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Tue, 9th Aug 2022

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%.

Much of this growth has been spurred by innovative integration of technology in banking and financial services, which has also 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.

The banking and financial services sector in East Africa contributes over 3% to the region's GDP, and maintains assets equivalent to 40% of the region's GDP.

Despite this impressive performance, the sector has several concerns:

  • Growth and penetration More
  • 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 for growth perhaps presents the banking and financial services sector the greatest opportunity.

    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 includ Savings and Credit Cooperatives (SACCOs) and Micro Finance Institutions (MFIs), as opposed to the mainstream banking and financial institutions who serve 21.5%, with the remaining exclusively serrved by mobile money transfer operators.

  • Customer service More
  • The remarkable growth and penetration that the baking 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 some banks 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, customer service demands are weighing down on firms in the financial services sector in a way they previsoulsy havenn't. 

  • Accessibility to affordable credit More
  • 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.

    The balance between short-term and long-term credit 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.  Currently, Kenya has about 160,000 mortgage loans valued at Ksh. 91.3B (USD 1.08B), and accounting for 2.5% of GDP.

    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.

  • Cultural and socio-economic barriers More
  • 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.

  • Legal and regulatory framework More
  • 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.

  • Governance More
  • 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.

We have built excellent capacity in the following areas within the banking and financial services sector:

  • Success Model Suit (SMS) More
  • Commercial banks have for some time now been keen to develop their business customers' capacity to obtain and optimally utilise debt finance.

    Our Success Model Suit (SMS) advisory solutions are designed to address growth and sustainability requirements in small and medium businesses, and we work with banks to develop tailored programmes that respond to their business customers' requirements.

  • Strategy More
  • We build on our sound approaches to strategy and performance management, as well as our wide experience in the banking and financial services sector to develop growth and sustaninability strategies, as well as other management initiatives focused on three areas of great importance within our banking and financial services clients:

    • customer service
    • operational efficiency
    • project management


  • Project financing More
  • Project financing requirements present unique risks to would be financiers in each case.  It is understandably important for banks and other lenders to be as sure as they can get that credit risks are adequately mitigated, without frustrating borrowers in the process.

    A well thought out project, prudently implemented and appropriately governed, by far more than compensates its cost of debt, and navigates various risks around it to deliver wide ranging benefits to both the lender and the borrower.

    This is what we aim to achieve by providing advisory in strategy and finance to intending borrowers, as well as for banks and other lenders for who it is important to manage credit risks within their portfolio.

  • Recovery More
  • Sometimes a corporate or SME borrower becomes unable to meet its financial obligations, which puts the bank's debt investment to jeopardy.

    We provide banks and other lending institutions with negotiated debt revovery solutions through which appropriate support is given to distressed borrowers to facilitate recovery of debt without liquidation of collateral or other securities held by the lender.

  • Learning and development More
  • Learning and development specifically designed to address performance requirements in banks is another area in which we have built considerable experience.  We design, develop, and manage proprietary learning and development programmes for middle to senior management staff in the banking and financial services sector.

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