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How banks can gain from global crisis

By | March 2nd 2009

By Morton Saulo

The credit crisis in Europe and America can benefit Africa’s banks, by giving them time to bridge technological gaps dividing them from their richer peers.

Mr Joe Divanna, chairman of Aitec Africa, told The Standard that the financial chaos in Europe and the US will create an opportunity for African banks to prepare for the next wave of competition.

Divanna, who also heads a UK-based financial consultancy, said: "History has shown us that strong, healthy banks typically emerge as a result of a banking

Zain top officials at the launch of a money transfer service Zap.

crisis. These strong, cost-streamlined banks, will be eager to expand into new markets, and will be looking at Africa to expand their operations. Consequently, indigenous African banks must work harder to lower their operating costs, and expand their offerings to a wider number of customers."

The expert identifies engaging customers with technology will be the key to their success.

Divanna says technology enables banks to facilitate commerce and support the lifestyles of consumers.

"This is why during the last 24 months, we have seen experiments, trials and prototypes of banking products spring up all over Africa," he notes.

"New consumer-based bank cards, micro-payment schemes, mobile phone banking, new lending products, and a host of branch redesigns indicate that Africa is now the land of banking innovation," says Divanna.

Technological benefits

Following the enactment of the Kenya Communications (Amendment) Act 2008, it will soon be possible for banker’s cheques to mature in a day, as opposed to the current three working days. The law, which now legalises digital signatures and email messages, will see banks move cheques online to the Clearing House.

Prior to the law, cheques had to be moved physically to the Clearing House and then sent back to the paying banks for a transaction to be effected.

Safaricom’s M-Pesa transactions. The money transfer services are the cheapest and best chance to reach the unbanked. Photos: Jenipher Wachie, Martin Mukangu/Standard

With the new law now effective it has eliminated to e-commerce hurdles such as those resulting from uncertainties over writing and signature requirements, and will promote public confidence in the integrity and reliability of electronic records.

Kenya Revenue Authority has also made a great stride in its online services. The new electronic filling and registration components include online registration by taxpayers, online filing of tax returns, payment of taxes and online lodgment of enquiries.

Several banks have introduced mobile banking. However, the product launched by mobile phone operator Zain-Kenya, and Standard Chartered Bank is the most innovative so far. Known as Zap, it allows registered users to pay for transactions and transfer virtual money using their mobile phones.

It is the cheapest and best chance yet to reach the millions of Kenyans without access to normal banking services. It is a hybrid of Safaricom’s much celebrated M-Pesa service. However, its true potential may not be realised, unless the Central Bank of Kenya gives Standard Chartered Bank, the custodial bank for the service, the green light to enlist other financial intermediaries.

Lower costs

But the biggest challenge for African banks will be to lower the cost of distribution, what is euphemistically called ‘the last mile’, between the bank and the customer.

Statistics by Aitec Africa show that fewer than 20 per cent of people in Africa have a formal banking relationship. In East Africa, the vast majority of people in the bottom-half of the economic pyramid have yet to experience a banking relationship. The research by Aitec shows that many people with jobs and small businesses rely solely on cash transactions outside the formal banking network.

Divanna says new technologies will enable people to make secure payments in new ways, reducing the need to carry cash. The Bill and Melinda Gates Foundation and the grouping of wireless trade known as the GSM Association are working to deliver financial services to the unbanked via mobile phones.

They have already announced a Mobile Money for the Unbanked programme funded by a $12.5 million grant from the Foundation.

It will support regulatory and market research to build business cases for mobile banking services, and support 20 projects in developing countries in Africa, Asia, and Latin America.

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