Dr Sanderson Abel
Financial sector competitiveness means that the sector should be delivering robust, competitively priced, high value services to stakeholders, in a manner that is efficient, and inclusive.
A competitive financial sector is one that promotes the growth of savings in the economy, improves the availability of credit at low cost, promotes the growth of business and household incomes; and delivers efficient payment platforms and as well as other value added services.
The financial sector has a central role in the economy as financial intermediaries. The main purpose of the sector, for a long time, has remained that of protecting depositor’s money and lending it to those in need of funds for projects.
Given this central role in the economy, the financial sector must lead in all efforts aimed at building a competitive sector. The sector is the nerve centre of the economy as it supports the diverse array of economic activities across the various sectors of the economy.
The continued survival of the financial sector depends on the volume and quality of business. Measures that enhance the volume of activities increase the scope of business. On the other hand volume of business is a function of the operating environment. The operating environment in Zimbabwe continues to exert pressure on the economy with negative impact on the banking sector. This article outlines some of the initiatives that can enhance the operating environment and supportive measures that the banking sector needs to put in place.
The following measures are key in enhancing the operating environment for the financial services sector:
One of the most important ways of increasing uptake of financial products is through growing the economy. Growing the economy will increase both the demand and supply of financial products. There is need for the Government to put in place robust macroeconomic policy measures.
Increased capacity utilisation in industry: Making industry work is the critical way of enhancing the banking business. This brings with it the so much needed job security which enables formally employed people to increase increasing demand for financial products and enhancing a culture of saving. The government should ensure that all business enablers are enhanced.
Reducing the rate of informalisation – increased informalisation of the economy reduces the demand for banking products and supply of loanable funds given that the majority of those engaged in the sector are bankable. Growing the deposit base is important for the economy since this would translate to cheap sources of funds. National savings strategy. At the moment there is no clear cut strategy on mobilisation of savings despite the fact that savings are the cheapest sources of funds. The strategy should help articulate the various initiatives (tax benefits, benefits to be introduced by banks etc.) that savers would enjoy.
Gear up the implementation of the financial inclusion strategy. Given the interrelationships among the various financial sector players (Banks, Insurance companies, Pension funds, MNOs etc.) the strategy should articulate how the country can leverage these players.
The Government should come up with strict measures to curb the importation of those goods that the country is able to produce locally. Given that the Balance of Payments (BOP) position is tilted in favour of imports, the measure will assist in arresting the drain of precious foreign currency, while at the same time increasing scope for job creation through increased local production.
There is need to reduce the amounts of imports into the country in line with our exports. Increased imports which are above exports are haemorrhaging liquidity in the economy. Given the centrality of liquidity in banking sector, measures to curb the imports will assist to improve banking sector liquidity. The Government should amplify support for the Buy Zimbabwe Campaign initiative. The initiative, which encourages the purchase of locally manufactured commodities, increases the scope of bankable companies. This will also assist in increasing the amount of deposits in the banking sector. Productive companies are also less likely to default on loans, thereby improving the quality of assets in the banking sector.
Hence there is need for greater support to local industries and production companies to enable them produce more at competitive prices.
Given the need for reciprocity between banks and financial institutions, banks are supposed to also play their part. Some of the roles are discussed below:
For financial inclusiveness purposes, banks should strive to offer low cost products and services suitable for the lower end of the market which remain unbanked.
Support the government through participating in open tenders for Government Treasury Bills.
There is need to engage the government so that Treasury bills are only sold through the open tender systems rather than private placements.
Banks should then take a cue from the TB yields to set their treasury bills hence the cost of funds should be determined by what will be taking place on the open tender. Such pricing has the added advantage of improving liquidity on the market.
Banks should also leverage on resources that are currently held by various groups in the economy by developing products that suit these groups. Burial societies, women rounds etc. could be used to source resources. Banks should continue introducing new products at lower rates through electronic channels like mobile banking and internet banking which give options to various market segments embracing the unbanked and under-banked as well.
Banks should continue to be innovative and flood the market with mobile and electronic products which are cheaper as they compete in this space.
Banks should vigorously campaign and promote the use of plastic money for all financial and business transactions to minimise the use of cash. All stakeholders should cooperate and collaborate in this campaign which will result in less demand for cash as we drift towards a cashless economy.
Cash is expensive with importation and repatriation costs, storage costs, distribution costs and insurance costs which build up to higher cash withdrawal fees.
Banks should engage the transacting public and educate them consistently to increase confidence in the banking sector through various programmes by all stakeholders without exception.
Dr Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, he can be contacted on [email protected] or on numbers 04-744686 and 0772463008.