On the frontier of finance: banks are venturing deep into sub-Saharan Africa

NOT so long ago, a cruel joke among international bankers was that sub-Saharan Africa was less an emerging market than a submerging one. Local bankers had no reason to change that impression; for all the political and economic turmoil, tiny and informal markets, and shabby infrastructure, they mostly made good money doing very little. Using low-cost deposits to buy high-yielding government bonds, they harvested some of the best net-income margins in the world. The corollary, of course, was that most Africans had no access to financial services.

Nowadays, the thinking is shifting. According to the IMF, Africa is enjoying its best period of sustained economic expansion since independence. Real GDP growth is expected to rise from 5.7% in 2006 to 6.1% this year and 6.8% in 2008. This good performance is partly driven by high commodity and oil prices. Foreign aid has also helped. But it is also due to better economic management, more openness and more stable politics. Such policies mean banks have to work harder to make a profit, but also help them to grow. That is encouraging them to reach out to new customers-and so they should. A report from the World Bank on November 13th argues that promoting access to financial services in Africa should be a priority, as it boosts growth and helps reduce the income gap between rich and poor.

Still, only 20% of families in Africa have bank accounts. Small and medium-sized firms struggle to borrow; private credit accounts for 18% of GDP in Africa-and less than 5% in Angola, Chad, Congo, Guinea Bissau and Sierra Leone-compared with 30% in South Asia. Ethiopia, Uganda and Tanzania have less than one bank branch per 100,000 people. Opening an account in Cameroon requires $700-more than many of its people earn in a year. In Swaziland, a woman needs the consent of her father, husband or brother to open an account or take a loan, and 75% of adults do not have a verifiable address. Even in South Africa, where the financial sector is far more sophisticated, almost half of adults do not have bank accounts.

Millions of Africans stash money under their mattresses or keep their savings as cattle. In countries such as South Africa, Kenya and Uganda, many turn to informal services, such as burial societies or savings clubs. Microfinance outfits have filled some of the gap. But they are small, and banks are usually much better equipped to provide financial services on a large scale.

New technology also helps. Few Africans have a bank account, but many have mobile phones: in Kenya and Botswana, for example, 17% of those who are unbanked own a mobile phone, according to the FinMark Trust, a research group seeking to make financial services more accessible. In South Africa, Congo and Kenya, financial services are offered over mobile phones-though it is not always clear whether they can be called banks or not. Subscribers can open accounts, check their balances, pay their bills or transfer money by typing a few commands on their mobile phones. In Kenya, where 3m people have bank accounts, as many as 1m use M-PESA, a mobile-payment scheme.

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