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AFSIC 2016 Q & A- Stefan Nalletamby, Director, Financial Sector Development, African Development Bank

How is the Africa Development Bank Assisting in Strengthening the Continent’s Finance Sector?

Over the past 50 years, the AfDB has committed more than USD 12 billion towards Africa’s financial sector. This year, we will do more than ever.  Our “High-5” agenda (Power Africa, Integrate Africa, Feed Africa, Industrialize Africa, and Improve the Quality of Life for Africans) means we are closely tracking our role in the Continent’s inclusive development.

To achieve this, we are becoming more responsive and shortening our project processing timelines.  Our on-the-ground presence in 37 countries has also been a significant advantage, enabling us to appreciate local realities.

We have also had to adapt our approach within the Continent’s evolving financial sector.  For example, reforms in countries like Nigeria have had significant implications for the banking system. In the years since Nigeria’s financial crisis, the AfDB was there to support and advise, providing technical assistance and lending to Nigeria’s financial institutions, enabling them to stay ahead of regulatory changes and to reach new clients with better products, all while supporting the Government’s financial inclusion agenda.

What is the Financial Sector Development’s Role within AfDB and what is the mandate?

Africa’s financial sector is small, but developing. The Continent’s financial systems tend to be highly fragmented, the range of institutions is narrow, and a significant proportion of the population has no access to basic payment services or savings accounts.

My department was set up in 2014 with a mandate to tackle these big challenges.  Our Strategy outlines a plan to increase access to financial services and to broaden and deepen Africa’s financial systems, working with both public and private sector clients.

Examples of our recent activities include: a multicurrency line of credit to Rand Merchant Bank; support to Creditinfo Volo for the establishment of an SME-focused credit bureau in West Africa; a credit guarantee for currency exposure on a dollar denominated bond issuance by an African Government; and a soft commodity facility to support Cocoa Aggregators and Ivoirian Cocoa farmers.  We are also launching an African Digital Financial Inclusion Fund, in partnership with the Bill & Melinda Gates Foundation.

We also host the Making Finance Work for Africa Partnership, a platform for coordinating financial sector development interventions, and established the African Financial Markets Initiative Domestic Bond Fund and Financial Markets Database.

Can you tell us a bit more about your Africa SME Programme?

We launched the Africa SME Program in 2013 with the intention to support Tier 2 and Tier 3 financial institutions (FIs) with fast-tracked financing and technical assistance.  We recognize that it is often Africa’s smaller FIs that reach small and medium enterprises (SMEs) and that the latter tend to be overlooked by larger banks.

We have so far provided ten institutions with lines of credit of an average of USD 3 million (provided in local currency) per FI – much smaller than our average transaction size.  We also undertake a technical assistance (TA) needs assessment for our client FIs and propose a full TA program, which often tends to take risk management as its first focus. So far, we have worked with FIs in Burkina Faso, Cameroon, Mauritania, Mozambique, Nigeria, Kenya, Rwanda, Zambia.

What are the Constraints and Opportunities of Financing SMEs in Africa?

At the AfDB, we view SMEs as key contributors to job creation and economic growth.  Financing SME is a huge opportunity for inclusive growth and development in Africa.

Our FI clients, however, tend to view an untapped SME market segment as a major potential area for profitability.  Indeed, we undertook a study several years ago to better understand how banks in the East Africa region are financing SMEs.  Overwhelmingly, we found these banks’ interest in SMEs is the pursuit of profit.

In terms of challenges, many banks perceive the SME segment as inherently riskier.  Our study revealed that a large majority of banks consider the lack of adequate information the most important challenge in financing SMEs.  We also see constraints in terms of limited financial infrastructure, including credit bureaus, collateral registries, and access to capital markets.

There are also a number of important innovations taking place. For example, mobile and branchless banking offer opportunities to widen banks’ reach.  We also see banks actively providing business development services, often free-of-charge, as a means to attract new clients and improve loan portfolios.

What will be the Focus of your Presentation at AFSIC 2016?

This year – our fourth at AFSIC – we are looking to expand our network of partners and identify new business opportunities.  We are inherently interested in partnering with Africa’s leading financial institutions. The AfDB extends loans at competitive rates, invests equity, offers guarantees and funds technical assistance in order to extend our reach on the ground.  We can also partner with smaller banks and MFIs through our Africa SME Program. We hope to meet new clients at AFSIC – please ask us what the AfDB can do for you! Our presentation will be on AfDB’s Role in Africa’s Financial Sector and will cover our development results.