Financial services sector has grown rapidly over the past few decades in the African continent. This sector has evolved to become a substantial player in emerging-market financial services. Local African financial institutions are extending their reach to new geographies, new market segments with new innovative products. Currently, the local banks and insurance companies with other micro finance institutions as well as Sacco’s and cooperatives now comparing with the rest in the world. It is noted that African cooperatives, especially those in Kenya are among the most robust and innovative globally.
The financial sector is outgrowing gross domestic product (GDP) growth in most of Africa’s leading economies, as an example, Kenya’s GDP grows by an average of 4.5% annually while it’s financial sector grew in excess of 8.5%. Other than regulatory restrictions in some African economies which inhibit growth, most countries record significant improvements in the sector.
Local governments in Africa are undertaking financial reforms which have largely enabled growth of the sector; for instance, Nigerian banking reforms promoted a swift consolidation of banks from 89 to 25 banks around 2005. Kenya’s legislature introduced interest rate cap which threatened an otherwise vibrant sector. Most banks cut back on unsecured lending to small and medium enterprises, most of which do not hold any collateral to secure bank lending.
Insurance firms, cooperatives, Sacco’s, micro finance banks have not been left behind in the advancement of the African economies. Most are expanding the solutions it provides to its customers, mostly by reaching unreached markets as well as venturing into market segments which banks have shied away for long. it is the Sacco’s, cooperatives and micro finance institutions that have pioneered the disruption in the financial services industry to the awakening of the laid back banks.
New entrants like mobile bank into the financial services sector are also gaining share in countries where governments are allowing non-conventional lenders to enter. Such mobile banks like Branch, are thriving with the use of big data in providing access to credit mostly to youth and the upcoming middle class, in a continent where the financial services sector is still undergoing evolution.
Access to financial services remain a challenge in almost all African countries, cost of credit remains prohibitive and there is need for governments to power up this sector by providing policy incentives to address this challenge. Access to credit for most businesses, especially in key sectors like Agriculture, manufacturing among others can be the gateway to catalysed growth in the African continent. The recent (March 2018) declaration by over 45 countries in Kigali to promote trade by establishing one free trade area as well as removing of travel restrictions could provide the much needed impetus to push this sector to realise its full potential.
Even though lower growth is experienced in some countries in this sector, attractive opportunities remain—expanding current product offerings, increasing product penetration, bringing the unbanked into the financial system, and capitalizing on the rise of a new consumer class by developing innovative service and channel offerings.