Building home-grown African financial systems

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BY Charles Dhewa
DEVELOPING countries are still struggling to domesticate Western financial systems so that they suit local contexts. The fact that most financial institutions in Africa have Western roots has resulted in Western founders of the financial systems’ continued influence to the extent to which financial systems can be domesticated. For instance, although commercial banks have contributed to development in many African countries, these financial institutions have remained largely exclusive against the majority of Africans including food traders and SMEs with different characteristics. That is why calls for financial inclusion have become louder across Africa in the past few years.

Aligning financial systems with natural resources

Given that Africa is an agricultural and natural resources-based continent, financial institutions with a continental mandate like the African Development Bank (AfDB) should be in the fore-front of using agriculture and natural resources to stimulate inclusive socio-economic development. In addition to supporting local entrepreneurs, such financial institutions should be financing agro-ecology and other sustainable food systems compatible with a changing climate.

It is common knowledge that most African commodities continue to be processed outside the continent and come back as finished products which the majority cannot afford. The right financing model should support African countries to develop their own value-addition technologies. Since the majority of Africans live in rural areas, there is no reason why industrialisation should continue to be associated with urban centres at the expense of rural industrialisation through which indigenous knowledge systems can be harnessed into socio-economic development.

How can African financial institutions develop knowledge products and tools that tap into indigenous knowledge systems toward robust rural industrialisation?

By continuously relying on imported financial systems, African financial institutions have remained a preserve of the elite due to lack of full integration with local economies. To date, there are few holistic approaches that lead to reliable home-grown solutions on which the majority can depend on to sustain African economies independent of external support. Over-dependence on external support is compromising the capacity of Africans to control their own economies — economically, socially, politically and even environmentally.  Africa is rapidly losing control of its natural resources.

Transforming African economies through transforming financial systems

For authentic economic and financial transformation to happen, it is important for policymakers to acknowledge the value of generating and processing data into information and evidence that can be turned into usable financial knowledge products and tools. These products and tools would inform pathways, methodologies and change management processes.  While banks operating in Africa have been generating a lot of data, information and knowledge for many years, such data, information and knowledge has been stored in several institutional repositories that do not speak to each other.

There is need to review such data, information and knowledge resources and see the extent to which they are still relevant to changes happening in African economies and financial landscapes. Overwhelming evidence shows that most financial systems in Africa continue to rely on imported knowledge. Consequently, they have been lagging behind changes driven by local economies like changing consumer needs, tastes and preferences especially within the growing SMEs sector which is becoming mainstream in most Africa countries.

Conventional financial systems were designed to support formal systems like wage employment, corporates and others. Over the years, the majority of African banks/financial institutions have not invested in building their capacity to convert their financial products and services into public goods or knowledge products. This gap has existed for a long time because there is a limit to which financial institutions, most of which have an external heritage, can process knowledge and services into knowledge products without approval from the original Western owners of these financial institutions and systems.  The whole processing of information into knowledge has, for a very long time, been done externally by owners of financial institutions who then recommend specific packages to African countries. Since they do not fully control external financial systems, African countries are forced to seek authorisation before sharing information or knowledge. They cannot just share information that benefits everyone without approval from the head offices in the West.

The AfDB should aggressively lead the development of home-grown financial systems anchored on relevant knowledge products and tools. This can be easily done because of the rising literacy levels — enabling knowledge and information on financial issues to become a public good necessity for the growth of any economic sector in African countries. Increasing access to digital technologies and digital literacy enable most enterprises to ride on digital solutions toward improving efficiency in growing enterprises. For instance, when banks are able to generate relevant knowledge products, digital technology can be used to share knowledge with clients in ways that reduce costs by reducing the number of people at information desks.

Achieving financial inclusion by simplifying financial language

Due to the fast-changing nature of African economies, there is need for financial systems that keep pace with the changing customer tastes and preferences. To achieve this objective, finance-related knowledge management products and tools should be kept fluid for easy of adjustment or tailor-making to meet the emerging needs of customers and stakeholders. Another key element is simplifying the financial sector in terms of language, systems and processes toward increasing participation or inclusion of the majority of people within African economies.

For a long time, there has been massive misdirection of financial investments in many African countries due to lack of participation or buy-in by intended users or beneficiaries. For instance, in some countries, huge financial investment is targeted at developing highway road infrastructure at the expense of feeder roads that connect the majority of people and production zones with markets or consumption zones. Some investments are into government offices or huge buildings for use by the elite like parliamentarians at the expense of mass food markets on which the majority depend for income and food.

Some of the corrections can be achieved through involving ordinary people in putting together home-grown investment guides. Generating knowledge and evidence is a key strategy for influencing and managing change in African financial systems.  For a long time, the African financial sector has been working in isolation of other sectors.  It has also developed a big brother syndrome based on the misconception that some sectors will not exist without the financial sector, yet evidence has shown the reverse to be true. The financial sector cannot exist without other sectors like agriculture, manufacturing, mining, SMEs and others.

Importance of rebuilding confidence

Another key issue for the African financial landscape is re(building) people’s confidence in the financial sector and building home-grown financial models for economic development. Using knowledge management products and tools for change management can be a strong pillar. Most African institutions have been run on a technical basis. For instance, the construction sector is all about knowledge on construction, banking is all about financial figures and related knowledge.

However, a major gap has been the absence of systems to generate and share knowledge within most African institutions. This has retarded economic growth and led to recycling of mistakes due to lack of investment in generating knowledge or converting products and services into knowledge in ways that inform necessary change and build networks for sustainability.

Fresh knowledge should be used to model new projects or revisit old projects in new ways that are more knowledge-driven. For instance, more clarity will be provided on the notion of agribusiness which, depending on context, should be expanded within ecosystems like supply chains. Ultimately, industrialisation should be driven by viable business models.

The same way knowledge is kept fluid should see investments being kept fluid.  Knowledge products should be fluid in order to keep pace with the speed at which investments are taking place on the African continent. More importantly, in a changing climate, agribusiness has to have relevant knowledge products.

Critical knowledge may need to be documented in the form of outputs or trends in loan performance or investment figures but some has remained tacit and undocumented. Examples include invisible feedback from intended users which cannot be expressed in dollars and cents but can be shown through reduced demand or fall in sales but without clarity on why consumers are not buying what they used to buy. Such reasons remain with customers in undocumented forms.

Major transformation can only happen if premier African financial institutions like the AfDB are able to comprehensively understand the African landscape through evidence and knowledge generated from different interventions. The fact that AfDB is a respected continental institution means it can generate critical knowledge for African transformation. In fact, the AfDB is strategically positioned for that mandate because the culture of competing for external funding within African countries, corporates and banks has locked valuable information and knowledge into private or secret silos.  Some of the information and knowledge is hidden away from governments and that is contributing to under-development. The AfDB can consolidate this information and knowledge for collective development.

  • Charles Dhewa is chief executive officer of eMKambo — an interactive mobile, physical and web-based market for agriculture. He writes here in his personal capacity.