East Africa’s banking and financial services sector has seen substantial growth over the last ten years, riding on the back of the region’s average annual GDP growth of over 7%, despite the COVI-19 pandemic.
Much of this growth has been spurred by innovative integration of technology in banking and financial services, which has considerably increased the region’s access to formal financial services.
Increased financial inclusion has boosted accumulation of capital, which is a key driver of investment.
Integration of technology, and particularly mobile telephone technology, has led to exponential growth in access to financial services through agency banking, and various other business models incorporating telecommunication companies. This channel presents the banking and financial services sector the greatest opportunity for growth and expansion.
Mobile and payment cards transactions alone, in Kenya for example, totaled Ksh. 2.66 trillion (USD 317.04B) for the twelve-month period ending December 2012, with 15.69 trillion (USD 187.05B), 59%, of this attributable to mobile payment transactions.
At a world population of 7 billion today, there are 5 billion mobile phones and just 2 billion bank accounts.
The opportunities and threats that this kind of growth present the banking and financial services sector calls for well thought out growth and business development strategies on which banks and other financial institutions can obtain sustainable returns.
According to a World Bank survey on Kenya’s financial sector, majority of the 66% that have access to financial services are served by alternative financial services providers, which includes Savings and Credit Cooperatives (SACCOs) and Micro Finance Institutions (MFIs), compated to the 21.5% served through mainstream banking channels, with the remaining exclusively serrved by mobile money transfer operators.
The remarkable growth and penetration that the banking and financial services sector has recorded over the last ten years has put banks and financial services providers under pressure to develop more innovative products and to improve the wholesome quality of service that customers can expect.
This pressure has compelled mainstream banks, especially, to reposition themselves and redefine their market, which in some cases has cost them market share in the process.
Particularly with the level of service delivery made possible by the integration of technology in day-to-day operations, service experience demands are weighing down on firms in the financial services sector in a way they previsoulsy havenn't.
Credit within East Africa’s banking and financial services sector is rather costly, which renders it inaccessible to many. Dominance of few large banks, and fragmentation of the sector by many small banks reduces competition and inevitably pushes up the cost of credit.
In addition, the relative ease of accessing credit within largely unregulated mobile lenders, but who are prohibitively costly, draws millions of small borrowers to even higher costs of credit.The overall balance between short-term and long-term credit across East Africa is also overwhelmingly in favour of short-term credit, which is itself costly considering a spread of close to 9% between lending and deposit interest rates. At the current cost of credit, only about 11% of Kenyans, for example, are able to support a mortgage, with Kenya, for example, having just over 160,000 mortgage loans valued at Ksh. 91.3B (USD 1.08B).
Notwithstanding, according to the World Bank, Kenya’s financial services sector offers the easiest access to loans in the East and Central African region, and is ranked 12th among the countries offering the easiest access to credit worldwide.
A few banks have realized the need to link accessibility and affordability of credit to the rapid growth of retail financial services through mobile and other technologies, though this remains a territory of uncharted waters until penetration of such credit can increase significantly, and become the means by which borrowers engage in investing activities.
It would be expected that increased access to financial services and to credit especially, should promote savings, lower the cost of capital and increase the supply of investable funds. This has not quite happened despite the World Bank ranking Kenya 12th among the countries offering easiest access to credit across the world.
Whether because of the high cost of credit, or its inaccessibility, there appears to be insufficient confidence in borrowing within the East Africa market, which banks and financial services providers can significantly gain from, if reversed.
One implication of this lack of social confidence in retail and concumer borrowing, for example, is that in Kenya, for example, 97.6% of payment card transactions are debit card transactions, while cash still accounts for over 95% of all payments.
Notwithstanding, research has shown that globally, it is only after a country’s annual per capita GDP exceeds USD 1,000 that its middle class makes a big enough impact through credit funded consumption of goods and services.
Virtual and mobile payment solutions such as MPesa in Kenya, have registered exponential growth and penetration. In the year 2011, for example, a total of Ksh. 318B (USD 3.7B) was transacted through mobile payment services in Kenya. The global mobile payments market is estimated to reach 900 million users by the year 2015, and USD 1 trillion in transaction value.
This level of growth has not been matched by the necessary legal and regulatory framework, or by an equal penetration in the formal financial sector. This has put the baking and financial services in an odd spot, and more, the internal revenue agencies who have not been able to levy taxes on this huge emerging economy.
Encroachment of virtual payments solutions providers into banking and financial services such as PayPal, Google, and other online merchants has also created various legal and commercial model complexities, which have led to various uncertainties for businesses in their operating environments.
Though governance in the banking and financial services sector has tremendously improved over the last decade, stiff competition continues to put governance to test within the sector.
Inadequate provision against losses accruing from bad loans, weak internal controls, and unenthusiastic compliance with existing anti-money laundering legislation and best practice could negatively impact on the sector if not addressed.
Currently, less than 35% of banking and financial services firms in East Africa have certified Enterprise Risk Management (ERM) programmes, and less than 5% are Basel III compliant.
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In the areas of strategy, we have worked with different organisations within the energy sector to develop corporate strategy and other interventions aimed at enhancing sustainability in the energy sector.
Given the scope of investment and operations in the energy sector, we also, in addition to independent and organisation-specific strategic initiatives, we also model public-private partnersips (PPPs), through which stakeholders are able to give energy projects and other cross-cutting concerns concerted approaches.
Both routine operations and project avtivities within the energy sector are frequently executed in a project environment. Our work in Assurance supports energy sector projects to guarantee achievement of desired objectives.
Organisations in the energy sector are characteristically large and capital-intensive. In this regard, whether in consideration of extraction, generation, storage, distribution or general management and administration of operations in the energy sector, we work with organisations in the energy sector to develop human resource capacity.
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