The Quest for Inclusion

2012 study by Roland Berger Strategy Consultants earmarked seven industries set to ensure sustainable African growth momentum. These are energy, ICT, transportation, manufacturing, consumer goods and retail, public services, and plugged into all of the above, financial services. Indeed, over the past decade, African banks, including those of Mozambique, have experienced historic growth. On average balance sheets have risen by 42% annually, with net income appreciation of over 54% per annum according to financial portal Proshare. The true potential of the financial sector is clear from the fact that roughly 400 million Africans today are unbanked.

THE APPEAL OF THE SECTOR

As Rui Barros, the Administrator of Barclays Mozambique explained to TBY, “International interest [in Mozambique] has been driven not only by the prospect of resources, but also by the extraordinary opportunity presented by Africa’s flourishing consumer base.” And with Africa being the world’s second-fastest growing region after East Asia, “the continent is taking the next step in deepening its financial markets as investors increasingly turn their attention towards it. The opportunity for the financial sector to contribute adaptive solutions in and across African countries is immeasurable.” Yet on a local—and retail banking—level the Mozambican financial sector has fundamental realities to contend with that are all too common on the continent.

CHICKEN & EGG

The World Bank report Enhancing Financial Capability and Inclusion in Mozambique A Demand-Side Assessment (2014) considers the local prospects for a sector where low inclusion is clearly related to poor financial capability—decision-making that benefits an individual—even among the banked. The report confirms that while Mozambique’s financial system is predominantly defined by the banks, 48% of adults have yet to use their products. Meanwhile, the alternative channels of moneylender and microfinance institutions have respectively been used by 41% and 37% of adults. More pressing yet, World Bank research indicates that bank users, in a “learning by doing” scenario are more likely to rely on alternative financial sources than non-bank users, underlining the plight of the financially excluded.

Mozambique’s financial sector overall lacks depth, but is growing nonetheless on extractive momentum and the gradual rise of the middle class. Many financial institutions, banks and others, have in response sought to provide financial intermediation to more isolated rural areas. The paradox is though, that while the bulk of commerce, and hence banking, takes place in key urban centers, many banks have not provided what they consider unprofitable coverage of remote or rural areas. In light of this, the government has accepted that financial inclusion underpins the stable growth of the financial industry.

The system as of 2014 hosted 20 commercial banks, regulated by the Bank of Mozambique—which doubles as the central bank. The sector has also ridden the broader national growth wave where in one of Africa’s best performances over the decade up to 2013 average annual growth of 6-8% was registered.

Mozambique’s central bank favors the creation of a Sovereign Wealth Fund to oversee resource-derived revenues—accumulated revenues over time would also reduce the nation’s reliance on international institutions. Yet the country still lack basic infrastructure and has one of the world’s poorest populations and an economy ostensibly informal. The banking sector is essentially in the hands of three entities with close ties to the Portuguese banking sector. These banks hold around 90% of total sector assets, and largely pursue commercial imperatives through strict lending. Yet in a country where 80% of the population is agrarian (agriculture accounts for 33% of GDP), of which a large percentage are smallholdings, close to 80% remains unbanked, curbing retail segment growth. And with interest rates on bank loans ranging between 17% and 22% per annum only 3% of the population has access to credit.

SETTING THE TONE

In 2013 the Council of Ministers approved the Mozambique Financial Sector Development Strategy (MFSDS) for 2013-22. Its purpose was to promote the development of a sustainable, diverse, competitive, and moreover inclusive financial sector relevant to citizen and corporation alike. And regarding the financial inclusion, the government stressed financial literacy and consumer protection to boost awareness and confidence among those as yet unbanked. A subsequent diagnostic review of the institutional, legal, and regulatory framework required to ensure consumer protection and financial literacy followed in 2013. Meanwhile, the Central Bank has championed a solid legal framework to instill banking sector credibility through supervision. Accordingly, it has adopted International Financial Reporting Standards (IFRS) and promoted an environment of risk-based supervision. Back in 2009, legislation pertaining to intermediation costs targeted greater sector transparency, standardizing commissions, and fees. Meanwhile, the startup costs for SMEs also saw some reduction. Incidentally, Central Bank Governor, Ernesto Gove, was awarded as the 2015 Best Governor of the Central Banks of Africa, by The Banker Magazine, a publication owned by the Financial Times.

“I’M ON THE PHONE”

According to Proshare, Africa today boasts over 600 million mobile phone users, exceeding both the US and Europe. And with mobile internet taking off, more citizens, notably the unbanked, can attain financial inclusion and the services it avails. In fact, the IMF’s 2014 report “Mozambique Rising: Building a New Tomorrow” considers alternative avenues to conventional banks, notably mobile banking. Mozambique’s two mobile banking operators mKesh and m-Pesa were licensed in 2010 and 2013, respectively. To date they have signed up over 150,000 customers, many in remote areas. The report highlights how this delivery channel is raising financial literacy and confidence in the formal sector, gradually, “…substituting traditional alternatives for both savings and remittances.” In 2014 South African bank FNB launched a service enabling customers to make instant money transfers to Mozambique by mobile phone and online banking. South African bank FNB offers a new service that allows customers to send money instantly to Mozambique by mobile phone, or through online banking.

The service notably targets the relatives of the estimated close to 500,000 Mozambicans working in South Africa, who annually send roughly around $109 million to relatives.

SME LENDING & MICROFINANCE

According to the IMF, 75% of micro, small, and medium-sized enterprises (MSMEs) remain financially excluded and therefore unable to reach their growth potential. Critics of traditional banking argue therefore, that banks’ insistence on collateral has curbed Mozambique’s entrepreneurial potential. That said, all branches of the financial sector, as well as the government itself, acknowledges that creditworthiness is predicated on the commercial knowledge of would be borrowers. Many enterprises and individuals remain wary of disclosing commercial details to the authorities, while others simply lack the acumen to prepare a business plan on the basis of which to obtain credit. Commercial entities have therefore provided micro-credit to plug these macro-gaps in financial accessibility, assuming the role once played by the World Bank.

In March 2014 the European Investment Bank (EIB) signed an agreement with Mozambican bank Moza Banco in support of the investments of small and medium-sized enterprises (SMEs). The EIB initiative allocated ‚¬5 million to be matched by Moza Banco, as part of a wider $40 million program geared at encouraging private sector investment in Mozambique. And in May BCI Bank launched a ‚¬117 million credit line aimed at SMEs, with a particular emphasis on women entrepreneurs and agricultural enterprises. Banco Oportunidade Moçambique (BOM), initially a Christian initiative created to sustainably reverse chronic African poverty, has six mobile banks across seven of Mozambique’s 10 provinces. Of the client base, 60%, again, are women engaged in micro-businesses, whom the bank encourages to save as well as invest in growth.

OTHER SELECTED PLAYERS

Leading the field in Mozambique with a 35% market share is Millennium bim. Mário da Graça Machungo, bank President, in a TBY interview said that the institution would become, “…the Bank of reference for the FDI and operational support for the megaprojects, staying close to the gas and mineral industries and the surrounding SMEs.” With 160 branches, it is the only Mozambican bank ranked among the 100 biggest African banks (62nd). “Millennium bim is leader in all market dimensions. With approximately 1.3 million customers throughout the country, about 50% of total banked population, it has the largest commercial network together with the highest capillarity shown by the 161 branches located nationwide in all provinces and 54 districts,” he concluded. In 2014 Global Finance magazine awarded it “Best Bank in Mozambique” for the 5th consecutive year.

With close to 600,000 customers in 2012 Banco Comercial e de Investimentos (BCI) is the second key commercial player in the domestic sector with around a 30% market share. BCI, too, serves the rural unbanked through mobile banking.

FOREIGN CURRENCY & NEW ENTRANT

Mozambique’s banking sector hosts two major international names in Standard Bank and Barclays Bank. The former, present in Mozambique for over 120 years, is the third largest player by both assets and market share the local market. The major player on the African continent, Standard Bank addresses the retail segment, but is active in project financing for Mozambique’s massive infrastructure projects, having signed a deal with state mining company Empresa Moçambicana de Exploraçao Mineira (EME) in 2013.

Meanwhile, Absa Group, the South African registered subsidiary of Barclays Bank PLC, owns a 98.1% stake in Barclays Bank Mozambique’s operations following the 2002 purchase of Banco Austral. Panafrican Group Ecobank and ProCredit Holding concluded negotiations for the acquisition of a 96% stake in Banco ProCredit Mozambique, commencing business as Ecobank Mozambique as of 20 May 2014.