, is pegged to the Euro
6th
The BRVM's size compared to other African stock markets
$12 billion
Capitalisation on the market in 2015
6.6%
Average economic growth of WAEMU countries in 2015
[655.957 CFA = 1 EUR] and backed up by the French Treasury, which contributes to the monetary stability of our Union—that shares the CFA as its currency—when compared to other countries in the West African region.
At “BRVM Investment Days” in Dubai, you highlighted some of the challenges African markets face. Which of these are key for BRVM right now, and how are you approaching them? BRVM has to continue to implement its development strategy, which aims to strengthen its liquidity and the growth of its capitalisation. To achieve these goals, we will focus on various strategic actions including firstly, the listing of new companies, particularly encouraging privatisation and the large
companies’ involvement. Secondly, we will reinforce regional and international promotion through roadshows. Third, we are launching the SMEs and high-potential companies compartment [of the BRVM’s listings] and fourth, we are creating incentives such as the launch of diaspora bonds. Fifth, we are setting up a new market for the mining industry and start-ups. We are also reinforcing capital markets integration with ECOWAS [Economic Community of West African States] markets, Franc zone markets and the Casablanca Stock Exchange. Finally, we are launching a venture capital market. By reaching these targets, we expect to have approximately 16 IPOs [initial public offering] by 2020, including four in the short-term.
How can regional companies be incentivised to list on the exchange? Increasing the number of listed companies is a key goal that we are currently working on. To achieve this goal, we have signed agreements with the Chambers of Commerce and Industries in the different WAEMU countries and with private equity funds aimed at discouraging them from exiting the stock exchange. The decision to come into the stock market is an internal strategic decision for a company at a certain stage of its development. All the same, we try, during our regional road shows, to educate decision-makers on the opportunities an IPO offers for a company.
What benefits does a regional exchange (rather than a country-specific one) offer, both for listing companies and for investors? A regional market provides companies and investors with a wider, deeper, and cont. overleaf
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COVER STORY
cont. from page 17
more liquid market for the mobilisation of resources with cost savings to accelerate the development of our continent. African stock markets are too fragmented. We must consolidate. For example, if the ECOWAS stock exchanges are grouped together, t h ey w i l l re p r esen t the sec o n d largest African trading group after Johannesburg.
In terms of size and growth prospects, how does BRVM compare to other stock exchanges in Africa? Where do you see it in five to 10 years’ time? BRVM is the sixth largest African capital market in terms of capitalisation, with $12 billion in 2015. We plan to be the fifth by 2020.
What opportunities are there for smaller or emerging companies to participate in the BRVM and grow? BRVM is like an alternative window for SME financing in our region. This is one of their greatest difficulties. The upcoming opening of a dedicated compartment in our market will allow them to benefit from financing opportunities offered by the market for their growth.
What is your outlook on economic growth for the BRVM’s member countries, particularly the smaller economies among them? Over the past three years, the BRVM has been boosted by the strong economic growth in the region and the promising prospects for development that are driving emergence over the mediumterm, as well as by the peaceful political environment which is strengthening democracy in our region. The WAEMU economies are showing resilience to internal and external
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Despite several oil producers among its members, the countries of the BRVM have fared relatively well in the price drops, according to Amenounve.
BRVM is the sixth largest African capital market in terms of capitalisation, with $12 billion in 2015. We plan to be the fifth by 2020. � Edoh Kossi Amenounve, CEO, BVRM shocks, due to measures implemented by member countries and to many efforts to support economic activity. WAEMU recorded significant growth in 2015—6.6 per cent, identical to 2014. It is expected to rise to 7.2 per cent in 2016. It was better than the rate of world economic growth [3.1 per cent] and the overall African rate [4.5 per cent]; it was even better than the Sub Saharan African economic growth rate [3.4 per cent] and those of ECOWAS [3.1 per cent]. This increase is mainly due to the recovery and strengthening of the economy in Cote d’Ivoire; good agricultural production and the increasing dynamism of the primary sector in general; the development of
industry with a better supply of energy and building infrastructure; as well as a stable 1.3 per cent inflation rate, favouring more consumption. By country, the rate of economic growth in 2015 is: 5.2 per cent in Benin; 4.4 per cent in Burkina; 9.5 per cent in Côte d’Ivoire; 4.7 per cent in Guinea Bissau; 4.9 per cent in Mali; 4.8 per cent in Niger; 5.4 per cent in Senegal and 5.8 per cent in Togo. For 2016, the growth rates of these economies are expected to accelerate to: 5.8 per cent in Benin; six per cent in Burkina; 9.8 per cent in Côte d’Ivoire; 4.9 per cent in Guinea Bissau; 5.4 per cent in Mali; 5.4 per cent in Niger; six per cent in Senegal; and 5.8 per cent in Togo.
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PROTECT • INVEST • ENJOY • PROSPER
Uniquely covering both sides of the luxury lifestyle, WEALTH Arabia is an essential read for the discerning elite of the GCC.
www.cpifinancial.net Wealth W148mm x H210mm.indd 1
23/05/2016 14:22
COUNTRY FOCUS RWANDA
Rwanda Development Board CEO and Cabinet Member Francis Gatare (L) signs the agreement with Raghu Malhotra, President, Middle East and Africa, MasterCard (CREDIT: MASTERCARD).
The ‘transformative power’ of ICT Through a series of government initiatives and public-private partnerships, including a new agreement with MasterCard, Rwanda seeks to lead digitalisation in Africa
I
n early May, more than a thousand people from 75 countries descended on Kigali. Rwanda’s hosting duties for this year’s World Economic Forum for Africa (WEF) allowed the countries’ authorities to showcase their own progress in financial and digital infrastructure, particularly as the Forum’s theme was ‘Connecting Africa’s Resources Through
20
Digital Transformation’. Though there is still a significant number of unbanked Rwandans, the small country has come a long way in bringing more citizens into the fold—according to World Bank and MasterCard figures, 42 per cent of Rwandans own a bank account compared to the Sub Saharan African average of 16 per cent; furthermore, 1.6 million people have opened accounts in
the country’s national SACCO savings and loan programme. Now the Government is pushing to definitively close the gap with a new MasterCard partnership announced on the sidelines of the Forum that aspires to move 90 per cent of Rwandans into the ‘financial mainstream’ by 2020. In a Memorandum of Understanding (MoU), signed by the CEO, Rwanda
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Development Board and Cabinet Member, Francis Gatare, and Raghu Malhotra, President of Middle East and Africa for MasterCard, the MasterCard Center for Inclusive Growth committed up to $1 million over the next three years to the task. The upcoming projects include the digitisation of school fees and national healthcare claim payments, as well as providing an online payment gateway for Rwanda Online, contributing to the creation of a common mobile banking platform, and contributing to the effective management of spending activities across borders. Speaking to Banker Africa, Malhotra said that the wide-ranging goals will start with information and communication technology (ICT) infrastructure and then tackle financial literacy. “The first step in transitioning to a cashless society is the establishment of an infrastructure,” he said. “Rwanda is focused on making ICT a keyfacilitator in creating a service-led economy by ensuring that all citizens form part of the financial mainstream. Rwanda understands that for financial inclusion to be a success, the likes of governments, business and civil society need to embrace the power of ICT and its role in financial services.” MasterCard will work with the Ministry of Education on school fees digitisation, and with Rwanda Online on the online payments gateway. These various initatives, Malhotra said, will contribute to “creating an interoperable mobile banking platform, addressing the national healthcare claims disbursement and payment processes and contributing to the effective management of foreign exchange process flow.” Malhotra acknowledged that there were stages to the process, starting with the challenge of financial inclusion itself. “Low financial literacy is the biggest inhibitor as citizens lack the sufficient
knowledge relating to financial services. MasterCard’s public-private approach with the Government of Rwanda is best positioned to address challenges such as the lack of formal identification, poor and often remote populations and financial illiteracy,” he said. According to data from MasterCard, small businesses comprise 97.8 per cent of Rwanda’s private sector and account for 36 per cent of private sector employment, making these business a key priority for inclusion efforts. Malhotra said that the MAsterCard funds will be used to deliver tools to these companies as well as connect micro-entrepreneurs in Rwanda to the formal economy. “Digitising the payment space is essential in achieving a cashless society as it directly contributes to achieving strong, sustainable and balanced growth,” Malhotra said. “The advancements and extension of digital platforms and payments can provide the security, transparency, speed and costefficiency required to increase financial inclusion at such a large scale.” At the Forum, Rwanda President Paul Kagame—who is expected to run for a third term as President in 2017 after a change in the constitution extending term limits—was quoted as saying that the third term is “not a personal project—it’s about the people”. Kagame has led the country since it emerged from the 1994 genocide, and a referendum in December 2015 will allow him to remain in office until 2034. In his opening remarks at the Forum, Kagame noted the “transformative power” of ICT development, but took an opportunity right away to emphasise the need for financial sector development. After saying that financial technology is vital, Kagame added that, “Boutique investing is critically important, but Africa needs scale. That means building the deep and efficient capital markets that enable institutional investors, such
as pension funds, to achieve stable, reliable returns by investing in African infrastructure and businesses. “ICTs are making such market platforms commercially viable for the first time. But we need to be thinking even bigger because Africa needs access to that capital in order to grow,” he said. In what could be construed as a response to critics of his extended Presidency, Kagame also touched on the relationship between politic systems and social development. “It is a myth that economic and social development can ever occur without civic participation and rights,” he said. “It is also a myth that there is only one acceptable way to build a just, free, and equitable society.”
42%
of Rwandans have a bank account
16%
of Sub Saharan Africans, on average, have an account
1.6 million
Rwandans have opened accounts in the state savings and loan programme.
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21 26/05/2016 16:18
COUNTRY FOCUS TANZANIA
Continuing to win Between increased mobile technology, growing microfinance needs and investment opportunities, the Tanzanian banking market is changing fast—Dr. Charles Kimei, CEO of CRDB Bank, discuss how the institution hopes to lead the way 22
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W
hat are your motives for turning the microfinance unit into a fully-fledged microfinance bank? What is the progress on this transformation?
Up until very recently, most transactions in Tanzania have been conducted in cash with few electronic options, Dr. Kimei said (CREDIT: MAGDALENA PALUCHOWSKA/FLICKR).
The rationale of transformation of our Microfinance Services Company (MFSC) derives from the current regulatory regime of the Central Bank, [the Bank of Tanzania, BOT] which recognises wholesale and group lending within the scope of microfinance. When CRDB Bank ventured into microfinance in 1999/2000 by initially running it as a window within the mainstream bank, we chose to do so through partner savings and credit cooperative societies that we had to train and help them build institutional capacity to collect savings from their members which the Bank could then leverage up to four times for them to on lend to members. Following the pilot that was done in 1999, [we] felt that it would have been better to operate this scheme from a separate subsidiary as it required skills and operational modalities that were different from those practised by traditional commercial banks. Nevertheless, the regulatory authorities [of the BOT] at that time argued that lending to savings and credit cooperative societies was like lending to any institutional borrower, and therefore discouraged us from registering the MFSC as a financial institution. Fortunately, the current BOT leadership has understood the concept and has already licensed a number of such players in the market, and this has awaken our appetite to register the subsidiary as a fully-fledged microfinance bank. Furthermore, recently there have emerged quite attractive opportunities in the microfinance market under the new framework of financial inclusion which has been powered by ICT developments—especially mobile money platforms.
So far we have hived off from the MFSC some activities which are disallowable for financial institutions, including the insurance brokerage business and the warehouse operations support services that were carried by the subsidiary on behalf of the parent bank, CRDB Bank. We are finalising the business plan of the CRDB Microfinance Bank, which is one of the requirements for licence application.
In your opinion, what are the biggest challenges that Tanzanian banks face today? I would mention three major challenges. First is the frequently changing regulatory requirements, especially those relating to prudential management of risk assets and capital adequacy requirements which have been stipulated far above the international [Basel] standards under the pretext that banks in Africa are subject to excessive risks. On the contrary, banks in countries like Tanzania run very simple, unsophisticated balance sheets with insignificant exposures to risks other than credit risk. The second challenge relates to macroeconomic environment which has been highly vulnerable to external shocks, such as fall in commodity prices and fall in aggregate demand in major economies, including China. These developments have adversely affected performance of our credit portfolio. The other challenge is the risks related to cybercrime and criminality.
What do you feel are the biggest sectors of need for banks to grow in to serve the Tanzanian market? In Tanzania the corporate segment offers opportunities in the gas, oil and energy sectors as these are likely to be the growth poles in the next decade. However, to the extent that the primary cont. overleaf
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COUNTRY FOCUS TANZANIA
cont. from page 23
sources of capital for the key investments in these sectors will probably be foreign, domestic financial institutions need to focus on financing activities in the downstream value chains. We need to financially empower SMEs to offer services to the mainstream operators and distribution channels. Our microfinance offering is wellpositioned to ensure basic domestic supplies to the corporate segments. More important is the stimulation of aggregate demand for various products that will come from safe and efficient money transfer and credit offerings by our microfinance partners.
We need to financially empower SMEs and be ready for the changing role of technology in banks, says Dr. Charles Kimei.
There is no doubt that the traditional role of banks has changed and it continues to change fast. � Dr. Charles Kimei
Can you tell us more about your e-payments campaign? How do you think the Tanzanian market compares to others in Africa in terms of banking technology and ‘cashless’ transactions? Tanzanians been described by many people as a cash economy, because until very recently most transactions have been conducted in cash and very few outlets accepted cards or other electronic means of payments—not to mention even cheques. In part this culture of demanding cash for payments grew out of poor payments infrastructure and legal framework. It used to take a long time to clear payment instruments after delivery of value. However, of recent, following the pioneer-ship of CRDB Bank in introducing its proprietary card under the flagship of TEMBOCARD in 2002, and further upgrading of the same to Visa, MasterCard and China Union pay membership, effective and massive campaign have been carried out in collaboration with other members of the banking community carrying those flags, to sensitive the general public on use of cards for payment. There are many advantages of doing so, especially security, convenience
24
and auditability. On top of this, mobile money services offered by, for example CRDB Bank under the brand name of ‘Simbanking’, which have been integrated with mobile money operators (MNOs), have added value to our campaigns for e-payments use.
As digital banking grows, do you see banks’ branch presence becoming less important? What will banking, especially in rural areas, look like in a few years? There is no doubt that the traditional role of banks has changed and it continues to change fast. The nearest future is to see more self-service touch points, where bank customers will be accessing all services without a direct interaction with bank employees. Technology driven outlets—virtual branches, kiosks and service centres will replace brick and mortar outlets! In the long run, currency will disappear and get replaced by electronic money! Central banks now have to start
thinking how monetary policy will be implemented.
What milestone achievements do you foresee for CRDB in the medium-term? We crafted the vision of being the leading bank in Tanzania in 1998 when we were a very small player in the banking market of Tanzania. Within six years of our operation under that vision we became number one and we have been the leader since. We have built adequate safeguards to maintain our position, and our board and shareholders have supported us. The foundation we have built is strong enough to assure us of future success. On top of this, the creation of our microfinance bank, the insurance brokerage company and envisaged investment banking subsidiary will add a lot to our future performance. I have no doubt that our winning management team will continue to win.
www.bankerafrica.com
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23/05/2016 12:34
COUNTRY FOCUS UGANDA
Is Uganda ready for Islamic finance? A regulation passed at the beginning of the year has opened the door for the sector, but many steps are left to realising an Islamic banking framework
Jaafar Abdulkadir, Head of Islamic Banking at KCB Group, highlighted the support that Islamic banks could provide to SMEs (CREDIT: ETHICO LIVE).
I
n January 2016, the Ugandan Parliament passed a law allowing for the foundation of Islamic banking institutions in the country. It was a review and reform of the last Financial Institutions Act, passed in 2004, and opened the door not just for Islamic banking, but also agency banking and bancassurance. International groups have quickly jumped on the new opportunity that the law could provide for the fastgrowing sector. The first Sub Saharan Africa Islamic Finance Convention 2016,
organised by Ethico Live, ran in the capital city of Kampala for two days in early May and gathered a significant number of regional Islamic banking executives. KCB Group, perhaps best-positioned to move into the Islamic banking space in Uganda with its already strong presence in the market and its recently re-launched Islamic window, was represented by Jaafar Abdulkadir, Head of Islamic Banking. Speaking ahead of the conference, Abdulkadir said that Africa’s increasing Muslim population as a whole would drive the sector’s
growth, but that SMEs in particular stood to benefit most from Shari’ahcompliant principles. “Inadequate access to funds is a major developmental constraint for Africa and many SMEs, entities and entrepreneurs remain outside the mainstream banking system. Islamic finance has the potential to be a catalyst for financial inclusion across Africa and can become an important source of capital for small companies and individuals.” Yet there is still significant groundwork to be laid if Islamic banking is expected to flourish in Uganda. Sulaiman Lujja, the Head of the Islamic Banking and Finance Department at the Islamic University in Uganda, said at the convention that the Central Bank Act, the Hire Purchase Act, the Stamp Duty Act and the Accounting Principles Act all needed to be reviewed and expanded upon to incorporate Shari’ah compliancy. “Islamic banking is now ready to take off, after the passing of the amended Financial Institutions Act [of 2016]. But without the review of those four laws, the deepening of Islamic finance will be difficult,” Lujja said. “Regulators should deliberate to have standard law of practice which harmonises both civil and Shari’ah law to address the unique features of Islamic banking business.” Though the Financial Institutions Act allows for the establishment of a Shari’ah advisory board and other necessary elements of an Islamic finance framework, the regulatory permissions are just the start. On 16 May 2016, the Bank of Uganda said that banks had been cleared to roll out Islamic products. It will likely be banks with established Islamic windows, such as KCB Group, that will be primed to roll these out first, but according to the Parliament, 11 out of 22 institutions in the country have expressed interest in their own Islamic banking operations.
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INVESTMENTS
AFSIC: Investor interest continue to grow The fourth AFSIC took place 5-6 May 2016 at the Park Plaza, Riverbank, London, bringing together an audience from across the African continent
T
he annual Africa Financial Services Investment Conference (AFSIC) brings together African financial services companies with a wide range of Africa’s most important investors, both debt and equity. The event has grown over the course of the last three years, more than doubling in size between 2014 and 2016 and relocating in that time from Brighton to London for AFSIC 2016. AFSIC focuses on regulated African financial services companies, covering retail and investment banking, insurance and reinsurance companies, consumer lending companies, micro finance banks, leasing companies, African asset managers, stockbrokers and similar companies, based across all countries on the African continent including North Africa. The ambition behind AFSIC is to establish the annual event as Africa’s largest financial services investment forum. In addition to conference presentations and, perhaps, the key part of the event for many participants, is the opportunity that was offered to prearrange individual meetings prior to arrival between investors, dealmakers, and other players; discussions were held with those looking for expansion debt or capital, or deal opportunities such as acquisitions. AFSIC provides a forum where regulated African financial services companies and dealmakers
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may undertake these focused business meetings with a wide range of private equity and listed equity investors, development finance institutions, and supra-nationals. AFSIC provides a dedicated online meeting system that allowed delegates to arrange these meetings with each other up to one month prior to the event itself. Day one of the conference began with two presentations providing an overview of the investment landscape into African financial services, from Mohamed Kalif, Manager Financial Institutions Team at the African Development Bank and Joseph Rohm, Portfolio Manager, Investec, entitled, respectively, ‘Investing into African Financial Services Companies and how to access them’ and ‘Managing
African Portfolios in a more challenging environment’. Thereafter, following the format established in previous years, the conference became a two-room, twin-track event with presentations on various aspects of the industry running in tandem. Day two of AFSIC followed a similar pattern with the first session (chaired by CPI Financial CEO Robin Amlôt) consisting of a panel discussion and two presentations focusing on investment ‘value’, particularly in Nigeria and Kenya. Thereafter, the event again split into twin-track presentations. Planning has already begun for the fifth annual AFSIC event; AFSIC 2017 will take place at the same venue, the Park Plaza, Riverbank, in London on 3-5 May 2017.
Mohamed Kalif, Manager of Financial Institutions Team at the African Development Bank, opened the event.
Rupert McCammon, Founder and Managing Director of AFSIC, has lead the conference’s fouryear growth.
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POLICY SPOTLIGHT
The ‘twin peaks’ regulatory approach has been implemented in the UK and the Netherlands, but what will it look like in South Africa? (CREDIT: E2DAN/ SHUTTERSTOCK).
Twin peaks: the summit of financial regulation Is the ‘twin peaks’ regulatory model a right fit for South Africa? Law firm Hogan Lovells’s Louise Lamb, Partner, Catherine Robert, Professional Support Lawyer, and Rashi Lordan, Associate, discuss its meaning and implications.
J
urisdictions such as Australia, the United Kingdom and the Netherlands have substantially reformed their financial regulatory systems by adopting a ‘twin peaks’ approach to regulation. Such reforms aim to ensure the stability of the financial system through the creation of two separate agencies which, broadly speaking, are responsible for prudential regulation and financial conduct. South African legislators are also in the process of implementing a ‘twin peaks’ model, which will largely mirror the system introduced in the United Kingdom. Given the contrasting nature of the economic environment in each jurisdiction, is ‘twin
28
peaks’ a suitable and effective regulatory regime for this Sub Saharan country?
THE FACTS In the UK, the twin peaks model has been in place since 1 April 2013, when the previous tripartite system of regulation, centered on the Financial Services Authority (FSA), was replaced. Under the new twin peaks model, the Prudential Regulatory Authority (PRA, part of the Bank of England) is responsible for prudential regulation of key institutions, including banks, insurers and systemically important investment firms. The Financial Conduct Authority (FCA) is responsible for
prudential regulation of all other firms, and for regulating the conduct of all firms, including PRA-regulated firms. In South Africa, the Financial Sector Regulation Bill is nearing its promulgation and is currently in the National Assembly before the Standing Committee on Finance. As stated in the preamble of the Bill, the ultimate aim of the anticipated legislation is ‘to preserve and enhance financial stability.’ This fundamental objective is largely to be achieved through the introduction of two new bodies, the Prudential Authority (which will be housed within the South African Reserve Bank) and the Financial Sector Conduct Authority.
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Such reform represents a significant shift away from the existing framework whereby prudential and market conduct regulation is shared between the South African Reserve Bank, Financial Services Board, the National Credit Regulator and the National Consumer Commission.
WHY WAS ‘TWIN PEAKS’ INTRODUCED? In the UK, the reform was implemented as a response to the financial crisis, following which the tripartite model was criticised by some as being ill-conceived and badly executed and the general consensus was that the FSA had not focussed sufficiently on its prudential responsibilities. The concerns about the previous tripartite model included structural issues such as the risk of ‘underlap’ because no one regulator was looking at the UK’s financial system as a whole; and the risk that issues might be overlooked because of the potential conflict between the FSA’s responsibilities as conduct regulator and prudential regulator. In South Africa, the implementation of twin peaks has been justified in three key ways: first, South Africa‘s system of financial regulation has always been broadly modelled on countries to which it is historically linked, e.g. the United Kingdom and the Netherlands (which adopted the model in 2002); second, South Africa is aligning itself with the global trend towards twin peaks regulation; and third, twin peaks is the least disruptive approach to financial regulation, according to a 2011 South Africa Treasury paper, A Safer Financial Sector to Serve South Africa Better.
IS IT SUITABLE FOR THE SOUTH AFRICAN MARKET? Whilst the economic environment in each jurisdiction is very different, the implementation of twin peaks in the UK looked at the structure of the financial markets, rather than the health of the economy. A reason that twin peaks was
championed in the UK was the fact that it satisfied two conditions: first, that banks did not dominate the UK’s financial sector (in that there are a number of non-bank financial institutions in the market); and secondly, that the UK has a highly developed consumer protection framework. In testing these two conditions in relation to South Africa, whilst accepting that there are still some issues to be addressed (e.g. the role of the National Credit Regulator), it would appear that the fundamental reasoning behind the implementation of the ‘twin peaks’ model is sound and logical.
South Africa is in the process of implementing a ‘twin peaks’ model, which will largely mirror the system introduced in the United Kingdom…but is ’twin peaks’ a suitable and effective regulatory regime for this Sub Saharan country? In relation to South Africa, the contribution of non-bank financial institutions to the South African economy is currently around 10 per cent of South Africa’s GDP, but is expected to increase. The Financial Services Board currently oversees the regulation of the non-banking financial industry, which includes retirement funds, shortterm & long-term insurance companies, funeral insurance schemes, collective investment schemes (unit trusts and stock market) and financial advisors and brokers. As indicated by the 2011 National Treasury paper, the regulators and National Treasury alike are aware
of the requirement to regulate nonbanking financial intermediaries as a result of the liquidity and credit risk they pose to the financial system. The consumer protection framework is also robust, with the National Consumer Commission playing a key role in enforcing and carrying out the functions assigned to it in terms of the Consumer Protection Act No. 68 of 2008. This legislation aims to, amongst other objectives, promote a fair, accessible and sustainable marketplace for consumer products and services; establish national norms and standards relating to consumer protection and provide for improved standards of consumer information and education.
THE NEXT STEP To date, the PRA and FCA have completed joint enforcement actions in three cases, and the enforcement side of the twin peaks model appears to be working smoothly. This said, all three cases related to breaches which occurred prior to the introduction of the ‘twin peaks’, and so did not test the rigour of the new model. As to the ultimate effectiveness of the twin peaks model, the true indicator of success for both the UK and South Africa is whether the change in the regulatory model will prevent a future financial crisis. In both cases, the answer is that it is too early to tell—it is important to recall that the FSA appeared to be working well for ten years until the last financial crisis struck. There is also a risk that structural changes to regulators may divert attention from their core role, which is that of supervision. The biggest risk to the success of the twin peaks model therefore, may not arise from the changes to the regulatory structure, but from ensuring the initial smooth implementation of changes and the ongoing resourcing and empowerment of supervision and enforcement teams.
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SECTOR FOCUS ISLAMIC BANKING
Fadi Al Faqi said that banking penetration is low in Sudan.
Driving Sudan forward As the biggest bank in the country, Bank of Khartoum is familiar with the challenges but keen to continue its exponential growth, said CEO Fadi Al Faqih
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23/05/2016 12:36
Y
ou just established your first overseas branch in Bahrain—what led you to this expansion and what has been the progress so far in the new market?
Bank of Khartoum [BOK] achieved the first regional presence in the Kingdom of Bahrain in December 2015; this initiative was in line with the Bank’s 2014-16 Strategy targeting representation and presence in Africa and in the Gulf Cooperation Council [GCC] region. This achievement is considered crucial and anticipated by BOK to maintain consistent returns and growth. But most importantly, it is to achieve a breakthrough with increasing pressures from correspondent banks and incremental impact on the various business sectors, and moreover gives more comfort and assurance in applying the best practices under various regulators in different jurisdictions. BOK’s business model in Bahrain will address providing intermediary payments and trade services for BOK clients and financial institutions, as well as attract investment funds to opportunities for investment in Sudan, giving additional comfort and access to foreign direct investments. We are thankful for both Central Bank of Sudan and Central Bank of Bahrain for their continuous support and respective approvals and we look into building a reputable footprint for BOK in the GCC furthering our brand name and our clients reach.
Do you have more international expansion in the pipeline? Our 2014-16 strategy does aim to approach and increase more markets in the GCC and African region; we are in the due diligence stage of looking at other markets in Africa which will be in line with our strengths and strategy.
H o w d o y o u s e e Af r i c a positioned in the global Islamic banking sector, both now and in the future? Islamic banks have witnessed doubledigit growth rates, surpassing their conventional peers. At first glance, all seems well for the Islamic banking industry. There is ample room for growth as Islamic banking rarely exceeds a third of total market share, even in GCC countries and Malaysia. Several potential markets with large Muslim populations remain largely untapped, such as India and the Commonwealth of Independent States countries, made up of the former Soviet republics.
countries have relatively large Muslim populations, making them fertile and suitable to absorb Islamic banking and its products. That being said, Islamic finance is still at a nascent stage of development in Sub Saharan Africa. The share of Islamic banks is still small and Islamic capital markets are virtually nonexistent at the same time, yet the demand for Islamic finance products is likely to increase in coming years. At present, about half of the region’s total population remains to be banked. Furthermore, the Sub Saharan African Muslim population, currently at nearly 250 million people, is projected to reach 386 million in 2030 and financial
We have a social and ethical responsibility to help shed the light not only on Islamic finance in Sudan but on other aspects and potentials the country as whole. — Fadi al Faqih, CEO, Bank of Khartoum
In addition, overall banking penetration in many of the industry’s core markets is still low. For example, GCC countries have not yet achieved the banking penetration levels of countries such as France or the United Kingdom. At the same time, several new markets have opened up for Islamic banking, with even more on the horizon. The African continent is an also big and holds strategic potential where Sudan is concerned. Countries like Botswana, Kenya, Gambia, Guinea, Liberia, Niger, Nigeria, South Africa, Mauritius, Senegal and Tanzania already have Islamic banking activities; and with scope for development in Zambia, Uganda, Malawi, Ghana and Ethiopia, all the mentioned
activities are expected to rise as a share of GDP. With these opportunities, development will be inevitable for Islamic finance to expand and extend its services to meet with the growing needs in retail products to small- to medium-sized enterprises, Sukuk issuance, microfinance, and more.
What were some of the main highlights of the recent IFIF 2016 for you? How has, or might, the Forum contributed to the sector’s growth? One of the key reasons we instigated the IFIF Forum in the first place was to shed light and awareness on Islamic banking in Sudan. There is a wealth of cont. overleaf
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SECTOR FOCUS
cont. on page 31
knowledge and experience in this field in Sudan, which, due to economic and political status, has been unrealised and unrecognised added to the potential that the country itself holds with its numerous natural resources. That led us to realise that as the leading bank in Sudan, we have a social and ethical responsibility to help shed the light not only on Islamic finance in the country but on other aspects and potentials the country as whole. The second IFIF was built on the success of the first one launched in 2014, and has thus attracted a larger audience and a wealthy selection of speakers on topics which are vital to the intended audience—the theme of ‘Innovation, Inclusion and Infrastructure’ spanned from topics such as social media to key areas for spurring economic growth in Africa. This included innovation and inclusion in bringing fintechs and mobile payments to under-banked markets, in addition to microfinance, to Africans. This was all in to the exclusive launch of the Sudan Islamic Finance report by Thomson Reuters, IRIT and the CIBAFI.
What is your outlook for the growth of the banking sector in Sudan? Sudan is indeed considered a pioneer in Islamic banking not only in Africa but in the world; the most significant contribution Sudan offers to the Islamic banking is the diversity of the Shari’ah-compliant products applied in the various aspects of the economy and their wealth of knowledge in their practice. Although US sanctions on Sudan have had a negative impact on promoting the Sudanese experience, there has been many breakthroughs from institutions in Sudan to show case Sudan’s knowledge and experience in the field through the awards and achievements received.
32
BOK has contributed a lot to that by creating a positive reputation both regionally and internationally especially in the aspects of microfinance.
How can Sudanese financial institutions grow to be more inclusive for the unbanked populations and small businesses (MSMEs)? How is BOK achieving this? It’s a well-known fact that banking penetration in Sudan is considered low and thus provides the opportunity for the bank to expand and avail financial services to individuals the various business sectors. To enable financial institutions to be have an outreach to the various sectors there has to be certain enablers such as a good branch/cash office network, ATM and CDM network and moreover the introduction of products that fulfil the need of the consumer like microfinance.
What are some of the main challenges of operating as a bank in Sudan right now? How are you navigating these? BOK, as many institutions in the country, has faced continuous challenges that had led to the mentioned strategies of expansion and strategic investments to mitigate, manage and alleviate the ramifications of some of these challenges, especially the financial challenges. Sudan has faced, over the last 20 years or so, many challenges in the financial environment, particularly from an international context. The country has had to deal with the imposition of sanctions by the US since 1997. Then there were also financial penalties imposed on global heavyweights like BNP Paribas and Standard Chartered, which resulted in financial institutions across the board winding down all direct and/or indirect
dealings. Whether the nature of the business is permissible or not under the sanctions regulation with countries on US sanctions lists in what has been known as the ‘de-risk phenomenon’. Added to that was the secession of the South of Sudan in 2011, which has led the country to sacrifice 75 per cent of its oil revenues. Yet, BOK has managed to face and overcome many of the challenges by positioning its brand across Sudan through its vast network. BOK has more than 100 individual branches, over 210 ATM/CDMs, six subsidiaries and a workforce of about 1,600 employees, positioning the bank as one of Sudan’s top choices for every major segment in which it is involved—microfinance, retail, SME, investment and wholesale banking included. The bank’s traditional strength over its regional competitors lies in retail banking, in which it offers a diverse range of products to cater to a distinctly wideranging customer base. The product menu includes auto, home, education, durable and wedding finance; Takaful; Discount Plus (a loyalty programme); supplementary cards; premier banking, current, savings and fixed term accounts. BOK also recently launched its first-ever Kids’ Branch for Sudan’s younger generation in order to promote the importance of savings to them, aided by the offer of high rates on deposits. Moreover, we strive for continuous innovation through tech services, including e-banking solutions such as mobile banking, internet banking and SMS alerts and BOK’s range services, e-solutions and products is continuously growing. The consolidated equity of BOK by December 2015 was SDG 1.45 billion, approximately $232 million. This financial strength allows the bank to be a powerhouse in driving the country’s economic and social development forward.
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Celebrating
the best of the best in West
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AUGUST 2016
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22/05/2016 10:29
TRAILBLAZERS
Consumer data on a dime A Kenya based start-up attracts respondents to a variety of surveys through a quick and easy method that’s attracting global attention
(From L-R,) Bamba Group CEO Al Ismaili, CTO Faiz Hirani and VP Business Development Shehzad Tejani, founded the company together.
W
hen global tech investor group TechStars announced that Bamba Group would enter its Austin, Texas-based accelerator programme, it was more than a victory for the three-year old Kenyan company. In fact, the February 2016 announcement
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meant that TechStars would support its first East African company. The recognition was so notable that even Kenya’s Cabinet Secretary of Information, Communications and Technology (ICT), Joe Mucheru, made a statement, saying that he hopes Bamba “will inspire many more start-
ups to get recognised globally”. Kenyan authorities had already used Bamba’s services with data collection through the Presidential Digi-talent Programme (PDTP), a public–private partnership run by the ICT Authority in Kenya and commissioned by the President of Kenya.
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The Bamba Group founders came together in 2013 to develop data collection software that would be efficient. The product they developed incentivises mobile users to through direct mobile airtime payments that they receive after taking survey—the first such model for collecting information. The cloud-based system has been picked up by both public and private leaders in Kenya including the Aga Khan Foundation, Nairobi Airport Services, and Diamond Trust Bank, but the founders say that its model can be used in 122 countries. “As founders we saw the need to create a robust data collection tool. And we are now addressing this need,” Ismaili said. “Bamba was started with the aim to develop a data collection solution to help solve the problem every organisation faces—how to increase efficiency while using less time and resources to deliver the organisation’s objectives,” he continued. The Bamba solution is designed to help customers track their teams’ progress against set objectives and to reduce their costs, the founders said. Bamba has also implemented SMS, app and web data collection software to help clients communicate, survey and obtain feedback from their beneficiaries, clients, suppliers and the public. “Our product will give voice to the 1.5 billion people across the globe who have feature phones and have no access to internet or other means of communication apart from SMS and mobile phones,” Tejani said. “Bamba does data collection for its partners and also provides data visualisation tools to analyse the collected data.” The founders say that is an ideal market for Bamba to go global. “Kenya is one of the leaders in tech in emerging economies which made the decision to found the company in the
country a natural choice,” Faiz Hirani said. Tejani added that the nature of Bamba’s services make it a good fit for a mobile-connected market like Kenya, particularly with incentives like airtime credit for completed survey, “The market in Kenya is receptive to this type of service. Bamba’s product enables large scale data collection at
Our product will give voice to the 1.5 billion people across the globe who have feature phones and have no access to internet or other means of communication apart from SMS — Shehzad Tejani, VP Business Development minimal cost. Our response rates are high because respondents are provided incentives to provide their inputs. Our assessments indicate that the market for this type of service is growing fast,” Tejani said.
DATA FOR EVERY PURPOSE Data collection needs vary widely from company to company, as each business utilises data to meet and improve different services. “The key difference we have seen so far is the depth of the analysis of a topic required by a particular customer,” Ismaili said. He outlined various examples, from one SMS survey that asked citizens to indicate what they saw as priorities for their county’s budget allocations, to more in-depth market research that could run dozens of questions. “One area where quality data can be invaluable is government
policy making. Equally, the development sector uses data to design effective programmes. During the implementation phase, development agencies have to collect data to monitor their progress and determine whether set objectives are met. And there is little doubt that the commercial sector requires quality, timely data for decision making. Where we see the evolution is in how data is collected rather than in data itself,” Ismaili said. Though Bamba’s first three years have been impressive, keeping growth sustainable will now be key. At TechStars’ 13-week programme in Texas, the founders began the next chapter of Bamba’s story. Besides TechStars’ training and initial investment into each chosen company, the investor also connects participants with its network of roughly 5,000 investors and tech innovators in the field. According to TechStars, companies go on to raise an average of over $3 million in capital after the programme. “The mentors we have worked with are an incredible group of people who have founded and grown companies themselves. The advice they offer is invaluable and has helped us avoid typical startup pitfalls. In addition, Techstars gives us access to the pool of investors looking to fund promising businesses,” Ismaili said. For the founders, the next step is global. Ismaili said that Bamba’s near-future plan is to open up offices across the globe and become the leading provider of the SMS-based data services. “Bamba Group is a testament to our globalised world where a startup from any corner of the planet can rise up, pursue their passion and make a lasting impact on the world,” TechStars Austin Managing Director Amos Schwartzfarb said.
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TECHNOLOGY
Analysing analytics for the Islamic banking opportunity Every institution needs solid analytics and technology, but Islamic banking brings specific needs and opportunities to leverage data, writes Fadi Yazbeck, Product Manager for Temenos IslamicSuite
A
frican banks are starting to realise the huge opportunities that the Islamic finance market offers. Nigeria (which has the largest Muslim population in Sub Saharan Africa) is, for example, trying to establish itself as the African hub for Islamic finance. Why? The significant liquidity available within Islamic finance, largely derived from Middle Eastern investors, presents an ideal source of funding for Africa’s huge infrastructure needs. The assetsharing structure of transportation, property development and power generation projects are particularly well suited to the asset-sharing financing model of Sukuk. From a retail perspective, the emergence of mobile and agency banking as well as panAfrican banking groups, have a great potential to transform the existing business models, improve competition and efficiency, as well as access to finance and support financial inclusion. However, Islamic Banking historically has its challenges, and as African banks start to focus on the opportunities, they must also look to address these. According to the EY World Islamic Banking Competitive Report 2016, Islamic banks historically tend to have lower profitability (12 per cent ROE versus 14.5 per cent ROE)
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and lower cross selling rates (2.1 products per customer versus 4.9) than conventional banks, while also lagging in customer experience. Another recent EY survey found that only 14 per cent of Islamic banking customers are satisfied with the speed of their bank’s service versus 20 per cent for the conventional banks, and only 11 per cent of the customers happy with the ease of their bank’s processes versus 21 per cent for the conventional banks. The Islamic finance industry has previously struggled in terms of efficiencies and these are starting to be addressed; a recent paper from Temenos, Taking Islamic Banking to the cloud: Turning opportunity into reality, looks at how these efficiencies can be greatly improved, however, Islamic banks must also become more customer-centric and data intensive to profit in this market. But how?
USING INFORMATION TO RETAIN YOUR CUSTOMERS
Compliance technology, important in all banking, is especially key for Islamic institutions, says Fadi Yazbeck
With increasing competition (particularly from new players like M-Pesa), transparent product pricing, account switching made easy, and consumers’ attitude to managing their finances changing, customer loyalty is declining and the number of financial service providers per customer is increasing. Reducing the attrition rate
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of profitable, or potentially profitable, customers is key to increasing a bank’s balance sheet growth. Reports such as Leading on the Edge of Chaos, by Emmett C. Murphy & Mark A. Murphy, indicate that a five per cent increase in customer retention can increase business profits by between 25 per cent and 125 per cent. By using predictive analytical models, a bank can increase profitability by focusing on customer attrition. It could determine which customers are profitable and which are not, which customers are at risk of moving or stagnating and which customers are prime for nurturing to make them more profitable. Embedded analytics can then be integrated into front line channels to evaluate the risk and either deter the customer from switching with an incentive or let the customer go according if they are deemed low value. Embedded analytics can also be used as part of a retention plan by enabling a more personal conversation with the customer across all touch-points and channels.
USING DATA TO INCREASE PRODUCT PENETRATION Targeting customers at the right time with the right solutions is crucial to increasing customer penetration (and in turn supporting retention) and of course increasing profit. However, according to the Capgemini report, Big Data Alchemy, only 37 per cent of banking customers globally feel their bank understands their needs and preferences. In Africa, where reports estimate that 67 per cent of the population now have a mobile phone, an instant source of rich data can be accessed. With the mobile money market generating over $656 million in revenue in Africa alone, there is a huge opportunity for Islamic banks to use this information to increase profitability. By integrating and blending captured data into analytical models, a bank can
Big data offers huge opportunities for banks and none more so than to Islamic banks. — Fadi Yazbeck, Product Manager for Temenos IslamicSuite
identify insights such as channel usage and preference, number and type of products per customer, typical product bundles, buying trends by demographic, and much more—the opportunities are endless. If Islamic banks use this insight to add value for customers and offer them a personalised service, we begin to move into the realm of experiencedriven banking; offering relevant products and services to customers, at the right time and place, via their preferred channel.
FINDING THE COMPLETE PICTURE There is a source within a bank’s infrastructure that contains rich, up-todate customer information that has already undergone extensive analysis. Anti-money laundering software offers a complete picture to understand customer behaviour over time and across the product line. It should hold all the transactional information on the customer in one record, regardless of how many accounts they have (credit card, current account, savings, etc.). And this transactional information often provides a picture of several days, providing a detailed insight of the customers’ recent behaviour. In addition, peer grouping and segmentation information is held in FCM software. This presents a significant opportunity to measure and understand trends to support cross-sales. The opportunities are endless when you combine information from several account sources, but with many banks having disparate systems that struggle
to talk to each other, the FCM system provides the only holistic view. It is the cleanest unified set of data in a bank. In addition, Islamic banks must include a complete customer enhanced due diligence (CEDD) approach within their FCM systems to ensure full awareness at client level, offering a greater level of detail than is held at current account, savings or credit card account level. And where CEDD is practised an even greater level of data is available.
BIG DATA, BIG DEAL Big data offers huge opportunities for banks and none more so than to Islamic banks. Islamic banking in Africa is set to take off, but to compete banks must be prepared to offer the products their customers need and increase their ‘stickiness’ for their customers to stay. There are challenges, however, such as overcoming data silos, storage issues and concerns around security. Sixtytwo per cent of banks are cautious due to privacy concerns. For many institutions—and particularly Islamic banks where compliance and security is of utmost importance—the priority is to lock down customer data to ensure that it is not compromised. While the privacy of customers must be maintained, this mindset will limit banks’ ability to leverage data. Despite these challenges, none of them are unsurmountable by investment in the required technologies, processes and people coupled with a top down commitment to becoming a data driven, customer centric Islamic bank. New providers are already making grounds within the region, using data to succeed. It will not be long until they tap into the Islamic banking market too. African banks must be ready and embrace this rich source of information to profiting from the $2 trillion opportunity that the Islamic market offers.
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TECHNOLOGY
Are Africa’s banks ready for biometrics? In an environment where mobile is king, biometrics can be the best strategy for security and usability, writes Dewald Nolte, VP Business Development, Entersekt
B
iometric-based authentication is spreading as fast as technical improvements and economies of scale allow. It’s little wonder. Using your fingerprint or voice as a no-fuss means of digital identification makes sense. You always have these personal attributes with you and the technology conveniently eliminates a number of keystrokes. So why is adoption by enterprises in Africa so patchy? Cost has been a major factor, of course. In Africa, the earliest adopters of biometric-based authentication systems have been governments, but even they have often relied on foreign aid to finance the readers and other infrastructural investments required. In a growing number of African states, electoral commissions are introducing biometrics technology in an effort to stamp out electoral fraud. Governments are also using it to address payroll fraud, improve the delivery of public services, control physical and digital access to their facilities, and secure national borders. Larger corporates, especially in South Africa, have also begun employing biometrics to secure their premises and prevent so-called buddy clocking, a kind of employee time theft.
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What about Africa’s banks? A handful have been using biometrics for a while now in order to speed up client onboarding and simplify other in-branch interactions. Entersekt’s customer Capitec Bank, which was recently rated the best bank in the world by the Lafferty Group, is one example. Meanwhile, Investec and Nedbank have incorporated mobile device-based biometrics technology into their Entersekt-engineered online and mobile banking authentication systems (FirstBank in the United States has too). These banks, like thousands around the world, are taking advantage of the opportunities presented by Apple and Google’s integration of fingerprint readers into iOS and Android. As smart phone penetration climbs in Africa, we will see much greater use of biometrics by homegrown banks. Biometrics promises an improvement on the security offered by passwords and PINs, but banks’ primary interest in it relates to usability: it reduces the amount of information users have to input manually. On a continent where mobile is often the only practical banking channel, this is especially important. Instead of having to type out login credentials or awkwardly switch between apps to enter a one-
time password, users can access their accounts and approve transactions with a quick scan of a fingerprint or voice.
SERVER-BASED OR DEVICEBASED BIOMETRICS? Privacy and security concerns nevertheless remain. One big worry relates to where digitised biometric records are stored. Just like anything digital, this information exists as bits and bytes, which can be copied and shared with ease. Passwords and other login credentials have leaked in the billions, but will biometric data prove any safer in the long run? How do banks and other organisations prevent exposing their consumers’ biometric data to hackers? Some organisations go by the saying, “If you want a job done well, do it yourself.” They capture biometrics data themselves and store it on their own servers, where they guard it closely. In this way, the party bearing the greatest liability takes full control of the process, architecting user authentication to match its risk appetite closely. They are also now able to reuse individual biometric records across all their digital channels. For a bank, that means authenticating users of mobile, Internet, in-branch self-service, call centre, and more, all with the same data.
www.bankerafrica.com
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Banks are, however, then dependent on mobile device manufacturers and other third parties for the scanning and storage of biometric data—on their assessment of the precision of their sensors and the security they deem to be adequate. Where a server-based approach allows banks to conduct the enrollment of their customers and bind their attributes to their customers’ accounts, a device-based model cedes control to third parties. Isn’t that too big a risk?
Banks can apply device-based biometrics without ceding control of user identity to third parties, says Dewald Nolte, VP of Business Development at Entersekt.
THE MULTI-FACTOR IMPERATIVE
Biometrics promises an improvement on security, but banks’ primary interest in it relates to usability…on a continent where mobile is often the only practical banking channel, this is especially important. — Dewald Nolte
One big drawback to this approach is the fact that large single-reference repositories make highly attractive targets for hackers. The potential gains in accessing a very large database are greater than for a series of smaller ones. One system presents a single challenge, one attack surface against many. The theft of biometrics records of 5.6 million past and present US federal employees in 2014 and of detailed personal data on more than nine million Israelis, alive and dead, in 2006 stand as two examples of how highly sophisticated security systems can be bypassed if the prize is big enough. To address this risk, mobile industry leaders like Samsung and Apple take a fundamentally different approach to biometrics storage. Their model requires users to self-enrol biometric information using their mobile device. The data is stored on the device and, crucially, never leaves it.
There is a way that banks can apply a device-based biometrics authentication model without ceding control of user identity to third parties. To do so, they must supplement their use of biometrics with a second factor of authentication. In other words, they must implement a multi-factor authentication regime. Biometrics can be used to replace the user ID/password and improve the user experience. It can also act as an additional data point in mobilebased out-of-band authentication. But to guarantee that the user is legitimate and that their communications are those that they intended, the mobile device itself must be uniquely identified using a digital certificate downloaded to the phone through the bank’s mobile app. The device is, in this way, transformed into a trusted second factor of authentication (something the user has) supplementing the first factor, the device-bound biometrics data (something the user is). The process of identifying the device is transparent to the user; it involves no additional action aside from their initial registration of the device with the bank. From the banks’ perspective, this approach not only secures their digital banking app and portal beyond anything biometrics can provide alone; it meets their requirement for a low-friction user authentication process.
www.bankerafrica.com
page 38-39 Tech Entersekt 034.indd 39
39 23/05/2016 12:38
GOVERNANCE
Taxation improvements, together Four major international organisations have convened on a platform to improve strategies for governments’ tax revenue and international tax cooperation
T
hough international organisations such as the International Monetary Fund (IMF) and the World Bank have consistently made strong tax policy a priority in their programmes, international focus on stronger tax systems was jumpstarted by last year’s Sustainable Development Goals (SDGs) and the Addis Ababa Action Agenda, among other calls for transparency and
40
cooperation. Solid tax revenues are necessary for governments to achieve the myriad of development goals ahead of them, but another factor has also propelled action—the increasingly international reach of individual countries’ tax policies. “An era of unprecedented international cooperation on tax matters is now underway,” the International Monetary Fund (IMF),
United Nations (UN), World Bank and Organisation for Economic Cooperation and Development (OECD) said in a recent report, Platform for Collaboration on Tax. The report called for a new platform to help implement cooperative tax procedures.
DOWN TO THE DETAILS The collective platform aspires to bring together every country on key barriers
www.bankerafrica.com
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(CREDIT: POGONICI/SHUTTERSTOCK)
Four to 10 per cent of global corporate income tax (between $100 and $240 billion a year) is lost to base erosion and profit shifting annually. — OECD Report
to effective tax revenue. Michael Keen, Deputy Director of the IMF’s Fiscal Affairs Department, said that while the platform will not be limited to any set of countries or regions, there will be an initial focus on developing countries. “The work of the platform is not limited to any set of countries or regions. Initially, however, our work will focus on the development of the various ‘toolkits’ requested by the Development Working Group of the G20, which have a focus on developing countries. Several of these, though not all, are concerned with tailoring the outcomes of the BEPS process to the special circumstances of developing countries,” Keen said. Alex Trepelkov, Director of Financing for Development for the Department of Economic and Social Affairs, United Nations, said that in Africa, the four organisations will be working with the African Tax Administration Forum (ATAF) and the Centre des Encontres et d’études des Dirigeants des Administrations Fiscales (CREDAF). “The UN has already been working actively with ATAF in delivering joint capacity development initiatives in Africa. Last year, the UN and ATAF cooperated on the organisation of two workshops on transfer pricing and double tax treaties, which were held in Lusaka, Zambia, and Dakar, Senegal, respectively, with the participation of 70 tax officials from 30 African countries,” Trepelkov said. The platform has already completed one toolkit on the use of tax incentives, a 44-page report entitled Options for Low Income Countries’ Effective and Efficient Use of Tax Incentives for Investment. Keen said that they are now working on another, on indirect assets, which they expect to complete in July 2016, and another toolkit on comparables in transfer pricing that is underway.
One of the most significant barriers to effective taxation in Africa is the large informal economy in each country. Both Keen and Trepelkov said that this would be a key issue for the platform to focus on later down the line. “There is a lot to do on the toolkits, which will keep us busy! It is indeed a key issue, and one that recurs in much of the IMF’s technical assistance work,” Keen said, noting that it is not just significant for Africa, but even advanced economies with significant informal sector business activity. Indeed, the IMF explored the topic and strategies for improvement in an October 2015 report, Current challenges in revenue mobilisation: Improving tax compliance. The report cited a study that estimated e-commerce revenue losses in Alabama, a US state, in the range of $170–190 million in 2012— indicating that that are several sectors that could be more closely regulated for tax purposes. “The informal sector raises a wide range of tax concerns,” Trepelkov said. “These include issues related to the design of a tax system to address the wide variety of forms of non-compliance, incentivise micro/small businesses to enter the formal economy and minimise the cost of tax collection for tax administrations. In this respect, it is critical to understand the tradeoffs between revenue objectives, tax base broadening and state legitimacy objectives. “While informality is a tax concern for all countries, the extent and nature of the issues differ significantly among them. To date, there is little advice on how to frame the tax and informality issues facing developing countries in particular, and little guidance for policy makers and administrators. Accordingly, the platform will also aim to produce joint outputs to fill this gap, cont. overleaf
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GOVERNANCE
cont. from page 41
including policy papers, analysis and guidance,” he said. For now, the major objective for the four contributing organisations of the platform will be incentivising countries towards effective tax reform. Keen noted that many programmes were already underway in this regard. “The Fund, for instance, provides advice to over 100 countries every year on strengthening their tax policies and administrations—including on regional cooperation issues. There is also an important link between the Platform and the new Inclusive Framework being developed by the OECD,” he said. Keen was referring to the Base Erosion and Profit Shifting (BEPS) framework that the OECD is developing. The OECD defines BEPS as tax planning strategies that exploit gaps in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid. BEPS are a key issue for developing countries, as they channel revenue away from corporate income taxes vital to many government programmes. The OECD estimates that between four and 10 per cent of global corporate income tax is lost to BEPS annually— which translates to about $100 to $240 billion a year. Since November 2015, the OECD has been developing an Inclusive Framework for BEPS implementation that includes monitoring, review and limited technical work to aid countries implementing BEPS programmes. The IMF, UN and World Bank will be observers for the Framework. The platforms toolkits are in line with these BEPS goals, with some, like the transfer pricing toolkit, directly aiding the Framework and others, such as the indirect transfer of assets toolkit, extending past the Framework’s original objectives. The policy note announcing the
42
platform noted that this would be within its goals—to “identify and analyse emerging international tax issues, especially those of interest to developing countries-including with a view to possibly bringing them to the attention of the Inclusive Framework.” Trepelkov said that, in addition to formalising regular tax policy discussions among the four international organisations, the platform would, “Help strengthen their capacitybuilding work, deliver jointly-developed guidance, and share information on
operational and knowledge activities, with the aim to support developing countries in implementing more effective and efficient tax systems and administrations. “Furthermore, the platform will strengthen dynamic interactions between international tax standards setting, capacity building and technical assistance, with a view to better supporting developing countries as they seek both more capacity support and greater influence in designing international tax rules,” he concluded.
Taxing multinational companies The taxation of multinational enterprises covers a broad range of issues, including not only those dealt with under the G20/OECD Base Erosion and Profit Shifting Project (BEPS Project), but also other issues of particular relevance to developing countries, such as tax incentives, transfer pricing comparability analysis, tax base eroding payments of interest, royalties and fees for services, as well as taxation of capital gains. The Platform’s first task will be to deliver a number of toolkits designed to help developing countries implement the measures developed under the BEPS Project, as well as address other relevant issues. The first of these jointly-developed toolkits, focusing on tax incentives, has already been delivered and the Platform will build on this experience to deepen collaboration on the development of the other toolkits. The development of the toolkits will be informed by discussions in the recently launched OECD Inclusive Framework, which allows all interested countries and jurisdiction to participate on an equal footing in the OECD work on the implementation and monitoring of the BEPS Project. In addition, the Platform is expected to identify and analyse emerging international tax issues, especially those of interest to developing countries, with a view to possibly bringing them to the attention of the Inclusive Framework. The jointly-developed toolkits will complement those developed by each of the four international organisations in line with their respective mandates and programmes of work. In the case of the UN, these include the United Nations Practical Manual on Transfer Pricing for Developing Countries, the United Nations Handbook on Selected Issues in Protecting the Tax Base of Developing Countries, as well as the Practical Portfolios on Protecting the Tax Base of Developing Countries, which aim to provide practical guidance to developing countries for the purposes of protecting and broadening their tax base. Source: Alex Trepelkov, Director of Financing for Development for the Department of Economic and Social Affairs, United Nations
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THE AUTHORITATIVE VOICE OF ISLAMIC FINANCE Essential reading for an expanding industry - Islamic Business & Finance is the world’s most thought-provoking monthly magazine dedicated to the development of Islamic finance globally.
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OUTLOOK
Taking steps in the right direction Between economic pitfalls and currency devaluation, Egypt has not been an easy market for investors lately—but Renaissance Capital says progress is being made
S
outh African funds are among the leading foreign investors in Egypt according to Renaissance Capital—which is likely why the emerging and frontier markets investment bank held its inaugural Egypt Corporate Access Day in Cape Town, on 20-21 April 2016. “The opportunities in Africa, from Egypt to South Africa and the countries which make up the 6,000 kilometres in between, are abundant. At a time when some investment banks have retrenched in Africa, we see a real chance to develop a panAfrican platform, strengthening ties and economic ventures between a number of different nations,” Ahmed Badr, Chief Executive Officer, MENA, Renaissance Capital, said. Badr cited the International Monetary Fund (IMF) projection that Egypt’s economy would grow by 3.3 per cent in 2016, behind only Kenya’s six per cent growth among the larger equity markets. Renaissance Capital believes that despite the impact of falling oil prices and lower tourism levels on the country’s economy, Egypt’s current account should show signs of a turnaround in H2 2016. Assuming the delivery of more currency and fiscal reforms, Egypt can accelerate industrialisation and job creation in order to meet optimistic growth forecasts, the Bank said. Ahead of the April event, Renaissance’s Global Chief Economist
44 page 44-45 Outlook034.indd 44
Charles Robertson and Equity Strategist Vikram Lopez released a “Thoughts from a Renaissance man” report, Egypt—tough times, some positive steps in which the two acknowledged the challenges that the country has faced since the decline in commodities prices.
The most important challenge is the currency. The more comfortable investors are that they [can] take money out of Egypt, the more likely they are to bring money into Egypt. � Charles Robertson, Global Chief Economist for Renaissance Capital “The fall in oil prices has been bad news for Egypt,” the report said, noting that remittances are the single biggest foreign currency generator for Egypt and mainly come from Gulf countries— but that these fell 12 per cent in 2H15 compared to 2H14. The report stated that the next single largest revenue generator, petroleum exports, has fallen 42 per cent. Furthermore, falling oil prices have encouraged more ships to use cheap fuel oil to sail around Africa rather than through the Suez Canal, so despite the widening of the canal, revenues from there are down seven per cent.
Tourism, another traditional revenue source, has also suffered greatly. Robertson and Lopez noted that tourism from Russia alone fell 99 per cent in January from the same period in 2015. Russians comprised most of the 224 victims of the Metrojet Flight 9268 crash in November 2015, but the decline in tourism has stretched beyond borders—in total, Renaissance Capital found that travel receipts feel 33 per cent in the second half of 2015. While this all seems dire, Robertson told Banker Africa that “domestic demand is the [main] growth driver” including the Suez Canal widening, investments in housing and real estate that are funded in part by the Gulf countries, and continued investment in the oil and gas sector. In the report, Robertson and Lopez forecasted that the oil sector would begin to improve after August 2016, while tourism revenues are likely to remain weak until late 2016. Like the IMF, Renaissance Capital expects the current account deficit to be around five per cent of GDP in 2016. The report highlighted a positive, noting that imports have remained consistent due to credit growth— which topped 15-20 per cent last year from a from a 0-10 per cent range over 2010-2014—as well as the Gulf’s $25 billion financial inflows since President Abdel Fatteh el-Sisi took power. However, Robertson and Lopez point
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FIGURE 1. SOME OF THE MORE SIGNIFICANT SOURCES OF CURRENT ACCOUNT: EXPORTS RECEIPTS IN 2H15 VS 2H14, $m Export receipts ($mn and % ch) -July-Dec 2014 vs July-Dec 2015 July-Dec 2014
10,000
9,380 8,279
8,000 6,000
July-Dec 2015
6,976 6,003
5,369
4,000
4,012
3,127
2,857
2,707
2,647
2,000 2,000Petroleum exports
Suez Canal
Travel
Remittances (net)
Bank of Egypt
Figure 12: Index performance FIGURE 12. INDEX PERFORMANCE Figure 12: Index performance
Jul-15 Jul-15
Jan-16 Jan-16
Jul-14 Jul-14
*Excludes negative to positive EPS changes *Excludes negative to positive EPS changes
Already the currency has moved from the most expensive in EM to the fourth most expensive. The latest currency shift is a step in the right direction in our view and leaves the Egyptian pound only 15 per cent apart from the bureau de change rate, compared to more than 50 per cent apart in Nigeria,” the report stated. “We see inflation as a key factor determining the timing of future currency moves and cuts in subsidies. As in 2000-2003, when food prices are benign, the authorities feel more comfortable letting utility prices rises or depreciating the currency.
On outlook, Robertson and Lopez said that the Government is moving in the right direction on both currency and fiscal reforms, helping to soothe investor confidence. Yet they also highlighted a new regulation limiting terms for top bankers that could have negative effects. Roberston also added that oil remains a concern for future stability. “A plunge in the oil price would hurt Egypt’s current account and jeopardise capital inflows from the Gulf and is probably the biggest risk today,” he said.
www.bankerafrica.com
page 44-45 Outlook034.indd 45
Jan-15 Jan-15
Jan-14 Jan-14
MSCI EM, $ MSCI EM, $
Jul-13 Jul-13
Jul-12 Jul-12
Jan-13 Jan-13
MSCI Egypt, $ MSCI Egypt, $
Jul-11 Jul-11
130 130 120 120 110 110 100 100 90 90 80 80 70 70 60 60 50 50 40 40
Jan-12 Jan-12
EGP EGP 3,825 3,825 90.2 90.2 B-/B3 B-/B3 0.2% 0.2% MXEG MXEG 9.0 9.0 31.6% 31.6% 1.9 1.9 0.4 0.4 8.3 8.3 6.2 6.2 3 3 17.3 17.3 EGX100 EGX100 27.4 27.4 100 100 64.6 64.6
Jul-10 Jul-10
Figure 11: Key FIGURE 11. data KEY DATA Figure 11: Key data Local currency Local currency GDP/capita, $ (2016) GDP/capita, $ (2016) Population, mn (2016) Population, mn (2016) S&P/Moody's rating S&P/Moody's rating Weight in MSCI EM, % Weight in MSCI EM, % MSCI Index MSCI Index 2016 P/E, x 2016 P/E, x 2016 FY EPS growth 2016 FY EPS growth Trailing P/B, x Trailing P/B, x Beta to EM Beta to EM MSCI full MktCap, $bn MSCI full MktCap, $bn MSCI free float MktCap, $bn MSCI free float MktCap, $bn No. of companies No. of companies 3M ADTV, $mn, MSCI cos 3M ADTV, $mn, MSCI cos Local index Local index MktCap, $bn MktCap, $bn No. of companies No. of companies 3M ADTV, $mn 3M ADTV, $mn
Jan-11 Jan-11
out that private sector investment and consumption could have been faster were it not for currency restrictions. “We expect the authorities will allow further currency depreciation over the coming 12 months to bring the currency in line with market fundamentals,” Roberston told Banker Africa. “The most important challenge is the currency. The more comfortable investors are that they [can] take money out of Egypt, the more likely they are to bring money into Egypt. In the medium term, ease of doing business improvements would be helpful and in the long term reform to the judiciary would be very helpful.” Over the course of putting together the report, the Renaissance Capital researchers said that Egyptian Government officials did not shed light on when the process of the Egyptian pounds’ depreciation would be complete. However based on numbers from a previous depreciation process over 2000-2004, they were able to make a few predictions. They expect a further shift to EGP 11/$ though 20162017, which would bring the currency back to the average rate of the past 20 years, according to their real effective exchange rate (REER) analysis.
Jan-10 Jan-10
©Source: Central
Other Exports
45 26/05/2016 16:23
THE VIEW
PICTURE OF THE MONTH Kenyan President Uhuru Kenyatta looks on as roughly 105 tonnes of tusks and ivory ornaments, collectively valued at $172 million, were burned in Kenya on 30 April as part of the ongoing fight against the illegal ivory trade that kills an estimated 30,000 elephants a year (CREDIT: MWANGI KIRUBI/FLICKR).
POLL
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Which African country is most difficult for doing business? NIGERIA EGYPT
21%
46 page 46 The View034.indd 46
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6%
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17%
29%
ANGOLA
27%
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