Credit Access in TajikistanTajikistan, located in Central Asia, has a population of over 8 million people. Tajikistan has borders to Afghanistan, Uzbekistan, Kyrgyzstan and China. Although Tajikistan’s financial sector has made significant progress since 2000, many new advancements such as credit access are still in need of improvement. In 2017, almost 30 percent of Tajiks were living below the poverty line. Finding a solution to increase credit access in Tajikistan has become an important task for the government of Tajikistan.

Tajikistan’s Reliance on Remittances

Due to Tajikistan’s limited employment opportunities, about 90 percent of Tajiks travel out of the country for work. They often travel to the Russian Federation in search of employment. Many migrant workers send remittances back to their friends and family in Tajikistan. More than 60 percent of Tajik households reported that half of their income comes from remittances with 30 percent of Tajik households reporting that 100 percent of their income comes from remittances.

A 2010 Labor Organization study reported on how Tajik households save their income and remittances. The study found that only 23 percent of people were able to save their remittances with only 9 percent able to save at a partial amount of 21 to 40 percent of the money. When the money can be saved, it is not often for long. In fact, only 11 percent of the people were able to save their remittances for more than six months.

Income savings did slightly better. At least 63 percent reported being able to save part of their income. For example, 51 percent saved about 20 percent of their income. However, only 3 percent could save between 41-60 percent of their income. Since remittances are the main source of income in many Tajik households, money is spent on immediate needs, which results in low percentages in income saving.

Credit Access in Tajikistan

According to a 2010 International Labor Organization study, 95 percent of Tajik households do not keep their savings in financial institutions. Due to Tajikistan’s remote and unique mountainous terrain, 95 percent of Tajik households are not aware of the savings products available to them or know where financial institutions are located. Credit access in Tajikistan isn’t seen as a necessity in many Tajik households because it is very common and traditional for Tajiks to keep their savings at home. There also seems to be “a general distrust” of financial institutions.

In April 2010, the World Bank Group, with the help of the Government of Switzerland, launched the IFC Azerbaijan-Central Asia Financial Markets Infrastructure Advisory Services Project. This three-phase project is aimed at improving the financial infrastructure of Tajikistan and expanding credit for people and small businesses. This would allow for the creation of more jobs.

The project also provided financial literacy training to more than 100,000 Tajiks, which allowed Tajiks to become knowledgable about where their savings go. As a result of the IFC Azerbaijan-Central Asia Financial Markets Infrastructure Advisory Services Project, Tajikistan’s financial sector was able to establish the first private Credit Information Bureau with the help of IFC and the National Bank of Tajikistan.

These crucial advancements have led Tajikistan’s financial sector in the right direction toward improving credit access in Tajikistan as well as addressing the needs of the people of Tajikistan. With impoved credit access comes financial security, an increase in small businesses and a better economic standing.

Jocelyn Aguilar
Photo: Flickr

Seoul, South Korea

Since the Korean War, South Korea has emerged as one of the more politically and economically free nations in the world. Home to companies like Samsung and Hyundai, South Korea’s economy has been growing for years. While South Korea has become a model for other countries in southeastern Asia, the country is also facing new challenges that a strong economy alone cannot fix. Here is a list of the top 10 facts about living conditions in South Korea.

Top 10 Facts about Living Conditions in South Korea

  1. Life Expectancy: The life expectancy rate is one of the highest in the world. South Koreans, on average, have a life expectancy range that goes into the mid-80s for men and into the 90s for women. This means the country has one of the highest life expectancies in the world, a benefit to having free, universal healthcare coverage. Koreans’ diets consist of steam-cooked rice, vegetables and meat, constituting a healthy meal and contributing to a long and healthy life.
  2. Credit Access: South Korea is among the world’s top countries with high credit card usage. South Koreans averaged almost 130 credit card transactions per person in 2011, according to the Bank of Korea. Additionally, it is illegal for businesses to refuse credit cards, even for smaller purchases. This has created a bustling tourism and shopping industry in South Korea.
  3. High Suicide Rate: The suicide rate in South Korea is among the highest in the world. It is believed that the high suicide rate is due to the long work hours and stress in the workplace. Another factor contributing to these high rates is the level of poverty and loneliness among the elderly. The country has taken preventative measures to combat such a tragic statistic. Korean legislature continues to update and improve the Mental Health Act. The Act for the Prevention of Suicide and the Creation of Culture of Respect for Life went into effect in 2011, which sets forth policies to help prevent suicides.
  4. Youth Unemployment: The country’s economy is strong, but it is slowly declining. With such large companies like Samsung, LG and Hyundai in South Korea, many smaller businesses are having trouble cementing themselves into Korean society. These larger companies then offer less than ideal contracts to smaller companies who must accept them or risk going out of business. This is disabling young people’s ability to find jobs with a smaller market of opportunities. More than 11 percent of young people between the ages of 15 and 29 are unable to find jobs. President Moon Jae-in promises to combat the unemployment of young people during his presidency.
  5. Universal Healthcare: South Korea has adopted an affordable, universal healthcare system. It was first introduced in 1989. As mentioned above, this may be a key factor in the increase in life expectancy in South Korea. The country also created plans to help its citizens treat certain forms of dementia. It is projected that the percentage of South Koreans age 65 or older will increase to 40 percent by the year 2060.
  6. Plans to Boost the Economy: South Korea has decreased its infrastructure spending, but is increasing its minimum wage. President Moon has planned to drastically increase South Korea’s spending budget by around $420 billion in 2019. The goal is to increase the number of jobs available and to raise the minimum wage; however, these programs will also create budget cuts for infrastructure spending.
  7. Climate Change: The country is taking action on climate change. In an effort to learn more about climate change, the Korean National Institute of Environmental Research began working with the Environmental Protection Agency (EPA), the U.S. National Aeronautics and Space Administration (NASA) and other organizations in 2016. These organizations have been focusing on monitoring air quality throughout East Asia. Citizens of South Korea are affected by smog and concentrations of particulate matter that lead to respiratory illnesses. South Korean air is twice as polluted as some other countries.
  8. Low Violence Rates: South Korea has low rates of terrorism and violence. South Koreans have great respect for the rule of law, according to data from the World Bank. Citizens also have a great deal of respect for the courts and rules of society. It is possible that the impeachment of former President Park Geun-Hye in 2017 also increased confidence in the South Korean legal system.
  9. Expensive Housing: The already expensive housing prices in South Korea are increasing even more. The nation’s capital, Seoul, is the most expensive city to live in South Korea. It’s twice as expensive to live there than anywhere else in the country. During the past year, housing prices have risen 23 percent in Seoul and 12.5 percent outside of the city. To encourage young people to live in the city, the government offered 70,000 homes to newlyweds in December 2018.
  10. Long Work Weeks: South Koreans work more than the majority of other countries. In 2018, South Korea changed the maximum limit that employees may work from 68 hours to 52 per week. This change was put into effect to improve health conditions and keep laborers from becoming overworked. This bill limited the work week of South Koreans to 40 hours per week with 12 hours of optional overtime at 50 to 100 percent normal pay rate. As the last fact on this list of top 10 facts about living conditions in South Korea, it shows South Korea is prioritizing mental health and the well-being of its citizens.

South Korean has made great advancements in the quality of living conditions, but there is still room for improvement. Many younger Koreans believe that President Moon’s policies will lead to more benefits and a fairer society. These top 10 facts about living conditions in South Korea outline a promising future, but making mental health and financial stability a priority is necessary for the country’s citizens.

Jodie Ann Filenius

Photo: Flickr

Credit Access in Mauritius
Mauritius, the island nation in the Indian Ocean, has undergone a financial transformation since the early 2000s, promoted by the government in order to catalyze the economy of the country. This has impacted credit access in Mauritius in a big way. Since 2000, the country has experienced losses connected to its truncated access to EU sugar and textile markets and is facing steeper competition from China and other East Asian exports.

Mauritius Economy Compared to Other Countries

This loss of preferential treatment and high budget deficit spells a slight struggle for Mauritius to retain its middle-income standing. Currently, the country ranks 65th in the world on the Human Development Index, and in 2014, it was the second highest country in Africa on the development list. Mauritius’ Gross National Income (GNI) per capita is at $9,770 and the Organization for Economic Cooperation and Development (OECD) reports that the country performs better than the average compared with other sub-Saharan African and middle-income countries as far as information ability, involvement of the trade community, advance rulings, appeal procedures and internal border agency cooperation.

By continuing to focus on the area of governance and impartiality, Mauritius can increase its trade volumes and lower trade costs. A strengthened customs system and transparent ethics policy could be the final stretch to reach the Prime Minister’s dream of a high-income country.

Government Initiatives

The Prime Minister of Mauritius, Pravind Jugnauth, has predicted a revamping of the economy and expresses hope for Mauritius moving into the future. Key reforms introduced in the 2018/2019 budget helped bring Mauritius its present position. The Minister also touched on the government’s dedication to raising the country to high-income level country, thereby funneling benefits to every citizen. Already this commitment can be seen in the growth of Gross Domestic Product (GDP) and financial services, estimated to continue at 4.1 percent in 2019.

The government introduced changes to the legislative system in order to prevent money laundering and corrupt business. In his speech, the Prime Minister assured that the country is conducting a national risk assessment of terrorism financing.

Credit Access in Mauritius

A report from the Global Findex as of 2017 records 68.5 percent of Mauritians making or receiving digital payments, as well as 48.3 percent using credit or debit cards. The percentage of adults above the age of 15 who borrowed from a financial institution in Mauritius was at 22.9 percent, much higher than the sub-Saharan average of 8.4 percent, in comparison. Outstanding housing loans are increasing in availability as well, and almost 90 percent of adults were able to obtain access to financial institution accounts, banks or otherwise.

Enjoying past growth of upwards of 6 percent in the 1990s and continued economic performance, Mauritius is still dealing with the changes in the EU Sugar Protocol and falling sugar prices. As of 2006, the government incentivized seafood production in order to shift toward exporting fish instead of sugar, as well as a list of Integrated Resort Schemes offering luxury villas to foreigners. Diversifying the market and leveling the competition will surely launch Mauritius ahead in the economic playing field. The GDP by sector reveals the sugar sector operates at a modest 4.3 percent in 2007, led by government services at 15 percent, wholesale at 11, finance and real estate at 14.2 and many other diverse trade sectors.

Unfortunately, drastic adjustments meant one-third of employees for the sugar sector were redundant. The lost sugar income has still not been completely replaced, but the government is focused on diversification and increasing exports in the coming years.

In addition to experiencing an incredible 195 percent wealth growth from 2007 to 2017, credit access in Mauritius continues to increase due to strong ownership rights, a resilient economy, and ease of investment. Hopefully, the country’s example spearheads a movement throughout Asia for easier credit access and stable banks and economy.

– Hannah Peterson
Photo: Flickr

Credit Access in the Democratic Republic of Congo
The Democratic Republic of Congo (DRC) is a country ripe with investment opportunities mainly due to its abundant natural resources, population size and predominantly open trading system. At the same time, it is also a challenging country for business because of its weak financial system, widespread corruption and bribery.

Overall, credit access in the Democratic Republic of Congo is limited, therefore the country has a scarce and short-term credit volume history.

Financial System in the Democratic Republic of Congo

The Congolese financial system has less than 10 licensed banks, one single development bank, 120 microfinance institutions and has no equity or debt markets. The lack of a substantial financial sector prevents the Congolese from participating in the global market. The government of the Democratic Republic of Congo (GDRC) is working to improve and enhance regulatory measures over its economic environment.

The GDRC’s National Agency for Investment Promotion (ANAPI) is responsible for monitoring initial investments that have a value larger than $200,000. ANAPI is required to make the investment process streamlined and transparent for new foreign investors with the goal of improving the country’s image as an investment destination. The GDRC has enacted investment regulations to prohibit foreign investors from conducting business in small retail commerce. These regulations also prohibit a foreign investor from becoming a majority shareholder in the agricultural sector.

Partnership for Financial Inclusion

The Constitution of the Democratic Republic of Congo contains laws meant to combat internal corruption, bribery and the illegal activities of all Congolese citizens. Unfortunately, these laws are rarely enforced, and when they are observed, the application is politically motivated. The corruption negatively impacts the country’s exports and the economy as it discourages foreign investors. In 2013, the IMF withdrew a $532 million loan because the GDRC refused to disclose details surrounding the sale of 25 percent of a state-owned copper project. Without foreign direct investment (FDI), job growth remains stagnant and low wages remain, resulting in the inability to get credit. All of the issues contributing to the fragile state of credit access in the Democratic Republic of Congo can be rectified with innovation and reformation.

The GDRC’s push for advancement is not lost on some U.S. investors, evidenced by the Partnership for Financial Inclusion, a $37.4 million joint venture between the International Finance Corporation (IFC) and the Mastercard Foundation that focuses its interests on financial inclusion in sub-Saharan Africa. The initiative aims to expand microcredit and develop digital financial services that are present now in the DRC, as many of the country’s banks are using mobile services.

Credit Access in the Democratic Republic of Congo

According to the World Bank, current statistics show the strength of legal rights index for the DRC to be six on a scale from zero to 12. This score indicates how the GDRC’s collateral and bankruptcy laws protect borrowers and lenders. The country has no electronic infrastructure listing debtors’ names and wages and lacks any unified registry. In DRC, there are no established rules that work on behalf of its citizens to make it easy to establish credit access. The depth of credit information index shows the DRC ranks zero on a scale of zero to eight. This index measures rules that affect the quality of available credit information and its accessibility to credit bureaus.

The World Bank’s statistics show that within the DRC’s economy, an integrated legal framework for secured transactions exists. However, this framework is a one-stop shop where interagency communication and transactions occur in non-digital systems. This framework is comprised of governmental agencies that expedite registration of DRC companies. A digital infrastructure could allow for a much more fluid and rapid increase in the establishment of digital financial services.

Digital financial services include cryptocurrency and blockchain technology. Cryptocurrencies are digital or virtual money that use encryption to safeguard, regulate and verify the currency and transfer of funds. Cryptocurrencies are not subject to commercial or governmental control and remove corruption from the equation by preventing illegal facilitation payments. Virtual currencies are the foundation for digital economies and financial inclusion. They can reform the Congolese banking system and fund areas such as health care and education.

A digital economy can pave the way for improved personal savings and increased credit access in the Democratic Republic of Congo. According to a study about the impact of digital financial inclusion on inclusive economic growth and development, individuals in rural areas who regularly save their money have more of an ability to feed their families. Results also show they feel socially included with the use of digital services or agent banking, which is not the case with traditional banks.

A nominal percentage of the DRC population has accounts with traditional banks, but thanks to the Partnership for Financial Inclusion, that reality is changing. The country’s goal of expanding microfinance and developing digital services throughout the DRC is slowly actualizing, as is evident by the GDRC’s economic governance of its business climate. It also is evident by their scores for the strength of legal rights index and depth of credit information index.

Because of these scores, the range of credit access in the Democratic Republic of Congo widens, but the country’s laws and corruption still are hurdles that must be overcome in order for the credit access and credit volume to reach ideal numbers.

– Julianne Russo
Photo: Pixabay

Credit Access in Lesotho
Lesotho is a small landlocked country with a population of over 2 million surrounded by its much larger neighbor, South Africa. The rural population accounts for 75 percent of the total population with about 40 percent of the Basothos living there involved in the agricultural sector. This sector, despite experiencing declines in production in recent years remains a central part of the nation’s economy.

Lesotho has a GDP of $1,141 per capita which categorizes it as lower to middle-income country with a 3 percent economic growth rate in the past three years. This progress can be attributed to the performance of textile manufacturing and as well as the agricultural sector after it recovered from the 2015 and 2016 droughts. However, this progress was thwarted by the rand/dollar depreciation. Unemployment, high level of inequality and poverty remain an issue for Lesotho reflected by 2017 estimates that indicate 51.8 percent of the population still lives below the poverty line.

Long-Term Strategies to Improve Credit Access in Lesotho

The government of Lesotho has been creating strategies to meet the goal of improving access to financial services for Micro, Small and Medium Enterprises in order to alleviate the aforementioned challenges including extreme poverty. One of the main strategies outlined by the central bank of Lesotho is attaining higher savings and investment ratios. The report shows that achieving this goal has results of economic growth and an increase in employment as well as food security.

However, given that more than 50 percent small and medium-sized enterprises lack access to credit in particular, it would be essential to work on widening that resource further to augment the overall economic growth in Lesotho. One of the main interventions used to achieve this improvement is called a public credit guarantee scheme (CGS).

This strategy involves resolving the lack of financial history records which poses a risk, through third-party credit risk mitigation to lenders. This is because the scheme allows for a part of the losses to be absorbed by the loans given to small and medium enterprises, in exchange for a fee. Moreover, this solution is particularly viable in developing nations such as Lesotho as it is growing to cover more than half of the developing world already.

This is increasingly relevant in agriculture, one of the biggest economic sectors, which has not yielded as much contribution to the economy due to the fact that most of the people involved still practice subsistence farming. The government attributes this lag in diversifying and increasing agricultural productivity to credit market failure, lack of access to information and technical support, restricted market integration and climate change.

Furthermore, the sector is marked as high risk and low return by the financial sector, a label that can potentially be reversed with the development of the Micro, Small and Medium Enterprises through improved access to financial services including credit access in Lesotho.

Importance of Credit Access in Lesotho

Given its potential to accelerate economic growth, improving access to credit access in Lesotho has the ability to significantly augment big sectors such as agriculture. Creating a strong financial sector that increases credit access in Lesotho can have the effect of strengthening the 40 percent of the population involved in agriculture in its transition from subsistence farming to advanced agriculture by allowing the ability acquire the technology as well as the technical support that is lacking.

The work towards creating a financial sector that could meet these development objectives has had challenges due to inadequacies in technical and entrepreneurial skills as well as the lack of proper documentation of financial records. Although this poses an issue with increasing credit access in Lesotho and creating an inclusive financial sector as a whole, without a strong foundation of a stable, liquid and efficient financial sector, the nation will continue to have challenges in creating sustainable growth.

Bilen Kassie
Photo: Flickr

Credit Access in Côte d’Ivoire
Recent reports indicate that the economic performance of the country of Côte d’Ivoire’s is improving.  In 2016, the Ivorian government committed to a National Development Plan designed to transform the country into a middle-income economy by the year 2020. A quick analysis indicates that these efforts have been successful so far. In fact, the country’s economic growth between 2016 and 2017 has it ranked among the most booming economies in Africa. Unfortunately, this growth has not translated into increased credit access in Côte d’Ivoire.

The Importance of Credit Access

In 2017, only 1 in 7 Ivoirians had an account with a financial institution. This statistic has remained unchanged over the past year. Since banks and other formal financial institutions are the primary providers of credit, a lack of access to these institutions can have major effects. Credit is often used to fund education, pay medical bills and purchase property. It is an essential tool in working toward socio-economic mobility. Thus, increasing credit access in Côte d’Ivoire is a crucial step toward improving the lives of the 46 percent of Ivorians currently living in poverty.

Limitations on Credit Access

According to the 2017 Global Findex Survey, the greatest obstacle preventing Ivorians from opening a bank account is a lack of sufficient funds. Roughly two-thirds of Ivorians cite this as the primary reason they do not have an account. Associated account fees are an additional barrier for nearly a third of the population. Other obstacles include a lack of necessary documentation, distance from a physical bank and a lack of trust in these institutions. As a result, more than half of the adult population has never used formal financial services.

The prospects of obtaining an account are even grimmer among disadvantaged populations. The poor are twice as likely as their more prosperous counterpart to be excluded from using formal financial services. Women are 45 percent more likely to be excluded than men; the gap between men and women’s access to financial institutions has risen by 90 percent in the last three years.

Even if an individual overcomes these obstacles, the possession of an account does not guarantee access to credit. Although 15 percent of Côte d’Ivoire’s adult population had a financial institution account in 2017, only 3 percent of Ivorians have borrowed from a financial institution or used a credit card. If a loan is needed, the most common solution among Ivorians is to borrow from friends and family. In fact, only 34 percent have ever borrowed outside of the household.

Mobile Money as an Alternative

While participation in traditional financial institutions remains low, Ivorians are finding other digital means to manage their money. Over the past decade, mobile money has been on the rise. Mobile money is essentially a digital wallet – its basic functions allow users to store, send and receive money as though it were cash. As of 2017, roughly 42 percent of Ivorians have a mobile money account. Moreover, statistics show that mobile money accounts are more accessible to disadvantaged populations.

While mobile money has helped circumvent the barriers associated with traditional banking, it is not designed to offer credit access in Côte d’Ivoire. Digital credit lenders are operating in several sub-Saharan economies, but they have yet to emerge in the Ivorian economy.

However, surveys suggest that Ivorians would welcome these new services. 59 percent of Ivorians express interest in using a digital credit product. Their decision to participate would depend on interest rates and associated fees, the feasibility of the repayment plan and the speed at which they can access the loan. Half of the Ivorians surveyed indicated they would be willing to pay 10 percent interest for a six-month loan if a CFA 100,000 digital loan was made available to them.

The introduction of these new digital credit services could have a profound impact on the Ivorian poor. However, in order to maximize the impact, additional materials must be provided to address low rates of technological and financial literacy. Although 87 percent of Ivorian adults have access to mobile phones, only 50 percent possess a feature phone or smartphone, which is necessary to access the digital financial services. Even fewer know how to navigate the phone’s interface, and even if they can navigate the interface, only 33 percent are considered financially literate. This means that a large group of new credit users in the country may be vulnerable to hidden fees and marketing fraud. Nonetheless, if provided with the proper assistance to improve financial and technological literacy, these digital alternatives to traditional banking could prove to be an effective solution to limited credit access in Côte d’Ivoire.

– Joanna Dooley
Photo: Flickr

Credit Access in MauritaniaLocated in the Sahel region of West Africa, Mauritania is a predominantly desert-country that bridges western sub-Saharan Africa and the Arab Maghreb. As Mauritania experiences robust growth from a thriving natural resource industry, poverty rates significantly declined.

The poverty headcount fell from 44.5 percent of the country’s population in 2008 to 33 percent in 2014, yet Mauritania remains ranked 159 out of 188 countries on the United Nations Human Development Index.

Diagnosing the Problem

Credit access in Mauritania is one of the leading impediments to economic growth. A World Bank report on Financial Access and Household Welfare in Mauritania notes that the credit market is shallow, divided and informal. There are few formal credit providers that operate in the country. Most banks, ATMs and the financial infrastructure is exclusive to the capital, Nouakchott.

Beyond these barriers to a more inclusive credit market, there are potent cultural barriers that continue to restrict credit access in Mauritania. From extensive information asymmetry between lenders and borrowers to weak legal and government institutions to gender hierarchies, these factors remain as obstacles to accessing credit. Because of these barriers, with regard to ease of credit access, Mauritania ranked 162 out of 189 countries in the 2016 Doing Business report.

The role credit serves in the growth of developing countries’ economies cannot be overstated. Increased credit access is essential for allowing farmers, businesses and consumers across Mauritania to utilize investment capital and help expand economic activity.

Improving Credit Access in Mauritania

Research conducted in India and Pakistan demonstrates that the growth of rural financial services and infrastructure is correlated with improved household welfare and increased development of bank branches. The impact of bank branches is two-fold: non-agricultural economic output increases and rural poverty decreases.

As of 2016, the rural population of Mauritania stood at 39.55 percent, according to the World Bank. Mauritania and its rural population have much to gain as efforts to improve credit access continue. Access to credit significantly influences economic incentives at the household level, which can increase consumption and improve investment decisions and rates of wage growth. Furthermore, as households are able to get credit more readily, they become less reliant on the consumption of household production, which can lead to improved living standards, food security, a better education and an acclimation to the nonagricultural sectors of the economy.

Going Forward

In order to ensure credit access in Mauritania continues to expand, policymakers should pursue strategies for expanding financial services in underrepresented rural areas. Greater access to financial services and microcredit programs beyond the country’s urban centers can facilitate rural households’ access to credit.

Recent positive trends in mobile banking are already allowing rural populations to have increased access to financial services across Sub-Saharan Africa. Improved credit access in Mauritania could spark productivity growth and improve welfare among the poorest households in the country.

– McAfee Sheehan
Photo: Flickr

Credit Access in AngolaAs of 2016, Angola was the United States’ fourth largest African trading partner. This is primarily due to the vast oil reserves that exist within Angola’s borders. Because of the lucrative nature of oil exports, these reserves are a crutch that Angola’s economy relies heavily upon. Oil, as a commodity, has a predictive economic effect. The global economy experiences an ebb and flow that roughly mirrors oil prices. Angola, due to its heavy reliance on oil exports, is a microcosm of this pattern, meaning that its economy is at the mercy of shifting global oil prices. As of August 2, 2018, the price of a crude oil barrel was at a moderately strong $70. This is a slight boon to Angola’s economy, but will likely be short-lived as powerful global players such as the United States and China begin maneuvering to reduce their reliance on unclean energy sources.

Economic Diversification

Economic growth and longevity in Angola are reliant on sector diversification. If the nation continues to rely heavily on its oil production, then it will not be able to achieve economic stability and robustness in the coming years. Developing and growing new economic sectors often requires start-up capital in the form of investments and loans. Despite strong financial institutions, credit portfolios are limited in Angola across both the private and public sector. Increasing credit access options in Angola is key to its success as a developing nation.

A variety of institutions and initiatives exist that aim to increase credit access in Angola. Chief among them is Angola’s own governing body, the Government of the Republic of Angola (GRA). In 2015, the GRA created both new legislation and a new agency dedicated to investment and exports. Both these initiatives were established with the hope of employing start-up capital to bolster economic diversification and reduce reliance on oil in the nation.

Credit Access in Angola

The United States Agency for International Development (USAID) began a program in 2014 aimed specifically at Angola’s small and medium business sectors. Credit access across these sectors is chronically low, which results in drastically reduced economic growth. USAID’s 2014 credit access program revolves around a partnership with Banco Keve, a bank headquartered in Angola’s capital, Luanda. This partnership provided the program with increased financial mobility, which allowed it to offer $4.8 million in loans to businesses lacking credit access in Angola. Ninety-six percent of these loans were utilized, and 38 percent went to women-led small- and medium-sized businesses.

Recently, credit access in Angola has received local support. This summer, the African Development Bank approved $100 million worth of credit to be received by Angola’s primary investment bank, Banco Angolano de Investimentos (BAI). This funding is to be focused on the development of a new facility dedicated to providing capital support for small and medium businesses involved in international trade. The timing of this deal is key, as banks in Angola have been facing difficulties of securing credit access dedicated to trade support for local businesses.           

Even as credit access in Angola has been buoyed by international and local support, it still faces significant challenges. Angola remains quite low on the World Bank’s 2018 Doing Business index, which reduces the potential for foreign investment. This is only compounded by steadily declining economic growth within the nation. Clearly, Angola is presented with a long road towards inclusive credit access and economic diversification. Luckily, more and more institutions and agencies are stepping in to contribute to the cause. With this growing support, Angola now wields an ever-expanding credit-based toolkit that will aid it in weathering an ever-changing global economic climate.   

Ian Greenwood
Photo: Flickr

KazakhstanKazakhstan, with a population of almost 19 million and territory measuring in at four times the size of Texas, is the largest of the landlocked Central Asian republics. Equally commensurate is its debt problem; credit access in Kazakhstan has been unstable, and the nation’s financial institutions have been similarly debilitated. Widespread individual and corporate debt have weakened the national economy and exacerbated poverty.

The Banking Crisis In Kazakhstan

Today’s banking crisis is hardly new to Kazakhstan. The global recession hit hard in 2008, and the government bailed its financial institutions out by reaching into its reserve funds valued at $43 billion. Nonetheless, even with a state-sponsored safety net, many of Kazakhstan’s largest banks are resorting to mergers in order to maintain operations.

The symptoms of the declining credit access in Kazakhstan are evident in the number of defaulted loans and the country’s tepid economic growth. Two of the main issues are the banking system’s lack of meaningful small and medium-sized enterprises (SMEs) interactions and its subsequent inability to maintain reasonable capital adequacy ratios in the face of financial hurdles.

In developed nations, SMEs contribute a significant share to the national GDP and employ a large majority of the workforce, from 60 to 70 percent on average. Among developing nations, those numbers fall drastically. But, Kazakhstan is behind even its peers in Central Asia in terms of homegrown competitiveness. Giovanni Capannelli, the Kazakhstan director at The Asian Development Bank, noted that “the Kyrgyz and Uzbeks have SMEs which are more competitive than SMEs in Kazakhstan in a number of sectors.”

SMEs in Kazakhstan

Kazakhstan’s SMEs are held back by high-interest rates (up to 14.3 percent) and an unwillingness on the part of major banks to provide loans. Categorized by the system as high-risk debtors, many SMEs have nowhere to turn to except to microfinancing institutions (MFIs). The ones that do manage to get loans from the banks often fail to pay on time, if at all, due to an unfriendly business climate and a lack of government support. A vicious cycle of borrowing money to pay back loans commences, and as SMEs either sink further into debt or shut down with their loans transition into non-performing loans – loans that have not been paid back after a certain period of time.

This cycle feeds into the wider narrative of the recent year’s banking crisis. A high percentage of Kazakhstan’s loans were non-performing in 2017, spiking at nearly 13 percent after a year of averaging at less than 8 percent. For reference, an under-6 percent ratio is considered healthy. As these loans proliferated, banks became unable to maintain a solid capital adequacy ratio.

Capital adequacy ratio is referenced as the minimum ratio of assets and capital to its risk-weighted assets a bank must have. A too-low ratio implies that a bank does not have enough capital to absorb the losses of nonperforming loans and other financial woes. This is precisely what befell Kazakhstan’s financial sector. With inadequate capital and deteriorating credit portfolios (summaries of diverse investments and debts), banks began charging ever-higher interest rates to compensate, reducing credit access in Kazakhstan to a fraction of its former amounts.

Hope for Kazakhstan’s Financial Future

Despite last year’s grim tidings, however, the Kazakhstan government has staved off some of its worst financial woes with a large stimulus package. It aided the ongoing merger of Halyk Bank and Kazkommertsbank, two of the largest banks in Kazakhstan, by injecting $7.4 billion in capital towards writing off accumulated bad loans of the latter bank. The two banks each have now a capital adequacy ratio of above 21 percent.

SMEs have not been forgotten either. The European Union launched its Regional Small Business Programme in 2018, which supplies Central Asian financial institutions with SME banking know-how and employee training designed to foster more stable relationships with local businesses. The World Bank’s 2015 initiative, The SME Competitiveness Project, aims to boost productivity and increase ease of access, “regardless of size or sector,” by 2020.

More can still be done. Kazakhstan’s GDP, to which the oil industry contributes a large portion, needs to be diversified to free the country from fluctuating global energy prices. A more stable economy would result in higher consumer confidence in the government and the banks associated with them, which is something they both lack.

Ongoing efforts in the SME domain could be ramped up further, and a market-orientated reform of Kazakhstan’s business laws has long been overdue. International and domestic collaboration on the issue of credit access in Kazakhstan may yet equip a faltering financial sector with the tools it needs to build a future of national financial growth.

– Alex Qi
Photo: Flickr

47. Credit Access in the Kyrgyz RepublicKyrgyzstan, though still scarred by a violent government coup d’etat in 2010, has seen robust economic growth thanks to international investment in its agribusiness and energy production industries. National GDP has grown at an average of 4 percent annually since 2015. However, the landlocked Central Asian country still struggles with a pronounced lack of domestic consumption expenditure. Improving low levels of credit access in Kyrgyzstan can boost consumer spending and confidence, which is paramount to ensuring a viable financial future for its citizens.

The Economic Importance of Credit

Credit is integral to the maintenance and growth of a market economy. Individuals and private organizations borrow money to buy goods and services in the market, which raises production and stimulates the consumer economy. Once credit debt and loans are paid back, the cycle continues again and again. It logically follows that if more consumers have access to a reliable credit system that provides loans, the economy expands and poverty is reduced.

This reasoning backs the approach that international multilateral organizations such as the World Bank and the U.N. employ in their efforts to combat poverty. In Kyrgyzstan, agriculture is by far the largest sector of the economy, employing about 40 percent of the working population and comprising nearly 20 percent of the country’s GDP. The Food and Agriculture Organization of the United Nations apprised the industry in 2006 and found that approximately 900,000 households contributed half of the agricultural output on 5 percent of Kyrgyzstan’s arable land. In addition, roughly 250,000 private farms employed half of the agricultural labor population while also contributing 40 percent of total output.

Different Types of Credit Access

Although households and private farms are the two largest employers and producers of agricultural output, they cannot rely on the same systems of finance due to their fundamentally different roles in the economy. The categories of credit access in Kyrgyzstan differentiate based on the debtor. As household farms are usually individually operated, micro-financing institutions (MFIs) and non-governmental organizations more aptly serve their personal needs; these small-scale family farms generally have neither the land nor the assets to pay off the sizeable loans. On the other hand, commercial banking suits the privatized farm industry, which can afford to invest in equipment and expansion while employing up to several hundred laborers.

Recognizing this dichotomy, the World Bank’s International Finance Corporation (IFC) invested in multiple projects across different financial sectors. Its Investment Climate Advisory Services Project, initiated in 2009, works to remove barriers to entry in the market that would otherwise dissuade private businesses from expanding. From 2009 to 2012, the IFC also invested $26 million into Kompanion Financial Group, FINCA Kyrgyzstan and UniCredit Kyrgyzstan, all of which provide microfinance services to individuals and small businesses.

Potential Dangers of Expanding Credit

With the relaxation of government regulation and growth in spending, however, comes the danger of a potentially cataclysmic credit bubble. Eurasianet reported in 2012 that only 100 of the near 450 MFI’s in Kyrgyzstan actively engaged with clients; the barriers to starting an MFI are virtually nonexistent. Interested investors need slightly more than $2,000 USD to found their own MFI, and most have no education or background in finance. This lack of barriers, coupled with borrowers that often do not understand the loaning process, can result in overspending of nonexistent money and consequent high debt, which harms those who borrowed money to escape poverty in the first place.

The failure to properly rear a financial market and the motive of profit before anything else promoted in local populations spells disaster for both loaners and borrowers. Financial education of the local population and proper regulatory oversight is crucial for efforts to expand credit access in Kyrgyzstan to succeed. The implementation of finance in an industry as important to Kyrgyzstan as agribusiness bears the grave possibility of worsening the predicaments of those it was designed to help. However, if managed correctly, it also holds a much greater potential to lift Kyrgyzstan’s citizens out of poverty. 

Alex Qi

Photo: Flickr