The lack of financial services for the world’s poorest is one of the greatest obstacles to economic growth in developing nations. Pindie Nyandoro, one of the chief executives of Africa Standard Bank, makes the case that the state of Africa’s small farmers and entrepreneurs defines the developmental ceiling of the continent. According to him, the post-2015 development agenda needs to support innovative financing and legitimize the informal financing sector in Africa. The unbanked need our consideration.
He recognizes much of the good work is already being done. Nyandoro commends mobile banking services—like M-Pesa, Ecocash, and Mzansi, to mention a few—for their innovative approaches versus traditional banks. Utilizing mobiles is exactly the kind of specialized financing that African countries need because Africa has some of the lowest private-credit-to-GDP ratios on the planet. Their approaches also need to reduce up-front costs like finance infrastructure and public education about finance basics.
Another approach he applauds is the “SME Quick Loans” of the Standard Bank Group, which substitute psychometric testing for conventional credit analysis. Their practice makes desperately needed loans available to millions who otherwise can’t access lending services because of their background. Theirs is another example of financial service being tailored to riskier, but still profitable, circumstances with great success.
The place where he sees the most potential, however, is in informal finance. Although only a residual sector in more developed economies, he argues that its regulation in Africa is the key to prosperity. Informal credit associations, savings groups, and the limitless army of entrepreneurs that form them make up 60% of employment and income in Africa. In his view, policy that legitimizes them, shapes public education around them, and otherwise caters to them could transform an otherwise unstable sector into a booming revenue-churner.
He warns that, without the right policy action and pressure, the truly massive potential of this group could continue going untapped—and economic growth in Africa could slow down. They are the key. And the upfront costs of reaching out to them, in his view, are worth it.
– John Mahon