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Investing in Africa

November 19, 2010

Africa's financial market is becoming more interesting to international banks and financial service providers as mobile phone usage increases. Further investment could change the dynamics of the remittance market.

African talking on a cell phone
Cell phone usage in Afrika attracts international banks and financial service providersImage: dpa

The increase in mobile technology and telecommunications in Africa is attracting international banks and financial service providers to fuel investments. According to a British think tank on international development and humanitarian issues, the Overseas Development Institute, Africa has offered higher profits for multinational companies compared to the rest of the world for more than a decade.

There is emerging evidence that multinational businesses are seeking a greater stake in Africa, especially in financial services. Banks are responding to a growing demand for loans or investment accounts since Africans at home and abroad have started looking for more structured ways to do business.

Even remittances, money sent home by Africans living abroad, are beginning to recover in the aftermath of the global economic crisis. Remittances expert and head of the consultancy Developing Markets Associates, Leon Isaacs, told Deutsche Welle that the mobile phone and internet revolution makes market access in Africa possible. Any African who has a phone knows how to use it, but most of them do not have a bank account.

Mobile phone usage in Africa reaches 50 percent

"And even if they did they find financial products quite confusing, so if banks in particular can design financial service products that work on a mobile phone, you are going to bring in a whole potential new group of people," Isaacs said. “There would be enormous potential, since mobile phone penetration is reaching 50 percent.”

Africans living abroad are also looking for more formal ways to invest back home, rather than sending money through alternative informal routes.

Experts say international banks are now looking for ways to encourage people receiving money to start saving and using other financial services, which will not only help the banks with their deposit balance sheets, but help individuals improve their financial welfare.

According to Elvina Quaison of Afford UK, which runs an enterprise project to encourage African disapora investment in Ghana, people living locally have often felt cut out of the loop. "When we asked them have you been to the banks and spoken to them, and they hadn't," she said. "It was an idea that people had, that the banks didn't want to help them, rather than based in fact."

Banks in Ghana are starting to provide support

Though banks operating in Ghana are not keen on start-up loans, they are beginning to provide business support centers to help young companies prove a track record in responsible management.

A woman in Ghana
Banks operating in Ghana are starting to help small enterprisesImage: Stefanie Duckstein

"They want you to have an account with them, so they can see how you manage your account," Quaison said. "It's good because it's going to encourage people to plan better, knowing that I need to run my business in such a way for a year before I can access a loan."

Despite the frustrations of raising capital, businesses are finding ways to start up, she said, thanks to the growing recognition from banks of the local market potential.

The head offices of major international banks also see the inflow of hard currency that comes with remittances as a major attraction, but according to Isaacs they have been slow to see the value in individual receivers of remittances.

"Generally banks in Africa have gone for the middle to high income earners and have ignored the fact that a lot of people, or families that are receiving several hundred dollars each month, which would make those customers quite attractive but yet they let them walk out the door with all that money in cash, and don't see them again until that customer comes back the following month," Isaacs said.

Huge business potential for banks reaching out to Africans

The mobile phone and internet revolution currently underway in Africa is beginning to unlock huge business potential, especially for banks reaching out to Africans who have not had any access to formal banking yet.

But there is evidence that Africa is at the forefront of mobile technology and mobile payments- which could change the landscape of the remittance market forever.

Author: Nina-Maria Potts (sst)
Editor: Rob Turner