FINANCE SECTOR VS. COVID-19

Mozambique 2020 | FINANCE | VIP INTERVIEW

TBY talks to Tawanda Munaiwa, Managing Director of BancABC Mozambique, on the response of the sector to COVID-19.

What should be the response of the banking sector to support the economy during COVID-19?

At the beginning of the outbreak and the lockdown, the central bank was quick to reduce interest rates and adopt a series of emergency measures to give relief to customers who already took put loans, because interest is a real cost. These were supported by the banking sector at large as temporary solutions; however, lowering interest rates increases aggregate demand, which in turn puts pressure on foreign currency. This has to be generated by exporters, though in this climate exporters cannot export, and most manufacturers are closed. The strategy of lowering interest rates will not work long term, given the impossibility of getting in foreign currency. We need an alternative long-term solution. In our view, the fight is about getting the majority of people into the banking system and venturing into new territory that has never had access to credit and debt payment. Once we bring them in, we can begin to add credit to new customers. We do not want to continue adding credit to big corporates that already have the dead weight of past credit. That is how we can mitigate risk. To do this, we need to tackle two aspects: technology and customer costs. The advantages of technology have been made all too evident during this crisis, enabling business to keep going despite lockdowns. This crisis should serve as a wake-up call for Mozambican banks to abandon the traditional brick-and-mortar model and embrace technology. There is no reason why we should force customers to come in and queue in bank branches. Investing in technology allows us to not only make banking more accessible, closer to people, increase efficiency, but also reach the unbanked communities in this country and bridge the gaps of financial inclusion.

How is BancABC pursuing financial inclusion?

Financial inclusion is an absolute priority of our mission in Mozambique. At first, we began expanding into the different provinces, reaching our current footprint with 10 branches in five provinces. However, we quickly realized the inherent limits to the brick-and-mortar approach, and in 2017 we shifted to a new model, agency banking, which allows us to enter communities through agents and open and manage bank accounts through the internet. Technology is a key component of our current strategy: through an agent's tablet, people can open an account, apply for a card, and take care of all banking operations. This also does away with paperwork, bringing advantages in terms of both efficiency and environmental terms and allows us to bring into the fold new people who would normally not have bank accounts. We have built a strong network with hundreds of agents now, and we have tripled our customer base since launching the banking agents. Numbers have grown exponentially, and in the next five years, we expect several million new customers through these initiatives.

In what way can your solution stand out from other banks are pushing agency banking?

It is a matter of choosing the right strategy and technology. Agency banking was initially configured by giving each agent a POS-looking device that could open accounts and do transactions using biometrics features to cope for literacy problems. This was not a sustainable model to scale up our agent network, given the individual cost of the devices. Therefore, we decided to invest in a more affordable kind of technology, using phones or tablets. We cannot charge much as banks here, and whenever we are rolling something out, it has to be cost effective. With some technologies, we are still testing the market in pilot phases; but overall we are on the right track.

What is your outlook for 2020 and the future of BancABC, given the challenges in the market?

We are a medium-sized bank, and there is an opportunity for us to gain market share from bigger banks. As we improve our technology and our client relationship management abilities, we see a strong increase in our customer base. We have launched many products, and each of them touch clients in different ways, so our clients are doing more business with us than ever. This is not the first crisis we are going through, and it is no different from other challenges in the past. The situation in the last few years was hard for the banking sector, due to the financial crisis and high interest rates. We saw a complete slowdown in credit, and the focus was on growing deposits, which we were able to double since 2016. As interest rates are now coming down, we need to push on the loan side to balance our operations. After COVID-19, everyone will want to borrow. We expect many more customers and are optimistic about meeting our targets for 2020. Looking to the future, we see a transformation happening, starting from the population. More and more youths are accessing education. As a bank, we want to develop our human capital, absorb youths, and give them a chance to grow. Young people who are coming into the system are our future, therefore we strongly believe in investing in our people.