Regulators stifle development by failing to understand changing sector
African central banks are stifling development by failing to keep up with financial services innovation, according to the head of a UN economic agency and industry executives.
Mukhisa Kituyi, secretary-general of the UN Conference on Trade and Development, said regulators did not have “adequate understanding . . . of the changing environment” in the sector. Less than a third of people in sub-Saharan Africa have access to formal financial services, according to FSD Africa, which works to reduce poverty through financial sector development.
The situation varies widely across the region. Penetration of mobile money is more than 90 per cent in countries such as Kenya, where Safaricom, a telecoms provider, developed the Mpesa platform in 2007. But it is only 1 per cent in Nigeria. Meanwhile, some central banks, such as in Tanzania, allowed innovations such as payments between different telecoms operators three years ago while others still ban them.
“They’re more used to regulating bricks-and-mortar financial institutions than the telecos [telecommuniation companies] that have taken over financial services,” Mr Kituyi said at the FT Africa Payments Innovation Summit in Nairobi. “Because of the almost belated realisation that financial services are not banking enterprises any more . . . they are scrambling to see how [they] can, instead of throwing out the baby with the bathwater, understand what needs to be done and do it correctly.”
Recommended David Pilling African governments take a tough stand against foreign investors Many financial services companies, such as mobile-based micro-loan companies, have escaped formal regulation in most African countries as central banks and telecoms regulators struggle to categorise them. Mark Napier, FSD Africa’s director, said central banks not only “struggle with capacity issues” but “have a knowledge deficit in a market context that is developing extremely fast”. “However, we are seeing serious enthusiasm for regulatory approaches that actively embrace innovation,” he added.
Daniel Monehin, MasterCard’s executive vice-president of remittances and head of financial inclusion, agreed that “regulators’ intentions are in the right place” but the impact of insufficient knowledge was harming development. “Regulators have a lot of power but if knowledge doesn’t equate to that level of power then you have an imbalance,” he said. Patrick Njoroge, governor of Kenya’s central bank, admitted that efforts among regulators to keep abreast of innovation was “chaotic” and “still a work in progress”.
“We’ll never be at the level of the entrepreneurs or the innovators . . . [but] it’s not our business to know everything there is to know about a product,” he told the digital payments summit. “We need to know enough to understand the potential stability side of things and how the product is connected to the rest of the ecosystem.” He said the central bank now had 20 staff working on financial services innovators.
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