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Inclusive financial sectors and Inclusive financial sectors and market integration market integration

Inclusive financial sectors and Inclusive financial sectors and market integration market integration

Gerhard Coetzee

(with support from Ronald Chua, Luis Noel Alfaro and partly based on the work of ECIAfrica)

Gerhard Coetzee

(with support from Ronald Chua, Luis Noel Alfaro and partly based on the work of ECIAfrica)

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OutlineOutline

Focus on southern Africa and introduction

Market integration defined

Market Integration and financial exclusion

Market development and integration

Indications of integration and some evidence

Enabling factors, challenges and strategy

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IntroductionIntroduction

Conventional supply-led market based approach (and both still alive)

Slow growth in poverty focused sector

MF and financial sector, still somewhat separate, still shallow

Decline in aid flows for microfinance, need alternatives, that are more sustainable

Integration – may lead to market development and larger outreach

Market development – leads to decrease in poverty GDP per capita growth of 3.8% to reach MDGs

One standard deviation improvement in equality in Latin America and Africa

Why integration as terminology?

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Working definitionWorking definition

Up-scaling and downscaling

Linkages, joint ventures

Breadth, depth and scope

Why? Political push – charters in South Africa, accounts Profit pull – increased competition due to globalization,

liberalization Perceptions of the poor changing – Prahalad Technology – largely ICT with “mobile” banking and

expectations of 1,4 billion on line

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MI and FEMI and FE

““The inability to access necessary financial services in The inability to access necessary financial services in appropriate form” (Kempson and Whyley, 1999).appropriate form” (Kempson and Whyley, 1999).

Causes may be (Financial Services Authority, 2000): Access exclusion due to risk assessment

Conditional exclusion or eligibility

Price exclusion or affordability

Marketing exclusion

Self-exclusion

Market integration includes financial inclusion strategies Market integration lead to inclusion improvements

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Market integration and Market integration and market developmentmarket development

Is integration always possible?

No, depending

On level of development of market

On availability of institutions and

on level of development of financial and other institutions

Different strategies

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Strategies regarding integration and Strategies regarding integration and market developmentmarket development

Market status →↓Institutional status

Under developed Developed

Start-ups Less integrated, more changes needed

Growth phase

Mature and refocus

More integrated, less changes needed

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Indicators of readiness for and of Indicators of readiness for and of market integrationmarket integration

Supply Side

Diversity of players and methods

Convergence and consolidation

More and better products and services

Greater reach and greater depth

Better systems and following international standards

Conducive ICT systems and structures

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Indicators of readiness for and of Indicators of readiness for and of market integrationmarket integration

Demand

More informed and sophisticated clients

More choices

Broad range - from vulnerable non-poor to the poorest

Context

Rules, new and adjusted

Information flows improve, credit bureaus, consumer education

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Evidence: South Africa (1)Evidence: South Africa (1)

Legislation Three new laws To address access, sector structure and conduct Prudential side

• Cooperative Banking Bill• Dedicated Banks Bill

Conduct Side• National Credit Act replaces Usury Act, Credit Agreements

Act and MFRC• Started on June 1, 2006• Phasing in over a year

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Evidence: South Africa (2)Evidence: South Africa (2)

Main stream banks in microfinance “sector” Mzansi Savings Account MTN Banking Consumer credit – mainstream banks now the

biggest role Niche Banks in microfinance

WIZZIT Capitec Bank

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Evidence: South Africa (3)Evidence: South Africa (3)

Access potential and real

2,700 2,800 6,300 8,000 8,600

104,000 100,000

0

20,000

40,000

60,000

80,000

100,000

120,000

Banks ATMs DSDPayment

Lottery Retailmerchants*

Spaza

No o

f poin

ts (

1000s)

Post Office

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Evidence: eastern and southern AfricaEvidence: eastern and southern Africa

Legislation

Uganda, Kenya, Tanzania, Mozambique, Zambia, Angola

Main stream banks in microfinance

Stanbic, Barclays, ABSA,

Niche banks in microfinance

NMB, Equity Bank and more

Outreach

Insufficient data to confirm or deny

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Enabling Factors for Market Enabling Factors for Market Integration*Integration*

Broad definition of microfinance Functioning microfinance “sector” Conducive policy environment and Appropriate legal framework, regulation and supervision Access to money and capital markets Presence of support Institutions Informed clients through information flow and consumer

education Incentives and motivation for continuing innovation Convergence of stakeholder initiatives

* Some adapted from “Commercialization of Microfinance: Perspectives from South and Southeast Asia” Charitonenko et al, ADB.

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ChallengesChallenges

Mission drift Knowledge of market Appropriate products Business model Scaling up and cost of integration (cost of

transforming) Organisational culture Perceptions

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Need change of perceptionsNeed change of perceptions

The poor – from beneficiary to clients and partners Poverty and vulnerability – from risk to opportunity From subsidy to sustainability From microenterprise credit to household financial

services Reaching the poor & sustainability – from trade-off

to win-win From failures to opportunities for learning From margin to mainstream

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Policy and strategyPolicy and strategy

Advocacy and support by international bodies

Ensure integration aspects in national policy

Legislation and policy

take away obstacles, but keep

balance between prudential and innovation

For example, in South Africa strategy to integrate “first” and “second” economies – ASGISA

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Summary of progress and challengesSummary of progress and challenges

What next?

Supply led, state banks, small farmers, largely failure, but some successes

50s to 70s

More demand, NGOs, Urban MEs, outreach ceiling

70s to 90s

Commercialisationtrying to find right institutions, systems, outreach improved

80s to 90s

Integration, many institutional types, linked how to keep reaching the poor

90s to present

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AcknowledgementAcknowledgement

Ron Chua

Luis Noel Alfaro

David Porteous

Finmark Trust

CGAP

The Mix

ECIAfrica