WITHIN MINUTES OF taking off and flying north from Johannesburg airport, people, houses and roads dwindle into fields almost the size of English counties. It is not long before the fields disappear altogether, and nothing is left but grassland, peppered with trees, occasionally rising hills, and long, meandering rivers. The empty landscape extends largely the same for thousands of kilometres, until the Sahara, or the rainforest, makes it even more remote.
Is this the world’s largest untapped banking market?
Economists estimate that less than 10% of the potential market in sub-Saharan Africa has a formal banking relationship. But despite the remoteness, sub-Saharan Africa is in the midst of an unparalleled baby boom. UN demographers expect the population to almost double to 1.5 billion by 2040.
As such, even with the difficulties, foreign and local groups alike in east, west and southern Africa are rapidly expanding their branch networks outside the metropolises where they have tended to huddle up to now. But how can commercial retail banks secure a profitable foothold in such undeveloped, sparsely populated areas?
Bear in mind that while India, for example, has around 250 million more people than all 53 countries of Africa added together, Africa’s surface area is around 10 times India’s. Many countries in sub-Saharan Africa have just one or two surfaced highways. Only a third of the population live in cities, and slightly less live in places with electricity.
It is hardly surprising, then, that outside South Africa, sub-Saharan Africa as a whole has only one or two bank branches per 100,000 inhabitants. India has around 10 times as many.
The fashion for microfinance in aid work might be one reason why commercial banks are waking up to this market. European banks in Africa must be seen to help the poor – as must democratic African governments, which foreign and local banks need to court. But with regional growth above 5% for the past four years, more Africans are using money. Microfinance outfits, meanwhile, have proved profits can be made from even the poorest borrowers.
From Barclays in Zambia, to Guaranty Trust in Nigeria, BCP in Mozambique, and Standard Bank in the Democratic Republic of Congo, commercial bankers are trying out new ways to open up these new retail markets. Radically innovative banking methods and technology are being used to service communities that have previously been completely ignored, and whose financial weight could not possibly provide adequate reward to more traditional branch-based banking.
Yet despite the advances in will, technology, and method, many questions remain. For example, is the chosen new method really so much cheaper? When, if ever, will people who have never had a bank account get used to using one, especially if the nearest branch manager might work hundreds of kilometres away? And most important: is there a true banking market out there at all?
Buried treasure
It is an amusing, if slightly absurd picture.
João Figueiredo is on one of his periodic trips to rural Mozambique. He is investigating the possibility of establishing the first bank branch in a cotton-growing district named Morrumbala, in the central province of Zambezia.
A cotton company employee takes Figueiredo to visit the farmers. Careful not to stretch his normally pristine suit trousers, Figueiredo sits down on the dusty dirt floor of the mud hut of a patriarch, who for his part is dressed in a loincloth.
After the necessary formalities, Figueiredo explains to the man that he is the chief executive of a bank, and what a bank is, and what a CEO is. Eventually he asks the man if he has any savings.
To Figueiredo’s great joy, the man digs out from the soil near his hut an old tin can that contains, on counting, $2,000 in local bank notes. "I never thought he would have so much," says Figueiredo back in the comfortable headquarters of Millennium BIM, a subsidiary of Portugal’s BCP.
Figueiredo hopes there are many more such tin cans, and thousands of such farmers will learn to entrust their notes to the bank, rather than to the soil. He is not alone: BCI Fomento, the Mozambique subsidiary of BCP’s rival in Portugal, the government-owned Caixa Geral de Depósitos, plans to open 45 branches in the next three years, most of them in rural areas. BCI Fomento is opening 10 rural branches this year alone.
Such an expansion for a bank like BCI Fomento, which only has about 40 branches, is radical enough. But concentrating on rural areas might seem crazy when around three-quarters of the wealth in Mozambique is concentrated in the cities (as the head of a microfinance firm in Mozambique estimates).
Still, around three-quarters of Mozambique’s population of 21 million live in rural areas. Most of the country’s 300 bank branches are located in the main cities, with a disproportionate amount for the population in Maputo, the capital. Mozambique is slightly bigger than Turkey but fewer than half of its 128 administrative districts have any bank branches at all.
Millennium BIM, therefore, which is Mozambique’s biggest bank, plans to open some 30 new branches by the end of next year, and more afterwards – often in rural areas. With only about 20 of Millennium BIM’s 90 branches in rural or semi-urban areas today, 24 of its new branches for 2008 and 2009 will be out of town.
"We are the ones that address the needs of the lower income people. The turnover of the microfinance companies is nothing compared with what the country needs. They are complementary to our services," says Figueiredo, when talking about a scheme that allows his customers to borrow as little as $100.
Banks, or payroll departments?
But it would be wrong to infer that Millennium BIM is chasing the poorest, most remote subsistence farmers. Like BCI Fomento, when it goes to rural areas Millennium BIM concentrates on farmers who are employed by, or at least sell to, corporate clients.
"Anchor companies provide a market and the communications, energy and water infrastructure that we would not be able to build on our own," says a spokesperson for BCI Fomento.