#44 - May 2017 by CPI Financial

MAY 2017 | ISSUE 44

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ISSUE 44 | MAY 2017

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New numbers point to a positive outlook A CPI Financial Publication

INSIDE:

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OPINION Trends and policies in the banking & ﬁnance industry in Kenya—2017

SECTOR FOCUS Micro-funding, macro results

Dubai Technology and Media Free Zone Authority

Continued growth for Tanzania New numbers point to a positive outlook

Continued growth for Tanzania

TRAILBLAZERS Building the future 30/05/2017 09:08

contents

MAY 2017 | ISSUE 44

EDITOR’S LETTER

ello and welcome to the May issue of Banker Africa. This month we turn our eyes squarely to the East African region with our country focus taking a look at Tanzania. The country has had quite a success story with its campaign to shift to mobile money, with its number of subscribers growing from fewer than 200,000 in 2008 to 53.3 million by February 2016, turn to page 24 to find out what the economic situation looks like now. By the time of publication of this issue we have recently held our East African awards in Nairobi, full coverage of this will follow in the next issue, but I want to take this brief moment to thank all of you who attended, the event was a great success! AML compliance and financial crime are issues that we haven’t covered extensively in the last couple of issues, so this month I am pleased to say we have two featured pieces that cover

the topic from two separate angles. William Lawrence of SAS tells us that Africa is on the way to world-class compliance on AML on page 44, whilst Temenos comments on how to directly combat financial crime on page 46. Finally, our Trailblazer section focuses on Architecture For A Change. This South African start-up offers full turnkey solutions for buildings constructed out of shipping containers. Whether this be for residential housing, corporates or for rural communities. The organisation have already engaged in projects such as providing mobile banking branches, find out more about them on page 40. Until our next issue,

Matthew Amlôt

IN THE NEWS 6 News analysis: Faster cloud for Africa 7 Essential financial news from around the continent

10 Spotlight: Morocco HAPPENINGS 12 Heard at AFSIC 2017… 13 Investment arbitration in Africa highlighted at WAIAC

Explore what banking could be Trusted mobile app security and authentication solutions

OPINION 14 Trends and policies in the banking &

finance industry in Kenya—2017 Akash Devani, Partner, Anjarwalla & Khanna, and Leah Muchiri, Principal Associate, Anjarwalla & Khanna, a founding legal firm of the Africa Legal Network, write exclusively for Banker Africa

www.bankerafrica.com www.bankerafrica.com

SECTOR FOCUS

Africa’s divergent real estate markets

Clean, mobile, secure

20/03/2017 11:39

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outlook

Full details at: www.bankerme.c om

INSIDE:

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27/04/2017 11:47

OPINION Trends and policies & ﬁnance industry in the banking in Kenya—2017

SECTOR FOCUS Micro-funding, macro results

Zone Authority

Continued gro for Tanzania wth

New numbers point to a positive

TRAILBLAZERS

Dubai Technology

Covering the underserved

and Media Free

Dubai Technology and Media Free Zone Authority

Zone Authority and Media Free Dubai Technology

West

PLUS: 14 OPINION How far are banks being truly transforma ve?

outlook

Publication

SECTOR FOCUS future Africa’s digital

Giel-Jan M. Van Der Tol, CEO, Emirates NBD Egypt

S TRAILBLAZER

A CPI Financial Publication

A CPI Financial

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Emirates NBD’s international expansion into Egypt

point to a positive

Bank of Djibou

page 3-4 contents

Get the next issue of Banker Africa before it is published. Full details at: www.bankerafrica.com

New numbers

Governor, Central

PLUS: 16 OPINION inclusion in Africa Driving financial

for Tanzania

HE Ahmed Osman,

Governor,

Djibou Central Bank of

Continued growth

Progress: positive

ve Progress: positi HE Ahmed Osman,

MAY 2017 | ISSUE 44

2017

Get the next issue of Banker Africa before it is published. Full details at: www.bankerafrica.com

Emirates NBD’s international expansion into Egypt Giel-Jan M. Van Der Tol, CEO, Emirates NBD Egypt

ISSUE 42 | MARCH

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ISSUE 43 | APRIL 2017

ISSUE 44 | MAY

2017

ISSUE 43 | APRIL 2017

ISSUE 42 | MARCH

.com www.bankerafrica

TRAILBLAZERS Building the future

entersekt.com www.bankerafrica.com

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contents

MAY 2017 | ISSUE 44

MARKETS 16 The role of ratings in development

Credit ratings can play a significant role in addressing the challenges and highlighting some of the advantages of investing in Africa

the two focal points of AfDB’s support strategy for Angola

38 Recovering Rwanda

18 Nigeria’s dollar scarcity to stay

The country’s dollar liquidity shortage is likely to continue

COUNTRY FOCUS 20 Continued growth in Tanzania

Although opportunities continue to be present in Tanzania, challenges remain for the East African nation

24 Boosting banking in Tanzania

TRAILBLAZER 40 Building the future

Banker Africa spoke with Abdi Mohamed, MD, Barclays Bank Tanzania Limited

27 FBME licence revoked

Earlier this month the Bank of Tanzania announced that it had revoked the business licence of the bank FBME

ISLAMIC FINANCE 31 African projects highlighted at

42nd IDB meeting At the latest annual meeting of IDB, various African projects were announced

CASE STUDY 32 Staying ahead of the game

Faisal Islamic Bank (Sudan), is featured with exclusive comments from the Bank’s General Manager, Al-Baqir Al-Nouri

MICROFINANCE 34 Micro-funding, macro results

Mwangi Githaiga, Managing Director of KWFT on the microfinance industry in Kenya

FINANCIAL INCLUSION 36 Angola and AfDB focus on

inclusive growth Agricultural transformation and infrastructure development are

Anton Bouwer and John Saaiman, two of the three Directors and Co-Founders of Architecture For A Change, a South African start-up, spoke with Banker Africa

TECHNOLOGY 42 Are you on top of your digital

OUTLOOK 28 African CEOs confident on

business outlook PwC has released a new report based on interviews with CEOs from across the continent

Banker Africa spoke with Sanjeev Anand, Managing Director, BPR and Eric Rutabana, Country Head of Corporate and Investment Banking BPR, about their outlook for the Rwandan economy, and the challenges on on-boarding the unbanked

experience management strategy? Elie Dib, Senior Managing Director, METNA at Riverbed on the importance of gaining insight into how your customers interact with your technology

GOVERNANCE 44 Africa is on the road to world

class AML compliance Banks are making progress on combating money laundering, says William Lawrence, Regional Practice Lead: Fraud and Financial Crimes at SAS

46 Financial crime in Africa—

breaking the cycle, not the bank Temenos reveals details of their A-Z of Financial Crime in Africa report for Banker Africa

INVESTMENTS 48 ESG in private equity: from fringe

to focal The pressure is on private equity managers to step up and offer sustainable investment solutions, says Mirja Lehmler-Brown, Senior Investment Manager at Aberdeen Private Equity

THE VIEW 50 Photo and survey of the month Cover Photo: Jonas Witt/Flickr

Log on to www.cpifinancial.net for news, polls, events, analysis, blogs, features, commentary and more.

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news

analysis

Faster cloud for Africa Microsoft’s expansion of cloud computing into Africa is a boon for business Cloud computing in Africa has suffered from speed deficiencies in the past (CREDIT: JIRSAK/SHUTTERSTOCK).

frican businesses and individuals often have to experience what appears to be a slower internet connection than elsewhere in the world, but this problem is not merely an infrastructural one, but due to the fact that much of the content being requested is hosted on servers outside the continent. However, there have been some signs of some change in this regard. Microsoft recently revealed plans to deliver the complete Microsoft Cloud for the first time from datacentres located in Africa. Microsoft will offer services, including Microsoft Azure, Office 365, and Dynamics 365, from datacentres located in Johannesburg and Cape Town, South Africa with initial availability anticipated in 2018 and the option of data residency in South Africa. Although this move will likely result in more responsive services for existing cloud users, perhaps the more significant consequence of this move will be for small businesses on the continent.

Cloud services can fill the gap of expensive IT solutions for small businesses and entrepreneurs at a substantial reduction in cost—Microsoft has announced that they have helped bring 728,000 SMEs online and that over 500,000 are now utilising Microsoft’s own services. Furthermore, cloud solutions can often provide improved flexibility over traditional IT solutions. The expansion of more services based on the African continent is a boon for the small economy. “We’re excited by the growing demand for cloud services in Africa and their ability to be a catalyst for new economic opportunities,” said Scott Guthrie, Executive Vice President, Cloud and Enterprise Group, Microsoft Corp. “With cloud services ranging from intelligent collaboration to predictive analytics, the Microsoft Cloud delivered from Africa will enable developers to build new and innovative apps, allow customers to transform their businesses, and let governments better serve the needs of their citizens.”

Meanwhile, full-fledged businesses will see increased response time and better usability of Microsoft’s cloud services. “We greatly value Microsoft’s commitment to invest in cloud services delivered from Africa. Standard Bank already relies on cloud technology to provide our customers with a seamless experience,” said Brenda Niehaus, group CIO at Standard Bank. “To achieve success as a business, we need to keep pace with market developments as well as customer needs, and Office 365 empowers us to make a culture shift towards becoming a more dynamic organisation, whilst Azure enables us to deliver our apps and services to our customers in Africa. We’re looking forward to achieving even more with the cloud services available here on the continent.” As more international providers of cloud computing begin to offer localised versions of their services with data centres positioned in the Africa, businesses on the continent will be set to benefit from more reliable, cost-efficient and faster cloud computing solutions.

www.bankerafrica.com

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RATINGS REVIEW BANKS AND BUSINESSES S&P has affirmed its ratings of ‘B+/B’ of African Bank Ltd. with the outlook revised to stable from negative on the back of an improvement in the Bank’s capitalisation.

SOVEREIGNS S&P has affirmed its sovereign ratings of ‘B/B’ on the Federal Democratic Republic of Ethiopia with a stable outlook. The ratings on Ethiopia are primarily constrained by the sovereign’s weak external position, low monetary policy flexibility, and limited institutional effectiveness, but supported by high growth prospects over the next four years. S&P affirmed its ratings of ‘A-/A-2’ on the long and short-term foreign and local currency sovereign credit ratings on the Republic of Botswana, the outlook remains negative. The negative outlook reflects the firm’s view that economic growth could be weaker over the next 12 months, barring an improvement in international diamond prices to support higher production levels. Fitch has affirmed Mozambique’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘RD’ and Long-Term Local Currency IDR at ‘CC’. The Long-Term IDRs do not have Outlooks. The Short-Term Foreign-and Local-Currency IDRs have been affirmed at ‘C’ and the Country Ceiling at ‘B-’.

ON THE RECORD Q1 M&A activity down, total deal value remains stable: EY

MENA M&A activity declined in Q1 2017 recording 84 deals, compared to 115 deals in Q1 of 2016, according to EY’s Q1 2017 M&A report. However, MENA deal values remained broadly stable reaching $18.2 billion in Q1 of 2017, compared to $18.4 billion in Q1 2016.

ICD and SunTrust Bank Nigeria Limited (SBN) sign an agreement

The Islamic Corporation for the Development of the Private Sector (ICD) and SBN, signed an agreement to establish a new non-interest banking window in SBN in Nigeria.

Surge in M&A and investment predicted in African mobile and broadband as telcos seek scale

African mobile telecoms operators, infrastructure owners and service providers are ramping up investment and targeting acquisitions across the region to meet the surge in demand for connectivity, according to Enda Hardiman, Managing Partner of Hardiman Telecommunications.

ALN expands with three new francophone members

Africa Legal Network (ALN) has announced the admission of three new members as part of their strategy to expand into francophone Africa. The new members are based in Algeria, Guinea and Morocco and joined as of one May 2017.

The Africa Legal Network is now present in 16 countries, making it the largest legal alliance of its kind in Africa (CREDIT: BCFC/SHUTTERSTOCK).

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in the

news

A QUICK WORD

Decades of unprecedented economic growth have bypassed millions of Africans, and all too often it is women and young people at the bottom of the pile.

IMF EXECUTIVE BOARD APPROVES $241.5 MILLION UNDER THE ECF ARRANGEMENT FOR TOGO

– Winnie Byanyima, Executive Director, Oxfam International at World Economic Forum on Africa 2017 For these stories and more, visit www.bankerafrica.com

Dubai Islamic Bank gets banking licence in Kenya

DIB is the largest Islamic bank in the UAE and the first Islamic bank to incorporate the principles of Islam in its practices.

The licence has been granted under Sections four and five of the Banking Act after fulfilment of the stipulated requirements. DIB intends to exclusively offer Shari’ah -compliant banking services in Kenya. It becomes the third fully Shari’ah compliant bank to be licenced in Kenya, after Gulf African Bank Limited in 2007 and First Community Bank Limited in 2008. CBK noted that it welcomes the entry of international brands such as DIB into the Kenyan banking sector. DIBs entry will expand the offerings in the market, particularly in the nascent Shari’ah compliant banking niche. This also signifies the first entry of a UAE bank in Kenya to support the economic ties between Kenya and the UAE.

Fitch: Nigerian bank results put spotlight on capital weakness

The latest round of results announced by Nigerian banks highlights capital weakness in the sector, with some mid-sized and small banks particularly vulnerable to deteriorating asset quality, Fitch Ratings said. “Headline capital adequacy ratios (CARs) are under severe pressure from inflated foreigncurrency risk-weighted assets following last year’s devaluation of the naira and increasing impaired loans as the economy struggles with lower oil prices,” said the agency in a release. “Several banks are not provisioning fully for their impaired loans, meaning that their underlying capital position is weaker than indicated by their CARs. Full provisioning would leave some banks close to the minimum regulatory requirement. We have analysed the sensitivity of selected banks’ CARs to 50 per cent and 100 per cent rises in their end-2016 impaired loans, assuming full provisioning. While most of the larger banks would still meet regulatory capital requirements, several others would fall short in one or both of the stresses.”

The new arrangement under the ECF will support the authorities’ efforts towards fiscal consolidation while maintaining space for pro-poor spending, said the IMF in a statement (CREDIT: NATANAEL GINTING/ SHUTTERSTOCK).

The Executive Board of the International Monetary Fund (IMF) has approved a new three-year arrangement for Togo under the Extended Credit Facility (ECF) for SDR 176.16 million (120 per cent of quota or about $241.5 million) to support the country’s economic and financial reforms. The Executive Board’s decision enables an immediate disbursement of SDR 25.17 million (about $34.5 million). The remaining amount will be phased in over the duration of the programme, subject to semi-annual reviews. Following the Executive Board discussion on Togo, Deputy Managing Director Tao Zhang, and Acting Chair, said, “Togo’s economy has shown solid performance in recent years, with sustained growth and low inflation. The country’s growth performance has been underpinned by high levels of public investment to address significant infrastructure gaps. However, this capital spending has also increased public debt and debt service pressures, crowding out needed social expenditures. At the same time, lingering deficiencies in the financial sector have remained unresolved.

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in the

news

IPCC holds meeting in Addis Ababa to draft Sixth Assessment Report outline

Attijariwafa bank completes 100 per cent acquisition of Barclays Bank Egypt Attijariwafa bank has completed the acquisition of 100 per cent of Barclays Bank Egypt after obtaining all the required regulatory approvals. Barclays Bank Egypt, headquartered in Cairo, is present in 18 Egyptian cities with 56 branches and 1,500 employees. It posted a net banking income of EGP1,950 million (MAD1,062 million) and a net income of EGP 663 million in 2016 (MAD 365 million) as of 31 December 2016. Attijariwafa said in a release that the acquisition will allow the bank to widen its footprint into a third African economy. The financing of this acquisition has been anticipated since the fourth quarter of 2016 by reducing by half Attijariwafa bank’s share capital in Wafa Assurance and issuing perpetual subordinate debt eligible on Capital Tier 1.

AFDB ANNOUNCES EXPANSION OF AFRICAN BOND INDEX

The African Development Bank (AfDB) through the African Financial Markets Initiative (AFMI) launched the AfDB/AFMISM Bloomberg African Bond Index (ABABI) in February 2015. Calculated by Bloomberg Indices, the composite index is currently comprised of the Bloomberg South Africa, Egypt, Nigeria, Kenya, Botswana and Namibia local currency sovereign indices and have been joined from April this year by Ghana and Zambia. “As more African countries are increasingly looking to domestic capital markets to source much-needed financing for economic development, we are delighted to welcome Zambia and Ghana to the index and expect to include more countries to it as soon as reliable pricing information is made available,” said Stefan Nalletamby, Director of the AfDB’s Financial Sector Development Department. The new expanded index will now include the eight most liquid sovereign bond markets in Africa.

Central Bank of Kenya receives 12 expressions of interest over Chase Bank Following the 30 March 2017 announcement inviting investors to present an initial Expression of Interest (EOI) to take an equity interest in Chase Bank (Kenya) Limited (In Receivership) (CBL), the deadline for submission of EOIs expired on 21 April 2017. During this period, a total of 12 replies to the EOI were received. The respondents comprised of three Kenyan banks, four foreign banks, and five other financial institutions and consortia. The evaluation of the EOIs has now been completed and a shortlist of qualifying investors has been identified. Shortlisted investors and other respondents have been informed of the outcome of this process.

The Intergovernmental Panel on Climate Change (IPCC) will hold a scoping meeting in Addis Ababa on 1–5 May 2017 to draft the outline of the Sixth Assessment Report (AR6). The meeting will bring together 200 experts from some 60 countries. The IPCC decided to produce the AR6 in February 2015. It is due to be completed in the first half of 2022. The meeting in Addis Ababa will draft the outline and indicative coverage of the contents of the three Working Group contributions to the report, which will be released in 2021, for consideration by the IPCC when it next meets in September. “With this meeting we are taking a decisive step to advance the work plan of the IPCC. During the AR6 cycle we will see one or more policy-relevant reports released almost every year from 2018 until 2022,” said Hoesung Lee, Chair of the IPCC. “The AR6 Synthesis Report will be delivered in time for the first global stocktake in 2023 by the UNFCCC under the Paris Agreement.”

Africa is vulnerable to climate change but various adaption and mitigation options exist added Youba Sokona, Vice Chair of the IPCC (CREDIT: DEREJE/SHUTTERSTOCK).

World Bank Group launches new programme to support Africa’s top digital entrepreneurs The World Bank Group launched XL Africa, a five-month business acceleration programme designed to support the 20 most promising digital start-ups from The programmes’ flagship activity includes a Sub-Saharan Africa. Start-ups will two week residency in Cape Town, South Africa receive mentoring from global (CREDIT: MAVO/SHUTTERSTOCK). and local experts, learn through a tailor-made curriculum, increase their regional visibility, and get access to potential corporate partners and investors. With support from African investment groups, XL Africa will help the 20 selected start-ups attract early stage capital between $250,000 and $1.5 million. “Digital start-ups are important drivers of innovation in Africa,” said Makhtar Diop, Vice President for the Africa Region at the World Bank. “To scale and spread new technologies and services beyond borders, they need an integrated ecosystem that provides access to regional markets and global finance; pan-African initiatives like XL Africa play a critical role by linking local start-ups with corporations and investors across the continent.”

www.bankerafrica.com

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news

spotlight [MOROCCO]

IMF Executive Board concludes the first review under the Precautionary and Liquidity Line Arrangement for Morocco

Casablanca, the largest city in Morocco (CREDIT: NESSA GNATOUSH/SHUTTERSTOCK).

On 12 May 2017, the Executive Board of the International Monetary Fund (IMF) completed the first review under the Precautionary and Liquidity Line (PLL) Arrangement and reaffirmed Morocco’s continued qualification for the PLL. The two-year PLL arrangement for Morocco in the amount of SDR 2.504 billion (about $3.42 billion) was approved by the IMF’s Executive Board in July 2016. The Moroccan authorities stated their intention to continue treating this PLL arrangement as precautionary. It has provided insurance against external risks and supported the authorities’ programme to rebuild fiscal and external buffers and promote higher and more inclusive growth. The arrangement will expire on 21 July 2018.

The Big 5 Construct North Africa 2017 sees 1,000 professionals gather

Over 1,000 professional buyers attended the opening day of The Big 5 Construct North Africa 2017 at the Parc Des Expostions de l’Office des Changes in Casablanca, organisers announced. This marks the launch in Morocco of The Big 5, which consists of a large portfolio of construction events spanning the MEA region. The aim of this event was to bring together buyers and manufacturers from around the world to network and do business This marks the first time The Big 5 has held in the North African region. an event in Morocco (CREDIT: YUTTANA CONTRIBUTOR STUDIO/SHUTTERSTOCK). “One-hundred-and-seventyseven Moroccan and international exhibitors are participating to The Big 5 Construct North Africa this year, and thousands of local industry professionals are visiting the show to source the latest and most innovative products for the built environment. This is a great start for an annual exhibition that aims at developing long term growth opportunities for the Moroccan construction industry, along with creating new partnerships,” said Andy Pert, Portfolio Event Director.

Fitch: African expansion weighs on Moroccan bank credit profiles Moroccan banks’ ambitions to further expand across Africa are a drag on their credit profile, at least in the short term, Fitch Ratings says. Moroccan banks that establish or acquire banks in markets with lower sovereign ratings are exposed to the large portfolios of local government bonds that these subsidiaries will typically hold. In most African markets, domestic sovereign bonds are rated several notches lower than Moroccan sovereign bonds (BBB-). Operating environments are also typically more risky, exposing banks to greater asset risk, and regulatory standards may be less developed than they are in Morocco. African subsidiaries have helped to offset weak credit growth and narrowing margins in these banks’ Moroccan units, and are becoming increasingly important contributors to overall earnings.

International Days of Macroeconomics and Finance to be held in Morocco

Bank Al-Maghrib, the INREDD research group, Cadi Ayyad University in Marrakech, and the University of Basel BCE Center, Switzerland, are to organise jointly on 15-16 May 2017 the International Days of Macroeconomics and Finance event under the theme ‘flexible exchange rate regime, inflation targeting and capital account liberalisation’. The objective of this event is to foster a productive exchange between researchers, decision-makers and professionals on the reform of the exchange rate regime and the adoption of inflation targeting in Morocco. The meeting will bring together senior officials from Bank Al-Maghrib, the Ministry of Economy and Finance, the Foreign Exchange Office, academics, decision-makers as well as researchers and experts from foreign central banks and international institutions.

www.bankerafrica.com

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happenings

Heard at AFSIC 2017… NIGERIA – OFF THE CANVAS?

“The Naira (NGN) has stabilised. Our in-house broker still marks four banks as hold and four as buy… we’re still risk-on. “In the Nigerian offshore subsidiaries [in London] we do four things well: risk arbitrage—we can shield people from direct Nigerian risk; we are independently run and capitalised; we support trade finance across the world; and we are also a safe haven for HNWIs. “We are regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) with state of the art KYC and AML “[There are seven Nigerian banking subsidiaries operating in London.] We have a home turf advantage, and we are a trustworthy financial centre for Africa, “There are 12,300 HNWIs in Nigeria and 620 multimillionaires. Around 40 per cent of the marginal buyers of London properties in the last few years have been Nigerian. In fact, Nigeria is the second fastestgrowing Champagne market in the world. “I want to position the bank [FCMB UK] as a different type of challenger bank. We are currently operating under a wholesale banking licence but are applying for a retail banking licence, a process which has taken a year and half so far.”

-James Benoit CFA, Chief Executive Officer, FCMB Bank (UK) FCMB Bank (UK) Limited is an independently incorporated, wholly-owned subsidiary of First City Monument Bank Ltd (FCMB), a member of the FCMB Group PLC, a leading financial services group based in Nigeria. FCMB Bank (UK) CEO James Benoit, CFA, has been an international banker and investor for 27 years in North America, Asia Pacific, Africa, Middle East and Europe. He led and developed businesses for multinational bank HSBC for 18 years including credit cards, consumer banking and private and corporate banking. From 2007 to 2015, he founded and led the award winning corporate and private bank, AfrAsia Bank Ltd., from start-up to in excess of $3 billion assets and raised $200 million capital.

ZIMBABWE STICKING WITH THE DOLLAR

“Around 95 per cent of all transactions in Zimbabwe are carried out in US dollars, four per cent in Rand (ZAR) and the remainder in bond notes issued by the Reserve Bank. “The authorities are not interested in introducing a local currency at this time; there is not enough trust from the public. “While around 60 per cent of Zimbabwe’s trade is with South Africa and greater use of the ZAR would make sense, the Rand is not seen as a good store of value by Zimbabweans.”

-Dr Kupukile Mlambo, Deputy Governor, Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe, the country’s Central Bank, was the successor to the Central Currency Board. It operates under the Reserve Bank of Zimbabwe Act, Chapter 22: 15 of 1964. Dr. Kupukile Mlambo was appointed Deputy Governor of the Reserve Bank of Zimbabwe in July 2012 and is in charge of economic research, policy and finance. He is also a member of the RBZ Board of Directors, Human Resources and Banking Sector Stability Committees. Dr. Mlambo joined the RBZ from the African Development Bank where he served between 1997 and 2012.

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happenings

Investment arbitration in Africa highlighted at WAIAC The West African International Arbitration Conference took aim at the future of investment arbitration in Africa

eld in late April, the two-day West African International Arbitration Conference (WAIAC) brought together more than 80 lawyers, international arbitration practitioners and government officials for an exchange on the future of investment arbitration in Africa. The conference was held in Abidjan and was aimed at providing a platform for African legal firms and government institutions, as well as peers in the industry, to gain a deeper understanding of the challenges facing the field of international arbitration. “This conference is timely, as Africa is increasingly becoming the destination of choice for foreign investors,” said African Development Bank Secretary General, Vincent Nmehielle in a keynote speech. “Investors and development practitioners are in agreement that Africa is the last frontier of global socioeconomic development.” The event was organised by International Arbitration Africa (I-ARB), with support from the African Development Bank and the African Legal Support Facility. The plan for WAIAC is for it to be held in a different West African nation each year with the aim of encouraging region-wide discussion on the issues of investment arbitration and bilateral investment treaties negotiations. The conferences will be held in both French and

More than 80 stakeholders involved in investment arbitration attended the event (CREDIT: EVLAKHOV VALERIY/SHUTTERSTOCK).

English in order to help include both Francophone and Anglophone African practitioners in the conversation on international arbitration in Africa. In a statement following the event, Leyou Tameru, Founder and Director of I-ARB, said, “As African countries aim to attract foreign direct investment for economic development while maintaining key national interests, a discussion on the existing mechanisms for dispute resolutions for these investments is important.” Côte d’Ivoire’s investment climate was the topic that began the event before expanding to the transational issues that face the region. The conference provided an opportutnity for discussion of these challenges via debate and conversation. Speakers whom were featured include Bayo

Ojo, former Attorney General of the Federal Republic of Nigeria, Gaston Kenfack, President of UNCITRAL, Flora Dalmeida Mele, President of the Common Court of Justice and Arbitration, Kehinde Daodu, Partner at Babalakin & Co. and Charles Nairac, Partner at White and Case. The conference was sponsored by numerous African and international law firms including: Babalakin & Co., Strachan Partners, White & Case LLP, Wilmer Cutler Pickering Hale and Dorr LLP, and Stephenson Harwood LLP. The event also featured partnerships with Association for the Promotion of Arbitration in Africa, the Court of Arbitration of Cote d’Ivoire, the International Centre for Arbitration and Mediation in Abuja, and Global Business Solutions Africa.

www.bankerafrica.com

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opinion

Trends and policies in the banking & finance industry in Kenya—2017 Akash Devani, Partner, Anjarwalla & Khanna, and Leah Muchiri, Principal Associate, Anjarwalla & Khanna, a founding legal firm of the Africa Legal Network, write exclusively for Banker Africa

rade, investment and business between Africa and the rest of the world has, in the past decade, seen an upward trajectory like never before. Due to such growth and investment, the banking and finance industry in Kenya has undergone a number of changes in the recent past which have efficiently improved the finance market and elevated the industry to global standards of banking. Some of these changes have been brought about by the amendments to the Banking Act and the introduction of new Acts such as the Companies Act and the revolutionary Insolvency Act, both of which were introduced in 2015. The Central Bank of Kenya (CBK) has recently lifted its 16-month moratorium on new banking licences after it announced the licencing of the first institution, DIB Bank Kenya (DIB) on 28th April 2017. It is further set to licence another local institution, Mayfair Bank Limited (Mayfair), after granting it the approve-in-principle. The lifting of the moratorium by CBK signals a return of stability in the Kenyan banking sector, which has in the past two years experienced turbulence, resulting in the collapse

of three banking institutions in the country. This comes as good news to foreign institutions that have been making overtures to Kenya and to new entrants seeking a stake in the local banking sector. The availability of high speed broadband and mobile connectivity in the country has created new developments in product packaging and service delivery in banking. Some of these significant trends include: Mobile banking: Mobile telecommunication applications and services such as M-Pesa (Safaricom), Airtel Money (Bharti Airtel) and Orange Money (Orange) operate mobile payment systems which enable their customers to send, borrow, pay bills and save and earn interest on monies saved on their mobile phone accounts; E-banking: where customers are able to virtually carry out their banking business without having to go to physically visit the banks; Electronic cheques: some banks now permit customers to issue a cheque electronically thereby eliminating the need for customers to carry cheque books; Package banking: banks now offer more services to their customers in

one package without increasing their charges for these services; Insurance covers: offered by banks to the customers that hold certain amounts of money in their accounts. These covers protect the customers’ funds; Agency banking: is also a modern financial innovation by commercial banks being used by banks in Kenya today. A bank agent is a retail or trading outlet contracted by a bank or financial institution to process client’s transactions. Some of the transactions that these agents carry out include accepting client’s deposits and withdrawals, inquiring account balances, carrying out transfer of funds and paying bills; Shari’ah banking: there has also been considerable growth in the Islamic banking market in Kenya. There are two fully-fledged Islamic banks and about six banks offering a variety of Islamic finance products and insurance in the market; and Stock brokerage: banks and financial institutions are also actively involved in stock brokerage services. These banks trade in securities such as shares in the stock market on behalf of customers. These trends have made it increasingly trouble-free to conduct business in Kenya and have provided

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opinion

a platform with opportunities for financial growth for every Kenyan and potential investors. The CBK is tasked with the responsibility of developing the laws, regulations and guidelines that govern the players in the banking sector. The banking and finance industry in Kenya is also governed by the Banking Act (Cap 488) and the CBK Act (Cap 491). The economy in Kenya is projected to record much slower growth on the back of the August 2017 general election jitters and owing to interest cap legislation. On 31 January, the Central Bank downgraded Kenya’s economic growth forecast to 5.7 per cent in 2017 from 5.9 per cent last year, citing uncertainties in the global economy amid a ravaging drought.

Akash Devani

Leah Muchir

The increase in the use of mobile banking across most banks and financial institutions and the increase in the use of technology to assist develop the economy may prove to be a stepping stone for banks and financial institutions

Recent changes to various legislations which have contributed to the growth of the banking and finance industry in Kenya include: 1. The Companies Act, 2015 The new Companies Act has replaced outdated business regulations which made it difficult to do business in Kenya and have instead made it possible for start-ups to have a smooth entry into the business market whereas it was only easily accessible to large corporations. 2. The Banking (Amendment) Act 2016 On 24th August 2016, the Banking (Amendment) Act 2016 was passed. This Act amended the Banking Act (Cap 488), Laws of Kenya, by placing a restriction on the interest rate which banks offer loans and deposits. The amendment puts a cap on lending rates at four per cent above the Central Bank Rate (CBR) and a floor on the deposit rates at 70 per cent of the CBR. Capping interest rates in Kenya has had the effect of solving the high interest rate spreads in the banking sector and has made credit facilities easily accessible to borrowers. However, it has also had the effect of locking out Small Medium Enterprises (SMEs) and other “high risk” borrowers from accessing credit. Banks are now more inclined to lend to the Government and other “low risk” borrowers. Consequently, the profitability of banks has reduced significantly. In October 2016, the profit before tax declined by 14.7 per cent from 10.9 billion in September

despite the uncertainties owing to the general elections. Further, the various investment projects such as the $3.2 billion standard gauge railway as well as other projects should continue to boost the economy’s global competitiveness.

2016 to 9.3 billion in October 2016. The International Monetary Fund (IMF) has called Kenya to do away with the law, stating that it is not good for Kenya’s economic growth. The IMF has emphasised that interest caps have a complicated monetary policy and adversely affect credit access for small and microenterprises. 3. Islamic banking regulations In an attempt to regulate Islamic banking operations and products, Kenya made slight changes to its Banking Act. Initially, the Banking Act only made reference to ‘interest’. The Banking Act was subsequently amended in 2008 by adding the phrase “or a return in the case of an institution carrying out business in accordance with Islamic law” when referring to interest chargeable on a savings account. 4. The Insolvency Act, 2015 The new Insolvency Act gives priority to revival of insolvent companies as compared to the previous insolvency provisions under the Companies Act which aimed at liquidating the companies. The Act provides mechanisms in which companies can reschedule their debts to extend the repayment period instead of immediately commencing liquidation proceedings in court. 5. The National Payment System (NPS) In 2014, the NPS regulations were passed into law, providing the first formal legal framework for mobile money and paving the way for increased interoperability across payment providers.

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country

markets

The role of ratings in development Credit ratings can play a significant role in addressing the challenges and highlighting the advantages of investing in Africa

Omega Collocott, Head of Financial Institution Ratings, Global Credit Ratings (GCR)

atings are an independent opinion on the likelihood of obligations being timeously met. These obligations can be financial obligations, such as the debt of an issuer, a class of liabilities or of financial instruments. However, they can also relate to a service and the quality of that service. Credit ratings, the independent opinion of the relative credit risk of debt obligations are, it should perhaps go without saying, the most widely used and widely reported type of rating. Shorter-term ratings are more about liquidity while longer-term ratings are about the credit evolution of the institution in question. Speaking at AFSIC 2017, Omega Collocott, Head of Financial Institution Ratings, Global Credit Ratings (GCR), clearly demarcated the line between international or global scale ratings and national scale ratings.

“Global scale ratings compare credit risks globally so that one can compare, for example, the UK and South Africa relative to each other. In fact, these forex-based ratings are truly comparable on a global basis: the Nigerian sovereign versus South Africa versus Kenya. Such ratings have their place for sovereigns and for the largest companies in each market, those likely to issue foreign debt. “National scale rates—more relevant in emerging market environments—are a relative ranking of credit risk against other issuers or obligations in the same country. They don’t necessarily link to a specific default probability,” said Collocot. She added, “National scale ratings tier relative ratings against an assumed best credit on the national scale.” Thus, the relevant sovereign, likely be assumed to be the highest rated entity in the country in question, would be marked as AAA and corporates scaled against it.

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markets

“Such ratings are not comparable across borders. What they do is maximise the amount of credit differentiation that you can have in a given environment, offering investors more information,” said Collocott. “A typical set of global scale ratings has some 16 notches. The vast majority of African sovereigns do not make it to investment grade. Most African issuers are clouded by views of the sovereign. For a non-default issuer there are 16 national scale notches but these only apply to countries that are highly rated.” she explained, For example, South Africa was recently downgraded by Fitch Ratings and Standard & Poor’s to BB+. Using the same global scale there are, therefore, only six notches available to describe the relative credit risk of South African issuers. As a second example, Kenya has only three notches on the international scale to differentiate the credit risk of Kenyan companies. “Anyone operating in Kenya knows there are more than three levels of credit risk… thus the description [ratings compression] on a global scale does not offer enough information to understand the relative merits of different issuers. This is why I believe the national scale is much more relevant to emerging markets.” Financial market development is coming through in a number of African states and is being supported by regulation. The willingness to adopt global best practice is there. Yet the banking sector across the continent is still relatively underdeveloped and local market frameworks do not necessarily cater efficiently to capital market needs. However, Collocott said, “As a ratings agency, we see an increasing role being played by non-bank financial institutions, including fintech companies, leasing organisations, etc… the increasing availability of institutional funding and of a

Ratings can support the capital raising objectives of financial services players, the informational needs of investors and the development of transparent capital markets. ————— – Omega Collocott –

willingness to consider frontier market investment is very encouraging.” The financing needs of African projects far exceed the limits of the banking sectors and local market availability and that high sovereign credit risk tends to dominate investor analysis, she also noted. “There are limited benchmarks for risk quantification and pricing across industries. There are also limited independent sources of information on companies, sectors and industries. The role of credit ratings, in general, is to provide an independent opinion, quantifying relative credit quality but in emerging markets, ratings and ratings agencies have a developmental role. Promoting risk quantification and, therefore, pricing based on a consistent

application of published methodologies can be extremely useful in a developing market; simply improving the availability of information to investors, in countries where there is very little analysis of banking sectors and other areas of finance, and having a feedback loop with regulators that is without prejudice. “In Africa, the developmental role is to facilitate capital market access and efficient market development. Improving corporate transactions and improving the understanding of the economic environment are both helpful. “Ratings can support the capital raising objectives of financial services players, the informational needs of investors and the development of transparent capital markets.”

Omega Collocott, Head of Financial Institution Ratings, Global Credit Ratings (GCR), oversees credit ratings of banks and other financial institutions, servicer quality ratings, and asset manager and fund ratings across the African continent. She manages analytical teams in Johannesburg, South Africa and Lagos, Nigeria. Sandton, South Africa-based GCR was established in 1996 as the African Arm of the New York Stock Exchange-listed Duff & Phelps. GCR’s major shareholders are now development finance specialist DEG - Deutsche Investitions- und Entwicklungsgesellschaft and Carlyle Group, which acquired a 49.9 per cent stake in GCR towards the end of 2016

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markets

Nigeria’s dollar scarcity to stay In a new report, Moody’s states that Nigeria’s dollar liquidity shortage is likely to continue as oil revenues stay low

espite improvements in foreign exchange earnings and availability, dollar liquidity restraints are likely to remain for the foreseeable future in Nigeria, said Moody’s in a report entitled Government of Nigeria FAQ On Exchange Rate Policy, Balance of Payments Position and Growth Outlook earlier this month. The high prices of commodities helped fuel the Nigerian economy in the first half of this decade, but the rapid decrease in oil prices in 2014 and 2015 more than halved the country’s foreign exchange earnings. Exports fell from an average of around $90 billion between 2013 and 2014 to $46 billion in 2015, according to Moody’s. This challenge was further amplified by continued attacks on Nigeria’s oil infrastructure in the Niger delta which has decreased production. “Despite the recent improvement in foreign exchange liquidity, dollar usage in Nigeria is unlikely to return to previous levels,” said Aurélien Mali, a Moody’s Vice President—Senior Credit Officer and co-author of the report. “Oil prices are highly unlikely to return to the $100 per barrel level that would lead to greater foreign exchange inflows.” Dollar use in the economy has nearly halved over the course of two years, which has caused significant shocks for portions of Nigeria’s non-oil economy which have struggled to deal with the dollar shortage. Moody’s suggest that this is likely due to

The Nigerian economy has faced challenging conditions since the drastic drop in oil prices beginning in 2014 (CREDIT: PER BENGTSSON/SHUTTERSTOCK).

the typically high import content of inputs for the economy and the delay associated with sourcing domestic substitutes. However, policy implementations by the Central Bank of Nigeria (CBN), which has begun to intervene in the interbank market and introduced two new exchange rate windows in Q1 2017 in order to increase foreign exchange availability, has had a significant impact, the agency continued. Noticeably there has been a decline in the spread of the parallel rate over the official rate, which also coincides with an uptick in oil production—suggesting that the worst of the damage has passed.

Moody’s forecasts a positive balance of payments for 2017 once additional external borrowing is taken into account and stable reserves of around $30 billion, despite potential volatility during the year. Furthermore, the ratings agency believes that the narrowing of the parallel rate spread as a result of the aforementioned CBN policies and the creation of the investor exchange rate window should also support further portfolio investment inflows. This may be of some significance as these have typically been much greater than foreign direct investment inflows.

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24/05/2017 23/03/2017 19:15 10:19

country

focus

Continued growth in Tanzania

Although opportunities continue to be present in Tanzania, challenges remain for the East African nation

n this month’s country focus we examine the East African nation of Tanzania, a country which has experienced extraordinary growth over the past decade. The World Bank’s ninth edition of its Tanzania Economic Update focused on the topic of Money Within Reach: Extending Financial Inclusion in Tanzania. The report analysed Tanzania’s impressive progress of financial inclusion, with currently 62 per cent of the population using financial services, in comparison to a mere 11 per cent in 2006. On top of this, the country has been able to maintain strong macroeconomic results despite global challenges, averaging some six to seven per cent real GDP growth over the past decade. However, despite these impressive numbers the World Bank suggests that

even higher growth is required for the East African nation to impact the 12 million citizens living on less than $0.60 per day and the yearly 800,000 young people entering the labour force. Much of the advances in financial inclusion that Tanzania has achieved have been due to the tremendous impact that mobile money has had, allowing millions of people to send, receive and save money, a feat that had previously not been possible. “With more effort, the remaining one-third of Tanzanians could also have access. Access to credit through the formal financial sector, however, remains a critical constraint to the growth of the domestic private sector, and thus a constraint on growth and to poverty reduction,” added Bella Bird, World Bank Country Director for Tanzania, Somalia, Burundi, and Malawi.

(CREDIT: PATRICE6000/SHUTTERSTOCK)

The number of subscribers of mobile money has shifted from fewer than 200,000 in 2008, to some 53.3 million accounts by the end of February 2016. Of this number, 17.6 million had been actively using the service and had recorded a transaction within the previous 30 days. However, the Ninth Economic Update argues that pushing for full financial sector integration is vital to sustaining growth. “What the dynamic mobile services sector has done is create new opportunities for individuals that never existed before,” said Andrea Mario Dall’Olio, co-author of the Ninth Tanzania Economic Update. “However, there is now a need to support the gradual upgrading of those mobile service customers from transactional services to savings and credit services, which are still the domain of the traditional banking sector.” Future success for the Tanzanian economy may lie in building upon its achievements in the realm of mobile money. Access to finance needs to be spread to the 40 per cent of

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Tanzanians that are still excluded from the financial system, the World Bank noted. The report notes that this will require tackling demand and supply-side constraints, including government payments through electronic channels, accelerating the national ID programme, and improving financial literacy programmes in order to encourage more citizens to take advantage of financial products. Disincentives for lending to the private sector also need to be mitigated by lowering the cost of risk through by improving the selection of borrowers. Overall the number of individuals and businesses that have access to credit needs to be increased as this will improve access to investment and capital for informal micro-entrepreneurs allowing them to expand operations.

BANKING

Mobile network operators that introduced these mobile transfer offerings in 2008 have been supported by a growing banking industry. There are 58 banks in Tanzania, with a per capita reach of 2.5 bank branches and 6.4 ATMs per 100,000 adults, according

12%

Benchmark Interest Rate

18.63% Bond yield (10 May)

to the World Bank. However, although much of Tanzania’s population resides in rural areas, banking operations are concentrated in the country’s three largest cities, and focus on the more affluent and corporate sectors. There is therefore significant opportunities present for banks and financial institutions to expand upon their credit offerings in Tanzania. Although roughly 56 per cent of Tanzanians borrow money to meet consumption needs and

The city centre of Dar es Salaam, Tanzania’s largest city (CREDIT: IGOR GROCHEV/SHUTTERSTOCK).

access services, the primary source of credit remains informal, such as friends and family, whilst banks account for a mere seven per cent of borrowing. Mobile network loans also accounted for 17 per cent of loans. Indeed, according to the World Bank, access to finance was identified by more than 40 per cent of formal Tanzanian enterprises as the biggest constraint to doing business. Furthermore, Tanzania is in fact trailing behind regionally, with a 17.1 per cent of credit to the private sector to GDP ratio. Reforms are necessary to help improve the access to credit for the country’s microbusinesses and SMEs. Furthermore, access to credit for these businesses can be a significant contributor to reducing overall poverty. “Financial development can make an important contribution to Tanzania’s development. Supportive government policies and access to affordable credit are necessary to crowding in private investment, especially for the micro, small, and medium size enterprises vital for inclusive growth and poverty reduction,” said William Battaile, the World Bank Lead Economist, who authored the World Bank report.

cont. on page 23

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TANZANIA

by numbers POPULATION

GDP GROWTH

49.6 million 10m

100m

7.2%

Source: International Monetary Fund; World Economic Outlook Database (April 2017)

LONG-TERM TRENDS I 3-YEAR AVERAGES 2013-15

2016-18

2019-21

Population (million)

46.8

49.6

52.6

GDP (USD bn)

45.4

50.8

62.9

GDP per capita (USD)

97.2

1,023

1,194

7.1

6.9

6.5

Fiscal Balance (% of GDP)

-3.4

-4.1

-3.9

Public Debt (% of GDP)

33.9

40.2

42.4

GDP Growth (%)

Inflation (%)

6.5

5.6

5.2

Current Account (% of GDP)

-10.4

-6.6

-4.7

External Debt

31.2

35.5

34.6

Source: FocusEconomics Consensus Forecast Sub-Saharan Africa

PRIMARY MARKETS I SHARE IN % Japan 5.1%

Other 22.9%

Other 10.9% EU-28 16.7%

Exports SubSaharan Africa 13.1% MENA 5.6% China 6.1%

Other Asia ex-Japan 6.8%

India 21.7%

Source: FocusEconomics Consensus Forecast Sub-Saharan Africa

EU-28 9.6%

SubSaharan Africa 9.4%

MENA 11.9%

Other Asia ex-Japan 9.2%

Imports China 35.2%

India 13.7%

Projected growth for 2016 & 2017 Source: IMF World Economic Outlook October 2016

EASE OF PAYING TAXES

Ranked 154 out of 189

% 43.9 total tax rate Source: PwC Paying Taxes 2017 analysis

COMPETITIVENESS

Ranked 70 out of 138 for macroeconomic competitive environment Source: Global Competitiveness Report 2016-2017/ World Economic Forum

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Standard Chartered Summary Minimum Maximum Median Consensus

6.6

7.0

6.5

6.1

2,25

6.2 8.9 6.9 7.1

6.2 8.0 6.8 7.0

-4.6 -3.5 -4.5 -4.2

-5.0 -3.8 -4.5 country -4.4

5.0 7.2 5.5 5.8

5.0 7.0 5.8 5.8

2,25 2,46 2,27 2,31

focus

cont. from page 21

Further developmental issues pervade Tanzania, with urbanisation representing a major challenge. The 2016 Africa Economic Outlook pointed to the city of Dar-es-Salaam, and other major cities, which have higher unemployment than rural areas combined with basic infrastructure which is no longer able to meet the demands of its users, with examples of this ranging from roads and electricity, to sewage systems and water drainage.

MACROECONOMIC POSITVITY

1 | GDP | variation in %

2 | Inflation | in %

3 | Curre

10 Tanzania

SSA

-5 2000

-10 10

Tanzania SSA World

2005

2010

2015

2020

0 2000

2005

2010

2015

2020

-20 2000

Economic growth for 2016 is estimated Credit: FocusEconomics to reach at seven per cent on the back 4 | GDP | evolution of forecasts 5 | Inflation | evolution of forecasts 6 | Curre of strong infrastructure investment MACROECONOMIC INDICATORS 7.2 7.0 -6 and lower oil prices. Government revenue was also boosted following 2014 2015(e) 2016(p) 2017(p) 2017 2018 a clampdown on corruption and tax 2017 2018 -7 Real 7.0 GDP growth 7.0 7.0 7.2 7.2 evasion, according to FocusEconomics 6.5 in a report entitled Consensus Forecast Real GDP per capita growth 3.8 3.9 4.0 4.0 -8 SubSaharan Africa May 2017. CPI inflation 6.1 5.6 5.9 6.0 Following a staff visit in mid-April 6.8 balance % GDP Budget -3.4 -4.4 -5.4 6.0-3.9 of 2017, the leader of the visiting -9 Current account % GDP -10.3 -9.4 -8.2 -7.0 International Monetary Fund (IMF) team, Credit: Domestic authorities/Africa Economic Outlook. Estimates (e) and projections (p) based on African Mauricio Villafuerte, said in a statement Economic Outlook calculations. 6.6 -10 that the economy may have hit a slow 5.5 Dec Mar Jun Sep Dec Mar Dec Dec Mar Jun Sep Dec Mar FocusEconomics added that the “The team noted that for Tanzania patch due to challenges caused by slow Tanzanian economy recently received to meet its medium-term growth budget implementation, a slowdown in further monetary stimulus following the objectives, the country would require monetary aggregates and credit to the Central Bank move to cut the reserve a vibrant private sector and that private sector, and the problems caused ratio from 10 per cent to eight per cent ample scope remained to improve by the drought that has been affecting Notes and sources only weeks after dropping interest rates the business environment. The team Tanzania and the East African region. four per cent—a move that is likely to welcomed the initiation of the national However, these challenges are expected General: help All ease current tight credit dialogue community, to have a lesser impact in the second Long-term chartwith periodthe frombusiness 2000 to 2021 unless otherwise stated. real,the monetary and external sector climate data are from the Bank of Statistics (NBS). See below details. Forecasts Consensus Forecast. the country is experiencing caused by and encouraged theforauthorities to based on FocusEconomics half of 2017, which will provide further 4 GDP, evolution of 2017 and 201 1 GDP, annual variation in %. Source: NBS. non-performing loans. ensureannual that regular of views support for an increase in overall growth. 2 Inflation, 5 Inflation, evolution of 2017 and 2 variation ofexchange consumer price index (CPI) ingreater % (aop). Source: NBS. 6 investment Current account balance, evolut account balance, as % of GDP. Source: BoT. Sizeable infrastructure become the norm,” added Villafuerte. In addition, Villafuerte noted that the 3 Current last 18 months. will also contribute to growth Annual headline inflation for April 2017 implementation of the Policy Support prospects, although FocusEconomics stagnated at 6.4 per cent. CoreForecast inflation Instrument (PSI) programme has been FocusEconomics Consensus note that the Government may remained relatively stable however at 2.3 broadly satisfactory. Most of the targets have difficulty with financing per cent, 0.1 per cent up over March 2017. for end-December 2016 were met, the country’s large fiscal deficit The regional drought has contributed to according to preliminary data, with forecast for the year because of the inflationary pressures on food prices, but the exception of one on tax revenue increase in capital spending. As this is likely to ease as drought conditions which was missed by a small margin. such, panel experts consulted for in Tanzania and its neighbours continue Progress is being made towards the FocusEconomics’ report expect GDP to lessen. The overall index increased implementation of key measures, but growth to hit 7.1 per cent in 2017, and year-on-year to 109.04 in April 2017, up overall the pace of structural reform seven per cent in 2018. from 102.46 in April 2016. remains slow.

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Boosting banking in Tanzania Banker Africa spoke with Abdi Mohamed, MD, Barclays Bank Tanzania Limited on the Bank’s focuses in Tanzania and the economy

inancial inclusion recently hit 60 per cent in Tanzania, what programmes has Barclays Tanzania implemented to support the growth of this figure? Financial Inclusion is one of three pillars under our Shared Growth agenda. At Barclays we have thought carefully about how to live this responsibility, and we are delighted to share with you our Shared Growth strategy. Doing our part to empower individuals, build communities, and grow wealth and economies is now central to how we do business. This is why we are committed to Shared Growth—uplifting society while creating value for our shareholders. In Tanzania, financial inclusion is addressed through the advancement and investment in technology. To date, there has been substantial investment that has already been made to improve the way we do business with our customers through improved technology as well as our branch network. Customers can now have access to all our banking services from the comfort of their homes, this means freeing more time for them to engage in other activities. In the years ahead, we will continue working with

governments, business partners and civil society in Tanzania to increase economic opportunities for individuals and businesses, and to build and share prosperity in our communities.

How do you feel that the continued advancement of technology has affected the Tanzanian banking sector? What are the biggest trends in the banking technology space? Today, information technology has become a key element in economic development and a backbone to knowledge-based economies in terms of operations, quality delivery and productivity of services. The automation of banking operations in an emerging market like Tanzania derives a competitive advantage for banks who invest in technological infrastructure over banks that do not endeavour in such a strategy. At Barclays we believe in delivering service at the highest standard and hence we have made a tremendous effort to improve our IT infrastructure in areas of customer account management, digital services, markets and our ATM infrastructure. These investments allow us to serve our customers more efficiently and at the highest standard while promoting one of our key values, service.

Leading in new technology and innovation is part of Barclays DNA. Barclays makes sure that technology is a corner stone in driving the bank towards profitability. Barclays currently hosts a state of the art data centre which we are really proud of. In the Retail banking space, technology has significantly reduced the time to serve our customer needs by cutting down the time to open a local currency account to 20 minutes, that is the shortest amount of time in the whole of Tanzania. Like companies in other industries, banks are racing to take advantage of the opportunities and manage risks that the digital economy creates. To accomplish that, there is a need of computing platforms that provides greater agility and flexibility unlike the fixed IT infrastructure assets and legacy systems that the banks are used to. Moreover, the cloud enables banks and financial institutions to transform their business processes and grow organically in new sectors and geographies without incurring huge costs for establishing a physical presence. However some concerns are still unsettling. Security of data qualifies as a major bank need thus demanding stringent safety measures from suppliers to ensure that new applications meet the latest rigorous security standards. Cloud computing is the future for cost efficient and reliable banking.

A recent World Bank report highlighted Tanzania as one country where growth is expected to remain solid for 2017; what is Barclays Tanzania’s outlook on the Tanzanian economy? Tanzania’s growth remains upbeat as one of the fastest growing economies in Africa. Despite the recent slowdown in some sectors, fundamentally the economy and growth prospect remains strong. Barclays Tanzania is committed

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Abdi Mohamed, MD, Barclays Tanzania

to supporting Tanzania in achieving her economic growth as envisioned in the 2025 development plan. We expect growth to be driven by capital spending in infrastructure projects whilst the recent monetary policy accommodation should help spur credit to private sector.

Are there any specific sectors that you see as potential opportunities for 2017 in Tanzania? Yes, the opportunities are in the following sectors, manufacturing, commodity trading, petroleum and agriculture. Barclays has been operating in Tanzania for over 15 years and has seen considerable growth and opportunities in these sectors over the years. To ensure that we capitalise on these opportunities, Barclays has invested heavily in resources to help the bank to extract business from these sectors as well as to manage service delivery, provide sound business advice and where possible, provide linkages

between similar business segments. Secondly, maintaining a clear focus on delivering complete solutions for our clients will help us ensure that our customers reach their financial goals. Lastly, Barclays has invested significantly in solutions that allow our customers to enjoy seamless banking from anywhere around the world. A lot in Tanzania, in the end, is about potential. But investing in Africa in general is about buying into the big picture. It will not be a quick stroke of the paint brush but a few strokes could make a masterpiece.

How has Barclays Tanzania supported gender equality, and are there any programmes in place that aim to continue to do so? Gender equality is among the key priority agendas at Barclays. This is covered under our employee relation, diversity and inclusion mandates. Barclays understands that women do

face challenges, which impair their competitive advantage to progress their career unlike men. In the light of this, the bank has established a ‘Women Network Forum (WNF)’ as one of the avenues to address this concern. This forum provides a supportive environment to enhance women’s careers and provides a sustainable platform to boost visibility of women and facilitate the exchange of ideas among women. The following are some of the initiatives running at Barclays: Mentorship programme for female employees in collaboration with male employees under the ‘HeForShe’ initiative Enhance knowledge sharing and transfer through quarterly motivational series Identification of opportunities for high potential women within the Barclays Africa business Finance women’s leadership development programmes, such as Female Future Leadership programme that intends to increase capacity for ladies at workplaces to be more competent leaders in management positions, decision-making processes and on corporate boards Citizenship activities to develop in school and out-of-school girls and women The bank also deliberately offers other opportunities for women, for example leadership training for women in management and female programmes for senior members of the bank. To conclude, Barclays is an equalopportunity employer. Our recruitment process provides fair opportunity to all employees within the bank and external candidates, based on merit, without gender segregation. Currently women form 47 per cent of the total population and 43 per cent per cent at the senior management level that forms the country management committee.

www.bankerafrica.com

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THE BUSINESS OF BANKING Banker Middle East is the MENA region’s most prestigious financial title. Read by senior bankers & financiers across the Middle East, for more than a decade it has been the most informative source of news, developments and strategic thought from within the financial community.

Banker Middle East is a controlled circulation publication. You may apply to subscribe via our website or by emailing subscriptions@cpifinancial.net

CPI Financial FZ LLC • PO Box 502491 Al Shatha Tower, Office 1209 Dubai Media City, Dubai, U.A.E. Tel: +971 (0) 4 391 4681 • Fax: +971 (0) 4 390 9576 • www.cpifinancial.net BME_October 2016.indd 1

24/05/2017 19:17

country

focus

FBME licence revoked Earlier this month the Bank of Tanzania announced that it had revoked the business licence of the bank FBME FBME had been accused of money laundering for criminal and terrorist organisations (CREDIT: ZWIEBACKESSER/SHUTTERSTOCK).

he Bank of Tanzania annulled the business licence of the Federal Bank of the Middle East (FBME), and placed it under liquidation following accusations by the US government of large-scale money laundering effective 8 May 2017 In a statement, the Bank of Tanzania noted that its intervention was the result of the USA Financial Crimes Enforcement Network (FinCEN) Notice of Findings issued on 15 July 2014, which identified FBME as a Financial Institution of Primary Money Laundering Concern. FinCEN followed this by issuing a Notice proposing to impose special prohibition measures against FinCEN. Both FinCEN and FBME have been involved in a court case since the issuance of the Notice and on 14 April

2017 the US District Court for the District of Colombia ruled in favour of FinCEN. This ruling made it possible for FinCEN to implement the ‘Final Rule’, which effectively bars FBME Bank from the US financial system, as well as any supporting services and trading platforms which would allow for the provision of normal banking services to its customers. “The Bank of Tanzania… has discontinued all banking operations of FBME Bank Limited; revoked its banking business licence; placed it under liquidation; and appointed the Deposit Insurance Board (DIB) as a liquidator,” said the Bank of Tanzania in a statement. Legal Floris, a legal firm representing more than 1,300 customers of Saab Financial (Bermuda), which is affiliated with

FBME, and FBME in both Cyprus and Tanzania said in a statement that the first step for customers with accounts at the bank in Cyprus is to claim their funds under the deposit protection scheme for as long as it is still possible. “Customers with accounts in Tanzania that were managed from Cyprus need a court order that determines the geographic location of their account. Customers of FBME Bank that invested in private placement programmes via Saab Financial (Bermuda) Limited are encouraged to contact us at short notice to avoid missing out on the opportunity to claim their funds,” continued the statement. FBME was previously set up in Cyprus but had since moved its headquarters to Dar es Salaam in Tanzania.

www.bankerafrica.com

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case

outlook

African CEOs confident on business outlook In a new report PwC has found that the majority of African CEOs are positive about the outlook for business on the continent

ricewaterhouseCoopers (PwC) released a report entitled Africa Business Agenda earlier this month which compiled results from interviews with CEOs from 11 countries in Africa. The report found that 85 per cent of African CEOs are confident in their own company’s prospects over the next 12 months for revenue growth. This number jumped to 97 per cent when queried about their company’s growth prospects in the medium term—PwC remarked that this is the highest level among African CEOs since the survey began in 2012. Having said this only some 30 per cent of CEOs in Africa are confident that the global economy will improve in the next year. Hein Boegman, CEO for PwC Africa addressed the level of positivity that African CEOs displayed despite bearish global sentiment, “Perhaps CEOs have learned to look for the upside and seize on the opportunities uncertainty brings. Facing a climate of muted growth at best, CEOs recognise that while they focus on organic growth and cost reductions, they also need to prioritise investment in new strategic alliances and joint ventures to expand their markets and grow their customer bases.” Top concerns for African CEOs that might threaten growth prospects included uncertain economic growth and

exchange rate volatility. Following a year in which political changes around the world have affected the African continent, such as the election of President Donald Trump in the US, and the outcome of the UK Brexit referendum, African businesses should be prepared to deal with unexpected events. “The returns for doing business on the continent are high, but so are the risks. Africa’s CEOs are operating in difficult times—infrastructure on the continent remains a challenge, finding and retaining the right talent for their businesses, dealing with many of the hurdles that come with working with governments, and managing growth plans across the continent,” Boegman

commented at the World Economic Forum on Africa 2017. PwC highlighted the ongoing political stability in South Africa as a case-in-point of unpredictable threats challenging business growth. The report added that a single world event could now trigger a need for complete strategic changes as a result. However, PwC did note that despite this unpredictability the organisation remains confident that the overall outlook for business remains positive in Africa. “It is no longer enough for business leaders to steer their organisations through a complicated and challenging environment—they will need to adapt swiftly to change,” said Dion Shango,

CEOs concerned about threats to growth Q

How concerned are you about these threats? (Summary: Extremely concerned/Somewhat concerned) 90% 82% 90%

Uncertain economic growth Exchange rate volatility

70%

Social instability

68%

Unemployment

45%

Geopolitical uncertainty Increasing tax burden Inadequate basic infrastructure Climate change and environmental damage

54% 50% AFRICA

85% 79%

79% 74% 76% 68% 69% 64%

WORLD

Credit: The Africa business agenda 2017/PwC

www.bankerafrica.com

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case

outlook

around the world, such as the UK CEO for PwC Southern Africa. “For Senior Partner for PwC in East Africa, withdrawal from the European Union, are CEOs, their customers, government says, “Regulatory policy can also likely to make it harder to compete on a and competitors have a big influence on restrain growth, and in some cases, global level. Seventy-four per cent of CEOs business strategy. Understanding their necessitate cost reduction by the agreed that competing in the open global needs and working towards addressing businesses affected.” An example marketplace harder with more closed them can help build trust, maintain Eriksson went on the highlight in the national policies will become more difficult. reputation and lend a licence to operate.” report, is that of the Kenyan interest Joel Segal, Partner, Chair of Africa Economic growth for the continent rate cap, enacted in late 2016 which Business Group, PwC UK, said, “It’s is strongly linked to the demographics has forced the banking and finance easy to see the risks for Africa from trends in Africa. PwC in its megatrend sector in Kenya to look at other forms this rising tide of nationalism and analysis found that from now until 2050 of growth beyond interest-rate driven. economic fragmentation. In particular, the continent will see 50 per cent of the “Sector players increasingly want a aid could be curtailed and what’s left world’s population growth. Whilst other more holistic view of their customers to could be more closely tied to national continents will be contending with determine what additional value they interests such as access to local the problems associated with aging can derive from these relationships,” resources and consumer markets.” populations, the African continent has added Eriksson. “This holistic view is “The business leader of today the potential to become the world’s developed by mining customer data must deliver seamless strategy and leading provider of labour, as its for insights to sell new products and operational excellence. Africa’s CEOs will young working population attracts services and provide better customer need to overcome a number of challenges manufacturers and service providers, service—all factors that contribute to a to truly transform their organisations. In and the world’s largest consumption more competitive value proposition in the process, business needs to recognise market as the continent’s middle class the marketplace.” and manage its responsibilities and grows rapidly. African business leaders also stated dependencies,” Boegman concluded. African CEOs need to be aware of, that the rising nationalistic movements and be prepared to take advantage of, Megatrends new opportunities oﬀeringoﬀering new opportunities in Africa in Africa these trends. PwC Megatrends notes that numerous multinationals are already established on the continent, many with wellestablished presences that have positive Demographic Climate change Rapid Technological Shift in global long term growth and social and resource urbanisation breakthroughs economic power Demographic Climate change change Rapid scarcity Shift in global outlooks for Africa. and social and resource urbanisation economic power These companies change scarcity are focusing on engendering long-term sustainable growth on the continent, along with growing their investments and fostering the creation of new job opportunities. of the world’s belong to the middle The number of African Of the population of Mobile broadband population growth class in Africa megacities by 2025 One way in which Sub-Saharan Africa growth rate 2015 -16 between now and live in water scarce Africa has the fastest Africa has the highest growth can be slowed 2050 is expected to environments growing middle class broadband growth come from Africa population in the rate across the is on the government of the world’s belong to the middle The number of African world Of the population worldof population growth class in Africa megacities by 2025 Sub-Saharan Africa side, however. Anne between now and live in water scarce Africa has the fastest 2050 is expected environments growing middle class Credit: PwC Megatrends analysis to Eriksson, Regional come from Africa

50%

350m

50%

350m

40%

Technolo breakthro

58%

40%

population in the world

www.bankerafrica.com

page 28-29 Backup Case Study 044.indd 29

58%

Mobile broa growth rate 2 Africa has the broadband g rate acros world

28/05/2017 10:54

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24/05/2017 19:18

islamic

finance

African projects highlighted at 42nd IDB meeting At the latest annual meeting of IDB, various African projects were announced

ICD signs MoU with China-Africa Development Fund to boost infrastructure investment, growth A Memorandum of Understanding (MoU) was signed between the Islamic Corporation for the Development of the Private Sector (ICD), the private sector arm of Islamic Development Bank (IDB) Group and China-Africa Development Fund (CADFund), a Beijing-based private equity firm and subsidiary of the China Development Bank which focuses on Africa. The envisaged cooperation reflects ICD and CADFund’s goal of developing and establishing a strategic framework that focuses on improving the efficiency and efficacy of resource mobilisation with third-party investors interested in participating and investing in the African Islamic Infrastructure Financing Fund (AIIFF). “It certainly comes as no news that Africa’s rating on the global infrastructure development index is significantly behind. By driving investments targeting infrastructure development projects in Africa, we will not only improve infrastructure and address the huge chasm, but we will also be contributing to economic growth thus further transforming the region. We look forward to a long-term partnership with the ICD,” Shi Jiyang, President and Chief Executive Officer of CADFund said.

ICD and Afriland First Bank cooperate to establish an Islamic window in Guinea The ICD and Afriland First Bank Guinea have entered into a Joint Strategic Collaboration to establish an Islamic window in Guinea. Through this advisory mandate, ICD is assisting Afriland First Bank in launching a dedicated Islamic window in Guinea by providing them with total solution covering Shari’ah, accounting, information technology, marketing and communication, human resources and legal aspects combined with an on-site extensive theoretical training and supported by on-job training in Islamic banks. Dr. Paul Fokam, Chairman of Afriland First Bank said, “The new Islamic banking window is a special opportunity to breed a new generation of entrepreneurs in Guinea and specially to empower hundred thousands of women involved in MUFFA network for making poverty history in Africa.”

ICD to cooperate with Coris Bank

The ICD and Coris Bank International have entered into a Joint Strategic Collaboration to establish Islamic window. The CEO of ICD, Khaled Al Aboodi and Idrissa Nassa, CEO and Chairman of Coris Bank International signed the advisory agreement. Nassa said, “Coris BANK, in its mission to bring innovative solutions; saw in the Islamic finance, an opportunity in the sense that it is an alternative to the conventional finance. So, after the successful implementation of the Islamic window of Burkina Faso, and in view of the undeniable potential of the Finance Islamic, with a 20 per cent expected growth, Coris Group decided to make the Islamic finance as a main growth driver. The vision of Coris group is to be the leading banking group providing Shari’ahcompliant products and services. The strategy of the group is to implement an Islamic window in all its banking network with the assistance of ICD. The signature of this advisory agreement with ICD aims to achieve this objective. In midterm the group aspires to create Shari’ahcompliant subsidiaries.”

www.bankerafrica.com

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case

study

Staying ahead of the game This month we take a look at Faisal Islamic Bank (Sudan), featuring exclusive comments from the Bank’s General Manager, Al-Baqir Al-Nouri

Comprehensive US sanctions have slowed economic growth for Sudan, but gradual lifting of some sanctions could result in positive investment flows, said Al-Nouri (CREDIT: INK DROP/SHUTTERSTOCK).

hat challenges are you facing in the Sudanese market and how are you covering them? The Sudanese market has its unique features, and it faces foreign currency fluctuations and high inflation rate. Faisal Islamic Bank Sudan (FIBS) has experience in this regard, and we are very familiar with the volatile

market, which makes a big difference in putting FIBS at the top of the Sudanese banking market. This knowledge is transferable and kept in FIBS’s welldefined Core Banking System.

How does FIBS differentiate itself from its competitors? FIBS provides free consultancy services of Sudan’s volatile market to its customers.

Furthermore, FIBS maintains a very strong position in Sudan with its 33 branches and more than 100 windows located in perfect places in the country’s capital, Khartoum, and other provinces. FIBS provides these services via its agent and partner Sudan, a telecommunications and mobile provider, Sudapost, the national operator of postal services in Sudan, and Retal, the biggest mobile top up distributor in Sudan.

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What is your outlook for Sudan for the remainder of 2017? Sudan’s economy is expected to gradually moderate in 2017. Islamic banks in Sudan are still emerging with a stable and flourishing economic outlook, especially in terms of gradually lifting of more US sanctions, which if handled well can lead to an increase in foreign investment flows. With its geographic positioning for trade and opportunities in agriculture and mining, the Sudanese economy does hold potential for those willing to take on a challenge. The country holds good potentials for investment in its agricultural and mining sectors, especially in terms of gold.

Technology now has a greater influence on banks than ever before, how is FIBS addressing this trend? FIBS has introduced the latest hardware, software applications and technology systems for its banking products and services. These efforts resulted in opening two fully automated branches in the region and fulfilling the rating requirements needed in order to raise financial market standards. Faisal Islamic Bank (Sudan) has always been a pioneer in banking technology and accordingly the Bank has been awarded a variety of awards and accreditations by many domestic, regional and world bodies.

History of FIBS FIBS was established in accordance with Temporary Order No (9) dated 4 April 1977. In May 1977, 86 Sudanese and Saudi founders as well as other nationals of some Islamic States, met and adopted the idea of establishing the Bank. They prescribed and paid up half of the authorised capital. On 18 August 1977 Faisal Islamic Bank was registered as a public incorporated company. The Bank commenced operations in May 1978 with an authorised capital of SDG 1 billion and paid-up capital of SDG 700 million.

Al-Baqir Al-Nouri, General Manager, Faisal Islamic Bank (Sudan)

About Faisal Islamic Bank (Sudan) is an Islamic bank adhering to Shari’ah banking principles. The Bank’s goal is to provide Islamic banking with Sudanese features, and aims to assume the best financial position it can through providing contemporary legal banking products, processing foreign relations and use of modern techniques. The company offering commercial banking services according to Shari’ah law and Sudanese principles. The bank offers current, savings and deposit accounts, as well as trade, industrial and agricultural finance. Furthermore, in line with Shari’ah law the bank also engages in various economic development and social projects. The bank is headquartered in Khartoum, the capital of Sudan.

www.bankerafrica.com

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country

microfinance

Micro-funding, macro results In an exclusive interview with Banker Africa, Mwangi Githaiga, Managing Director of Kenya Women Microfinance Bank (KWFT) spoke about what the future the microfinance industry looks like for Kenya

Mwangi Githaiga

he World Bank’s most recent Kenya Economic Update in October of 2016 projected a 5.9 per cent growth in 2016, with that number rising to six per cent in 2017. One of the drivers of this growth has been the growth in financial services and the access to credit. The informal economy makes up a significant portion of employment in Kenya. In 2016 the Kenya National Bureau of Statistics reported that informal sector employment had risen by six per cent and accounted for 82.8 per cent of total employment outside of

small-scale agriculture and pastoralist activities. Microfinance provides a way to help those in the informal economy move to the formal economy, as well as increase standards of living and provide new economic opportunities. “The Kenyan population is growing and many people have started businesses due to the fact that white collar jobs have become scarce… A majority of businesses in Kenya are microenterprises which are still experiencing growth. Most of them have limited hard securities needed for one to access financing,” said Mwangi Githaiga, the Managing Director of the Kenya Women Microfinance Bank (KWFT). “This is a limiting factor to most of the businesses and therefore, microfinance institutions have come in to cater for this category.” Githaiga noted that the focus at KWFT is on empowering women, and has specifically focused on partnering with women in the creation of their wealth. KWFT gives its women clients an opportunity to become shareholders in the bank—with the institution incorporating 50 per cent of its ownership to its women clients. This allows them to earn dividends, in addition to the access to credit and saving services that KWFT provides. “The institution has also offered a platform for women especially those without collaterals to start businesses,”

continued Githaiga. “This is a great achievement as many women can now access financing to expand their businesses, make decisions and participate in economic activities.” One of the problems facing Kenyan banking and finance institutions, as well as in Africa in general, is education. Potential customers may not realise that access to these kinds of banking products exists, or how it can help raise their standard of living. Githaiga comments that KWFT attempts to solve this issue by investing heavily in free financial literacy training to all of its clients, with the focus being on utilising their finances to improve the living standards of women and their families. “In addition, KWFT in partnership with Kenya Women Holding encourages women to network and share business ideas by being members of the Business Club,” said Githaiga. “This Club organises important business forums for our clients where they receive training on business skills. In the said forums they interact, share knowledge with each other as well as take advantage of opportunities to tour different countries to learn more about thriving business ventures.” The impact technology has had on the microfinance space cannot be understated. “Investment in technology has enhanced the delivery

www.bankerafrica.com

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country

microfinance

of banking products and services more conveniently and effectively than ever before,” he added. These technologies have helped to cut costs, as well as improve efficiency. Githaiga appreciates mobile banking, ATMs and agency banking as key developments for KWFT. The institutions mobile banking system is used by over 100,000 clients which allows them to carry out withdrawals, funds transfers, buy airtime, enquire their balances, pay utilities as well as request for a mini statement. “KWFT investing in technology has led to development of diverse and advanced products and services in many portfolios including agribusiness, clean and renewable energy products therefore presenting our clients with technologically advanced products,” added Githaiga. “Through technology, the Institution has been able to forge operational partnerships which have improved customer satisfaction and also minimised the transaction costs.”

KWFT has also made deliberate efforts to focus on rural regions, where 80 per cent of its clients live thus ensuring that they have access to financial services. Agency banking is one way in which banking and finance institutions have attempted to reach potential customers that may not have been viable before. Githaiga commented that, “The KWFT Agency Banking Business Model helps in ensuring that KWFT

has an even deeper penetration into remote, rural and peri-urban areas thereby enhancing financial inclusion and reduction of rural— urban migration which contributes to the high unemployment rates in the urban centres.” Githaiga adds that having a strong branch network of 245 offices is an important component in solving the challenges of servicing customers in rural areas by building offices in deep rural centres. Finally, for financial services to be desirable to rural communities, the cost needs to be in line with the capabilities of the client. “As a microfinance institution, KWFT’s key competitive advantage is the business model which aims to minimise the cost of accessing financial services by taking services to the clients door step at no extra cost. The services are offered by 3,000 well trained and motivated KWFT staff who are able to serve its clientele across the country,” said Githaiga.

Microfinance in Kenya is blossoming, says Githaiga (CREDIT: AFRICA STUDIO/SHUTTERSTOCK).

www.bankerafrica.com

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financial

inclusion

Angola and AfDB focus on inclusive growth Agricultural transformation and infrastructure development are the two focal points of AfDB’s support strategy for Angola Low oil prices have created further challenges for the Angolan economy (CREDIT LUKASZ Z).

he African Development Bank (AfDB) has announced that its 2017-2021 strategy for the southern African country of Angola aims to tackle the challenges the country is facing by accelerating economic diversification and enhancing transformation to achieve broad-based economic growth and poverty reduction. The Angola Country Strategy Paper (CSP) was approved by the AfDB Board of Directors and highlighted agricultural transformation and sustainable infrastructure development as key to its strategy for the next five years. Challenges remain as lower for longer oil prices have had an outsize impact on Angola’s macroeconomic environment. In addition the country also faces challenges from inadequate infrastructure, weak institutional capacity and governance, social and environmental fragility and weak business environment, said AfDB in a statement.

AfDB’s strategy is aligned with the Bank’s own ‘High 5’ priorities: light up and power Africa, feed Africa, industrialise Africa, integrate Africa, and improve the quality of life for the people of Africa. The ‘High 5’ priorities are an integral part of the Bank’s 2013-2022 strategy for structural transformation on the continent. Furthermore, the plan is also aligned with Angola’s own long term strategy ‘Angola 2025’ which takes square aim at accelerating economic diversification and structural transformation in order to effect more inclusive growth. Women’s empowerment via agricultural cooperatives was also highlighted by AfDB as another emphasis of the strategy. Further gender mainstreaming was mentioned in relation to climate change and green growth initiatives through investment in renewable energy projects. CSP 2017-2021 is the successor to CSP 2011-2015, despite the challenging operating environment at the time

AfDB made an effort to position itself as the partner of choice for the Government of Angola. The partnership between the two has had some success, with the number of projects the Bank overseeing growing from five in 2011, with a value of $74 million, to 14 by 2016, with a value of $1.7 billion. AfDB noted that in approving the document, its Board members were underscoring the need for the bank to push for greater transparency among Angola’s economic and financial governance, in addition to supporting more private sector development, accelerating the diversification plan for the economy, improving institutional capacity for skills development through technical assistance, and improve portfolio implementation performance. Finally, the Board noted that the Angolan Government should consider joining the Extractive Industries Transparency Initiative (EITI) to aid the management of its oil and mineral resources.

www.bankerafrica.com

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BA bleed guide.indd 1 Untitled-1 1

24/05/2017 19:20 06/02/2017 14:05

financial

inclusion

Recovering Rwanda Banker Africa spoke with Sanjeev Anand, Managing Director, BPR and Eric Rutabana, Country Head of Corporate and Investment Banking BPR about their outlook for the Rwandan economy, and the challenges on on-boarding the unbanked A view of the city business district of Kigali, Rwandaâ&#x20AC;&#x2122;s capital (CREDIT: VADIM NEFEDOFF/SHUTTERSTOCK).

hat is your outlook on the Rwandan economy for 2017?

Sanjeev Anand: For the Rwandan economy in 2017 Iâ&#x20AC;&#x2122;m positive. My feeling is that the economy this year should be stronger than last year which itself was not a very good year. Last year we suffered from the drought, a decline in commodity prices, and in general in we suffered from a decline in overall investment and trade flows into Africa. Many of these problems resulted from reasons which were unrelated to Rwanda. For example China was cutting off from the world to deal with

their own situation, the US has issues, UK is going through Brexit, so I think this year seems to have gotten off to a better start. Commodity prices have picked up, in recent weeks the rains have picked up very nicely and I think there are one or two large infrastructure projects which are starting which always influence the economy positively.

How has BPR confronted the problem of on-boarding the unbanked? Anand: BPR positions itself as a universal bank, and by universal bank

what we mean is that BPR will provide services to the corporate segment, to the SME segment and to the retail segment, but more importantly we would also like to grow our client base to include those people that do not have full access to banking services or only possess partial access to banking services, so-called financial inclusion. We are very passionate about that. Our way to include the unbanked and to include financial inclusion is predominately through digital channels. So we have a very good mobile telephone banking offering, which is convenient, cheap and easy to access, and available

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financial

inclusion

is certainly very high in Rwanda. But we are also developing our own products such as our very functional mobile app and we also planning to roll out agency banking, which again intends to make sure that we on-board the unbanked segment of the market.

Where do you see opportunities for growth in Rwanda and for BPR this year?

to anyone who would like to have it that offers plenty of services. Eric Rutabana: Traditionally BPR has been a key player in the unbanked segment because our roots come from BPR being a credit cooperative in the past and our current network is reflective of that. Even before the introduction of digital products BPR was very active in the unbanked segment market because of our wide branch network. We are partnering with the telcos in order to provide additional services to our customers, for example extending mobile money services which is important because mobile penetration

Anand: I think we see opportunities for growth for us in particular in the retail segment, we are currently dealing with the local middle market, and we see some opportunities in the affluent or high income segmentâ&#x20AC;&#x201D;we have not penetrated that segment at all. We are already beginning to see a lot of growth in our corporate and SME banking sectors and that has been our key focus over the last year. We didnâ&#x20AC;&#x2122;t have a dedicated SME and corporate team but now I think we have one of the best corporate and SME teams in the market so thatâ&#x20AC;&#x2122;s going to be our focus. Furthermore, we have very low share in trade finance, and that is an area we are working on. Unfortunately going there is slower than expected for reasons outside of our control, but we believe that by the end of the third quarter, or maybe fourth quarter we should definitely have a lot more traction in trade finance.

Does BPR have any significant product releases that we will see this year? Anand: Yes, definitely. Most of our product releases, our new ones that we expect to launch, are going to be mobile. BPR really is the bank with the largest network of branches, we have 194 branches which is more than all the other banks put together, we want to make this branch network work for us

much more efficiently. So I can tell you that our goal is that by the end of this year to be the largest digital bank as well. You will see a lot of action, a lot of traction and action, on our part in the digital area.

What management philosophy does BPR subscribe to? Anand: There are not one, but a few beliefs that I believe very strongly. The first one is that we believe that our biggest strength is in our people. Right now we are focused on hiring the best people in all the key areas, we are going to focus a lot on training and development of our people and having motivated people, so people is the first priority. The second is we believe that innovation and digital is going to be a real strength because that allows us to expand our reach in a cost effective manner, and allows us to reach more traditional corporate and SME clients but also new clients such as the unbanked segment, so I think digital and innovation to introduce new products are very key. The third is going to be that we want to be a low-cost producer, so both low-cost production as well as lowcost of funding. We are trying to lower our cost of funding and improve our cost of producing services so that we are competitive player and are able to penetrate the market. And let me last but not least mention our biggest focus: customer service because ultimately it is the customer that is going to drive the way in which any institution grows and if you not able to provide excellent service then you have no long term commitment and no long term attachment in the market so customer service will be very important.

www.bankerafrica.com

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country

trailblazer

Building the future Banker Africa spoke with Anton Bouwer and John Saaiman, two of the three Directors and Co-Founders of Architecture For A Change, a South African start-up

The FNB project means the bank can offer services to those it was previously unable to reach.

rchitecture For A Change (A4AC) began five years ago as a project by three architectural graduates from the University of Johannesburg, Anton Bouwer, Dirk Coetser and John Saaiman where work involving engagement with the community took centre state. “Post-graduation the three of us decided to get together and form something small with a focus on work similar to community work and that’s also where the name spawned from, Architecture For A Change,” said Bouwer. The firm offers a full turnkey service in their container designs, from design, manufacturing to implementation.

The mobile bank is fully secured in the same way a traditionally built branch would be.

Bouwer commented, “There isn’t an inch of the container that we don’t know what has happened to or wasn’t designed by us and that’s a nice thing because if anything does go wrong we usually know exactly what the problem is. We chose a different avenue of architecture, we’re trying to implement what we design and it led to us being almost manufacturing architects.” A4AC can design a unit fit for almost any purpose from commercial designs for a coffee shop or a bank, to residential units or community projects such as schools or low-cost housing. Having worked together for a year on this project, the trio saw their idea transforming into something that could become a viable business model.

The company is now involved in both residential and corporate work in addition to their outreach work in rural communities. Bouwer added, “It spawned from an idea to produce change through architecture and it has since snowballed into this company which we’ve been running now for five years.” Despite being formed with the idea of effecting change in rural communities, this kind of work is not without its challenges. Often work in rural communities involves working with limited funds, according to Bouwer, meaning that often for A4AC there is a limit to the investment the company can expect to receive for these projects. This is one of the reasons that A4AC is currently

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trying to push their commercial side. Ideally the company would be have a portfolio of 40 per cent commercial, 30 per cent residential and 30 per cent community- orientated but currently the A4AC isn’t always able to choose exactly what type of project to pursue. “There’s months on end where we do three to four projects in a row which are

with First National Bank (FNB) on, are in areas in which the bank does not necessarily know are viable. “FNB as a bank can’t invest a huge amount of money to build a branch and find in a year or two find it doesn’t work and then they lose the building in an investment sense along with the physically built infrastructure,”

The Roast Republic container mid-install.

just commercial and then we’ll do five projects that are just rural work,” said Bouwer. “At this point we are not fortunate enough to choose what happens where, it’s just as the projects come in we decide to take it or not then we go with it.” There are two key reasons why the kind of mobile designs that A4AC offers have a place in South Africa noted Bouwer. The first of which is the often complex issues surrounding building on land which is often owned by one or another tribe, meaning that the company or institution looking to build does not own the site that they are planning to build on. Further to this is the issue that a lot of newer outreach sites, such as the developments that A4AC have worked

added Bouwer. “So that’s when we approached them with the idea of doing a mobile solution. With budgets being tight we decided the easiest solution was to retrofit a 12 metre container because the transportation and logistics infrastructure are already in place, making the offloading and movement of the unit more viable, cheaper and cost-effective.” A key component of the company’s success with its mobile solutions has been offering the cost reduction A4AC can provide by developing the project offsite before final delivery, added Saaiman. Producing something on site is expensive, and the company’s production model allows much of these costs to be avoided.

“We look at with all our projects to make a solution that actually gets manufactured in a factory and then the time on site is cut on hopefully by about 70 per cent, which allows us to do a better quality project at a faster rate,” said Saaiman. A4AC has currently completed its fourth project in partnership with FNB over the past the year, roughly one every three months. The partnership was born out of the success A4AC had with the production of a small coffee shop unit with a company called Roast Republic, it became the company’s proof of concept that a mobile unit built in a container was a viable solution. Overall though, the biggest challenge that A4AC is facing revolves around the company’s branding. Bouwer describes that the company’s name ‘Architecture For A Change’ has meant that it has often been considered as a non-profit organisation, which brings a certain corporate stigma. “There’s a bit of stigma surrounding [non-profit work] but it was at the core of why we started the company in the first place, so it’s not something that we can discard. So one of the biggest challenges I would say is that there is a stigma surrounding the kind of work we do, although it’s not our main focus people assume it is.” However, the company’s work with FNB has provided a link between corporates and the type of work that A4AC does. Bouwer foresees that this could open other corporates to the avenues of possibility that exist using A4AC’s mobile architectural model. When asked about where the company will be in a year, Bouwer said, “Ideally on the manufacturing side we would like to see in a year’s time us pushing out more of the FNB units and maybe trying to, not moving away from, but limit our manufacturing side and obviously increase our commercial architectural side more and hopefully this is a catalyst for that.”

www.bankerafrica.com

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technology

If applications fail to meet expectations, it can have a direct effect on an organisations bottom line, says Dib (CREDIT: REDPIXEL PL/SHUTTERSTOCK).

Are you on top of your digital experience management strategy? The importance of gaining insight into how your customers interact with your technology cannot be underestimated, says Elie Dib, Senior Managing Director, METNA at Riverbed www.bankerafrica.com

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oday’s business world is dominated by digital services that are made-to-order for users, where the quality of the experience—including intuitive ease, convenience, and richness of choice—is a key differentiator. Users demand to get the information, the product or the service they need—right now. They will judge an organisation based on the digital experience it provides, so the difference between a two-second and a five-second delay when using an application can mean the difference between satisfied end users, and frustrated users flooding IT with complaints. As a result, a lot goes into creating digital experiences that engage each user with a rich array of choices that can make their lives easier or better. That’s where digital experience monitoring (DEM) comes in. Gartner defines DEM as the experience of all digital agents—human and machine— as they interact with enterprise applications and services. DEM has taken centre stage as businesses embracing digital transformation realise that to provide better user experiences, they need to monitor all aspects of the digital experience. This means it is no longer enough to just know how their network is performing. They also need to have full understanding of how the digital experience is from the point of consumption, to the end-user device.

ALIGNING TECHNOLOGY WITH BUSINESS NEEDS

Most of the outcomes pursued by today’s organisations—including the increase in satisfied customers as well as in expansion and net/new business, continuous innovation, and reduced operating expenses, among others—depend on how well they proactively manage users’ digital experience. This requires the support of the right technologies.

However, aligning the needs and expectations of the business and IT’s ability to deliver isn’t always easy. According to a Riverbed survey, while 98 per cent of executives believe that enterprise application performance is critical to achieving optimal business performance, 89 per cent say poor performance of enterprise applications negatively impacts their productivity on a regular basis. As teams across the business become more digital, datadriven, and technology-dependent, traditional black-box IT must become transparent and accessible. Organisations cannot manage what they cannot see. In order to optimise the digital experience, they must know where users are, and how they are accessing and interacting with applications. This can become quite complicated when analysing a diverse range of servers, networks, web services, databases and the applications themselves.

THE IMPORTANCE OF GAINING INSIGHT

When applications fail to meet performance expectations, they directly impact productivity and the company’s bottom line, creating problems such as dissatisfied customers (41 per cent), contract delays (40 per cent), missed critical deadlines (35 per cent), lost clients (33 per cent) and negative impact on brand (32 per cent). The solution is to establish end-to-end visibility into application performance across the entire network. In order to close the performance gap, IT needs to establish a clear line of sight into how apps are performing, and how they impact on the end-user experience. Using a DEM platform, IT can better understand what users see when they utilise an application to execute a critical business process. This could be a customer service agent looking up an account in a customer relationship management app, medical staff

accessing a patient’s electronic health record, or a cashier scanning the bar code at the till. DEM closes the visibility gap between what IT monitoring tools show and what the workforce or customers are actually experiencing. Organisations can detect issues before they start, fix bottlenecks, and make sure they do not happen again—before end users even have an opportunity to complain. When it comes to meeting or exceeding the expectations of your digital users in today’s digital business world, the key is to understand how the experience itself is evolving and what a successful service relationship looks like from the customers’ point of view. Failing to do so could mean lost revenue, lost productivity, or even damage to a company brand. Having a full proof DEM strategy in place enables organisations to find valuable insights in application performance data and user behaviour to create a superior digital experience. This will undoubtedly give organisations a competitive advantage—and set them on the right path towards differentiating themselves from the competition.

DEM empowers IT to monitor the actual end-user experience of any local, cloud, web, or mobile app running on any physical, virtual, or mobile device. IT can then answer important end-to-end experience questions, such as: Are applications slow to load? What’s the latency? How does the user navigate the application? What other applications are running on the device? How did the transaction traverse the network and datacentre? Did changes made to the application or infrastructure have an impact?

www.bankerafrica.com

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governance

Africa is on the road to world-class AML compliance Banks are making progress on combating money laundering, says William Lawrence, Regional Practice Lead: Fraud and Financial Crimes at SAS

Pressure is mounting on African banks to get their compliance procedures in order (CREDIT: COSMA/SHUTTERSTOCK).

frica has a reputation of being a haven for money laundering and terror financing. There’s good reason for this. Africa has traditionally lagged behind developed markets in terms of legislation to combat money laundering. Where there is legislation, enforcement is lacking–and criminals have taken advantage. While South Africa is somewhat more mature than the rest of the

continent, compliance with anti-money laundering (AML), legislation by banks in Africa is seen as a grudge activity that does not necessarily drive revenue. As with most things we’re obliged to do but don’t really believe in—it’s likely that they’ve done the bare minimum in order to tick the right boxes. It’s also likely that the required people, processes and technology needed to uncover dodgy transactions have not been implemented.

WINDS OF CHANGE

But there’s something happening in Africa. Banks are facing increasing pressure from two main sources to get their systems and processes in order. In one corner, regulators are starting to take compliance seriously, as seen in the recent promulgation of a number of new laws. They, too, are under increasing pressure from global financial markets to play their part in the fight against money laundering.

www.bankerafrica.com

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In Kenya, the Proceeds of Crime and Anti-Money Laundering (Amendment) Act 2017 has just been signed into law, imposing stiff penalties on those guilty of economic crimes. In South Africa, the Financial Intelligence Centre Amendment (FICA) bill has also been announced, which aims to strengthen existing legislation that combats money laundering and the financing of terrorism. Clearly, governments are starting to take a hard–line approach towards economic crimes, as non-compliance could affect their ability to procure foreign loans needed for development and could also exclude them from global financial markets. In the other corner, local banks are starting to realise that, in order to conduct business in global markets, they need to comply with anti-money laundering legislation and take measures to protect themselves. Banks in foreign markets are reluctant to sign on African financial institutions as correspondent banks because they expose themselves and their clients to unnecessary risk if the partner bank in Africa is not compliant. In fact, banks such as Deutsche Bank have terminated their correspondence relationships with banks in Africa for this very reason.

THE JOURNEY TO COMPLIANCE STARTS WITH A SINGLE STEP

Banks are the first and last line of defence when it comes to identifying money laundering transactions. More and more legislation is compelling banks to implement a number of controls and processes aimed at detecting and investigating suspicious activity. These include verifying the identities of clients before setting up accounts, maintaining transaction records, reporting suspicious and unusual transactions, and formulating and implementing internal rules and

training to govern all of this. But banks do not have adequate measures in place—and the regulator is starting to impose strict penalties. Common challenges we’re seeing within the banks include those around adequately verifying customers and screening them against sanctions lists and watch-lists, monitoring suspicious transactions, and reporting transactions above a stipulated threshold. But these are not the only reasons why fraudulent transactions are going unnoticed. Firstly, departments within banks still operate in silos, meaning the retail banking division does not know what the business banking division is doing, for example. This introduces the risk of missing direct and indirect links between a customer and another account with known links to organised crime. Secondly, while banks may have systems in place to detect suspicious activity, these usually flag thousands of transactions a day, making it impossible for a compliance division with limited resources to investigate every alert, allowing some to slip through the cracks.

COVERING ALL BASES WITH ADVANCED ANALYTICS

As soon as a transaction enters the banking system, advanced analytics becomes the bank’s best tool for identifying money laundering behaviour. Simple business rules in isolation are no longer effective; banks need more advanced analytical capabilities, such as array processing, which allows them to monitor multiple risks during a single pass of data. This gives them the ability to process more transactions in less time, which is crucial because banks only have a short window during which to report suspicious activity to the regulator. Advanced analytics solutions, using very specific algorithms, subject every transaction to analytical processing, checking for anomalous behaviour,

screening customers against watchlists, and building a single view of the customer, including how many direct and indirect links he or she has with other accounts in the bank. All this happens behind the scenes without annoying customers who are conducting legitimate transactions but whose activity might be erroneously flagged as suspicious. Rather, sophisticated analytical models within modern solutions are able to drill down into thousands of transactions and only flag those with a high propensity for money laundering and/or fraud—which could be just 40 transactions out of 4,000—with the focus on increasing the integrity of alerts, and thereby bringing the number of transactions that need to be investigated down to a more manageable figure and greatly improving detection accuracy. The fact that there are fewer false positives also reduces AML compliance costs as investigators spend less time processing legitimate exceptions (for example, a pension fund pay-out) and more time focusing on high-risk events. With advanced analytics, banks can take a risk-based approach to monitoring transactions for illicit activity using a combination of segmentation, behavioural and peer-based analytics techniques that lead to improved detection accuracy. With multiple detection methods and faster processing, banks can monitor more risks in large data volumes in minutes. Not only does this enable them to comply with AML regulations but also helps them to avoid penalties and reputational damage associated with non-compliance. The perception that Africa is the ideal destination to launder money is slowly changing. Legislation, a commitment by banks, and the right technology represent the trifecta that will allow us to collectively start addressing the requirements and move towards becoming a world-class compliance environment.

www.bankerafrica.com

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Financial crime in Africa—breaking the cycle, not the bank Temenos reveals details of their A-Z of Financial Crime in Africa report for Banker Africa

he African banking market is rapidly growing, both in client numbers, as well as in the number of channels available. As a result, African banks are increasingly struggling to fight financial crime. PWC’s Global Economic Crime Survey 2016, reported that ‘economic’ crime has gone up by seven per cent in Africa over the last two years (to 57 per cent against a global average of 36 per cent). KPMG’s AML (anti-money laundering) survey listed Africa as having the lowest satisfaction rate in terms of its transaction monitoring system. But why is fighting financial crime so complex and how can this cycle be broken?

GROWING COMPLEXITY

In general, banking has become increasingly dependent on technology, and in the absence of a countervailing strategy, the systems that banks depend on to deliver their services have multiplied and grown much more complex. Complexity includes the growing number of channels, including websites and online banking platforms, mobile banking services (eight of the ten countries that make the most use of mobile ﬁnancial services live in Africa) and social networks. In addition, banks’

Complex financial crime is a growing problem as banking adopts more technology (CREDIT: AFRICA STUDIO/SHUTTERSTOCK).

IT has become more complex, as new information systems are implemented on top of older systems, building up layers of technology that do not necessarily link together, making it much more difﬁcult to gain a uniﬁed view of operations and spot illegal activity.

IRREGULARITIES

A common issue with AML and sanctions screening is that a system needs to allow for irregularities. In many cases, a financial institution’s (FI’s) data will contain gaps and inconsistencies. This may have come from established clients whose data was not fully captured or poor Know

Your Customer (KYC) processes, irregularly updated or irrelevant data spread across disparate systems, or simply the inability to capture some types of information.

POOR DATA

But the issues don’t always lie with the FIs’ data. There are often issues associated with the sanctions lists that the data is matched against. They may be poorly structured, or have incomplete or inconsistent records, and there is a risk that bad data is being matched to bad data. One method of addressing this is to use a system that contains wizards to test

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newly-published public or private lists, highlight areas for improvement, enrich data with additional variations and permutations, and apply rules to avoid false detections. There is also the issue of coping with the increasing number of ofﬁcial lists to check against and their different formats.

STAFFING ISSUES

Many banks within the region have highlighted that they find it challenging to monitor PEP relationships. In particular, large number of banks in the Eastern African region still rely exclusively on front office staff to identify Politically Exposed Persons (PEPs). With only 77.3 per cent of African banks requiring customers classified as PEP’s to evidence source of wealth and/or source of income, this makes their jobs even harder. In fact, 77 per cent of African FI’s are concerned that they don’t have qualified resources to identify financial crime and 72 per cent say that there is an overall lack of training. This is further backed up by stats that show that only 34 per cent of banks within the region have personnel that are fully trained to understand and be aware of financial crime in-house. With even relatively small institutions having multiple databases running on different servers that are accessible to a large number of staff, there are also growing issues with insider fraud. Collusion between staff members remains the easiest way to commit fraud within a bank. Aside from direct collusion, employees may also be able to defeat the four eyes principle if there is poor password security within the bank. If a staff member is able to gain access to a colleague’s passwords, he or she may be able to carry out fraudulent operations on the system and sign in under another person’s identity to validate them. As before, frauds carried out in this way are likely to be very difficult to detect among the larger number of bona-fide.

MULTIPLE FACTORS

For a financial crime system to function effectively, a wide variety of lexica for city-/country-connections and bank identifiers in various market networks, need to be considered. Effective software screening solutions use lexical analysis to match against not only country name variations, ISO country codes and deductions from city names, but also free text descriptions and financial identifiers. The solution must be sufficiently agile to spot even the slightest irregularity, utilising features such as ‘relaxed pattern matching’, where words are compared with a tolerance for approximation. Flexibility is key, as every institution will have its own needs, and rules may need to be applied according to requirements such as geographical area or business line.

CULTURAL DIFFERENCES

Cultural differences are also important when screening for sanctions in particular, as these can be used to avoid detection. In many cultures, people may use four or ﬁve names, combining their given name and family names. Matching algorithms that fail to take into account these cultural differences result in gaps for FIs to fall through when the individual slightly modiﬁes their name. Effective software should have good support for these cultural differences, capable of matching on portions of the name or name elements which are ‘flipped’ in order, and weighting them differently.

BREAKING THE FINANCIAL CRIME CYCLE

Ninety-two per cent of financial institutions in Africa state that money laundering is high risk, but failure to address financial crime is also a growing risk. In April 2014, South Africa’s central bank fined the country’s four largest lenders a total of ZAR 125 million ($11.9 million) after finding deficiencies in their controls to

combat money laundering and terrorist ﬁnancing. Despite the multiple considerations and issues that African banks are facing, it doesn’t have to be this way. The right software should be able to effectively consider all the challenges listed above and evolve with the changing environment. It should screen a customer database, payments and any other type of transaction, and compare these against sanctions lists or customer profiles. Software should be sufﬁciently intelligent to identify when a transaction is matched up legitimately, yet there isn’t a sanction applied or an incident of money laundering. This is often referred to as a ‘false positive’. But the right solution provider should look at the regional (and particular bank) challenges and look to address these. For example, from a staffing perspective, education is key. A good provider should have a post launch plan to re-teach and re-calibrate solutions at least every six months. This way, the maximum benefit is derived from the financial crime software. Another consideration is that a lot of the smaller banks don’t want to pay for a list subscription. A knowledgebase can be created to support these banks, offering a list of both private and public lists for them to access. At the end of the day, the right solution should go beyond addressing all the challenges African banks are facing. It should support all an FIs needs, so that banks can focus on their business of supporting customers with minimum impact from criminal activity, and thus the cycle is broken.

This article was written by Temenos based on excerpts from the company’s A-Z Financial Crime in Africa report. The full report is available online on their website www.temenos.com

www.bankerafrica.com

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investments

ESG in private equity: from fringe to focal As institutional investors increasingly turn to alternative investments, including private equity to seek additional return and diversification, the pressure is now on private equity managers to step up and offer sustainable investment solutions, says Mirja LehmlerBrown, Senior Investment Manager at Aberdeen Private Equity

ust as with listed equity, institutional investors in private equity are increasingly widening the scope of their analysis to include wider environmental, social and governance (ESG) issues, in addition to traditional risk/return analysis. ESG covers a broad range of factors, some of which have the ability to materially impact the financial prospects of an investment. They include environmental factors such as air, land and water pollution, social factors like employee diversity and governance factors such as the existence of antibribery and corruption policies. Many factors are driving the trend towards greater ESG integration. Technology is continually re-shaping the behaviour of businesses and consumers through developments in areas like artificial intelligence and robotics, autonomous vehicles and biotechnology. The UN’s 17 Sustainable Development Goals to be met by 2030 provide a framework that defines global development priorities and aspirations. National governments around the world are implementing new regulations relating to environmental pollution and waste disposal, workplace standards

and corporate governance. Meanwhile, investors are increasingly prioritising responsible investment in their evaluation of investment managers. At a fundamental level, private equity is about the transformative power of investment. It serves a key role in financing new businesses and upgrading and futureproofing old businesses. Importantly, the private equity governance model puts it in prime position to effectively incorporate ESG issues into value creation. Private equity managers can do this in two broad ways. Prior to investment, they can undertake research and due diligence to evaluate how sectors, value chains and business models are being shaped by ESG factors. This can be extended to individual companies to identify those businesses that can take advantage of ESG trends. Secondly, once invested, an ESG framework can be used to reveal new strategic and growth opportunities. Performance can be reviewed and progress formally reported as a standard part of advisory boards meetings, and an annual public ESG review can be integrated into annual accounts. The global trend towards ESG integration in private equity means such processes will soon become necessary,

rather than optional. This is where the Nordic countries and the Netherlands are streets ahead in pioneering ESG integration in private equity. Many large asset owners there take ESG considerations into account when selecting, appointing and monitoring investment managers for new mandates. In contrast, ESG considerations have not been a priority for asset owners in the US largely due to questions over whether this breaches their fiduciary duty to clients. Times are changing, however, and sustainability is fast gaining traction among the US investment community. ESG integration also has some way to go in Asia, although progress is being made in some countries, notably Japan. ESG is most powerful when truly integrated into an organisation—where it goes far beyond the initial phase of just focusing on risk mitigation through strong compliance and a ‘do-no-harm’ approach. Companies that embed ESG into the core of their performance culture are better able to build a resilient organisation with a sustainable strategic agenda. This is all the more important given the many uncertainties that businesses and investors face today.

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PICTURE OF THE MONTH Sotheby’s earlier this month held its first dedicated sale of modern and contemporary African Art in London. Pictured here is Chéri Samba’s Une vie non ratée (A Successful Life), 1995. Samba is a founding member of the Zaire School of Popular Painting, a movement characterised by the creation of bold representational works, often incorporating narrative text, in order to comment on the political and socio-economic issues of their respective communities. At the heart of Cheri Samba’s practice lies his desire to combine humour and irony in order to create works that reveal the truths about daily life in his hometown of Kinshasa, Democratic Republic of Congo (DRC). (CREDIT: CHÉRI SAMBA)

POLL

This month we asked our readers on bankerafrica.com and twitter @bankerafrica...

Which industry is ripe for growth in Africa?

46% 17% 11% 11% 4% 4% 2% 2% 2% 0%

BANKING & FINANCE TELECOMMUNICATIONS AGRICULTURE MANUFACTURING CUSTOMER RETAIL TECHNOLOGY COMMODITIES CONSTRUCTION OTHER REAL ESTATE

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