New study urges African governments to improve access to finance
Summary
Only 23 per cent of African households had access to formal or semi-formal financial services in 2015.
Regional Director of the Institute of Chartered Accountants in England and Wales (ICAEW), Michael Armstrong, has said the limited availability of private credit in Sub-Saharan Africa (SSA) could have real effects on economic growth in the region. Armstrong made the statement following the release of the latest Economic Insight: Africa Q3 2016 report, published by the ICAEW, a global accountancy and finance professional membership organization.
“Whilst many of Sub-Saharan Africa's population has access to a formal banking system, in low income communities the degree to which individuals can access financial services is limited, especially when considering the limited availability of private credit,” the ICAEW Regional Director said. “This could have real effects on economic growth if it remains unchanged. Governments hoping to drive prosperity should consider how they can increase access to finance. "
The Economic Insight: Africa Q3 2016 report shows that access to credit remains a challenge for many Africans despite improvements in other developing and high-income regions of SSA. The ICAEW report undertakes a comparative review of the financial systems and the regulatory environment across the region.
Drawing from World Bank's Doing Business Ranking, ICAEW said Rwanda has outperformed other SSA countries in access to credit, followed by Zambia, Kenya, Ghana, Mauritius and Uganda. According to the World Bank, Rwanda has made six reforms to facilitate getting credit during the 2010-16 period, strengthening borrowers' and lenders' collateral laws.
According to Making Finance Work for Africa (MFW4A), an initiative that supports financial sector development in Africa, only 23 per cent of African households had access to formal or semi-formal financial services in 2015.
The ICAEW report – which was published in partnership with Oxford Economics, one of the world's leading advisory firms – also notes that South Africa and Mauritius have the highest Private Sector Credit Extension (PSCE) to GDP ratios on the continent, with South Africa's figure estimated at 150 per cent in 2015 while Mauritius' ratio is estimated at around 104 per cent. PSCE to GDP ratios reflect the extent to which banking sectors provide capital to business, and most SSA countries have relatively low PSCE to GDP ratios, which is indicative of the underdeveloped nature of the banking sectors and the limited availability of private credit in these countries.
Nevertheless, South Africa's PSCE to GDP ratio is higher than the UK's (134 per cent), while Mauritius's figure is slightly above the global middle-income, weighted at an average of 102 per cent. The high ratios result from the fact that these countries' financial sectors are more sophisticated than those of other SSA countries.
The report looks at the role financing can play in economic development across the continent and likely developments in the cost of financing in the coming years.
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