BANKERS ASSOCIATION OF BOTSWANA
BANKING AND WEALTH EXPO
Keynote Address
by
Moses D Pelaelo
Governor, Bank of Botswana
November 16, 2017
Distinguished Ladies and Gentlemen, it is indeed an honour and great
pleasure for the Bank of Botswana to co-host this Executive Networking
Dinner as part of the events of the inaugural Banking and Wealth Expo
organised by the Bankers Association of Botswana. In line with the
"Bridging the Inclusion Gap
theme of the Expo, through Financial
Literacy", my remarks this evening will focus on four areas, namely, (a)
importance of financial inclusion, especially for inclusive economic growth
(b) financial literacy as an essential ingredient for inclusive financial
sector; (c) impact of financial sector regulation and (d) the role of sound
and stable macroeconomic environment, with emphasis on price stability.
As His Honour the Vice President indicated, in his official opening
remarks yesterday, financial inclusion has been identified as one of the
key strategic priorities for financial sector development in Botswana. In
this regard, a number of related initiatives form part of key policy
documents such as National Development Plans, and the Financial
Sector Development Strategy (2012 - 2016).
Distinguished Guests, the basic elements of financial inclusion can be
summarised as a state in which individuals and businesses have access
to a full suite of quality financial services, at affordable prices, provided by
a range of financial institutions, in a stable competitive market, in a
convenient manner, with respect and dignity, to financially capable
clients. In this way, households and businesses, regardless of income
level, are able to have access to and can effectively use appropriate
financial services, to meet their needs. Therefore, an indicator of financial
inclusion would be the proportion of firms and individuals using financial
products and services. These typically include transactions, payments,
savings and insurance provided in a responsible and sustainable manner.
the world's leading
The Alliance for Financial Inclusion, which is
organisation on financial inclusion policy and related regulation, estimates
that about 2 billion adults, globally, that is, more than half of the total adult
population of the world, do not have an account in a formal financial
institution. About 90 percent of these unbanked adults are in developing
countries. However, the good news is that, according to the 2015 Bill
Gates Annual Letter, it is estimated that by 2030, about 2 billion people
who do not have bank accounts today, will be storing money and making
payments with their mobile phones. It is anticipated that, by then, mobile
money providers will be offering the full range of financial services,
including interest-bearing accounts, credit and insurance.
Research by the World Bank, conducted in 137 countries from 2005 to
2011, observes that lack of access to finance constitutes a major problem
for households and acts as a barrier to the growth of small enterprises. It
is therefore evident that financial inclusion empowers poor households
and small enterprises by bringing them into the mainstream economy
thereby reducing extreme levels of poverty and inequality. There is also
evidence, based on a number of research work, that financial inclusion
promotes economic development, especially for women, and that
financially empowered women are more likely to improve social welfare.
Overall, women's financial exclusion limits the
growth-promoting potential
of finance and it may also prove costly in terms of elevated risks to
financial stability.
Distinguished Guests, in recognition of this developmental impact,
financial inclusion is becoming a global priority for policy makers,
regulators and development agencies. Among others, financial inclusion
has been identified as an enabler for seven of the 17 Sustainable
Development Goals. In this regard, the World Bank Group considers
financial inclusion as a key enabler in reducing extreme poverty and
boosting shared prosperity, and has, therefore, put forward an ambitious
global goal to attain universal financial access by 2020. Furthermore, the
G20 has committed to advancing financial inclusion worldwide.
Distinguished guests, one area in Botswana where there has been a
significant impact, and continues to provide a huge potential, is the non-
discretionary savings, in the form of defined contribution pension
schemes. It is notable that the Pension Fund industry in Botswana has
grown substantially in the last two decades, mostly driven by
establishment of the Botswana Public Officers Pension Fund in 2001. As
at the end of 2016, pension funds assets amounted to P75 billion or 44
percent of national income (nominal GDP) compared to total banking
assets of P81 billion.
In this regard, the pension industry was a major driving force behind the
cumulative expansion of the financial sector in the past ten years; 100
percent growth in real terms, compared to 52 percent for the economy as
a whole. However, the main beneficiaries and industry customers
continue to be the long-term employed, to the exclusion of the traditionally
disadvantaged cohorts. Therefore, national policy and the financial sector
should increasingly find solutions to provide wider coverage for retirement
funds to include the self-employed and younger generation.
Distinguished Ladies and Gentlemen, let me now to turn to financial
literacy as a key component of financial inclusion. Experience has shown
that low levels of financial literacy and capability in developing countries
form a significant barrier to accessing and effectively using financial
services. Financial literacy is the acquisition of knowledge on financial
products and services; while financial capability refers to the application
of the financial knowledge gained into desirable financial behaviour.
Without financial capabilities, a financially literate individual may not
increase savings and investment or reduce debt and risky financial
behaviour. Therefore, financial institutions have to re-direct their financial
inclusion strategies to incorporate enhancement of the financial
capabilities of their customers. It is in this regard that financial capability is
an integral part of financial inclusion; hence, effective empowerment
strategies for financial capability need to focus on providing practical,
easy-to-understand and impartial advice so that consumers can make
informed decisions.
As you would be aware, in general, the rate of financial inclusion is
relatively low in sub-Saharan Africa and other the emerging market
economies. For example, according to the 2014 Finscope Survey, more
that 68 percent of the adult population in Botswana have access to
financial services; this compares with 58 percent in Namibia, 70.3 percent
for South Africa; 39 percent in Mexico and 53 percent in India. Overall,
the average financial inclusion measures for South Asia and Latin
America as well as the Caribbean are lower than those for Botswana at
46.6 percent and 51.4 percent, respectively. In contrast, financial
inclusion is high in the developed countries. According to the World Bank,
94 percent of adults in 35 high income Organisation for Economic Co-
operation and Development (OECD) countries had access to financial
services in 2015.
Ladies and Gentlemen, as in other countries, the main policy objective of
the financial inclusion agenda in Botswana is to improve household
welfare, increase economic efficiency and support inclusive and
sustainable economic growth. In this regard, advances in technology,
have engendered an increase in opportunities and scaling up of financial
inclusion. Thus, modern communications infrastructure, particularly
mobile money and advances in the payment systems and platforms, play
a significant role in financial inclusion. Thus, the availability of user-
friendly and cost-effective information and communication products and
platforms play an important role in broadening safe and secure access to
financial services.
Notably, we have seen a significant increase in the number and
functionality of automated teller machines, including deposit-taking
machines; mobile money remittances and payments service; internet and
web-based access and transacting; and the promotion of card payments.
These platforms augur well for enhanced financial inclusion.
Notwithstanding, I wish to implore banks to move at a measured pace,
taking into account the resilience of public infrastructure and other
development needs, in transitioning from brick and mortar banking
branches to e-channels. There is anecdotal evidence which suggests, for
various reasons, such as, cultural, literacy and human psychology factors,
that customers, even in this digital age, need physical access and
human being and not to access financial
engagement with a "Siri"
services, to understand and resolve account queries.
I am well aware and commend financial institutions engaged in various
financial literacy programmes that also reach out to school going children,
in the form of booklets, drama and radio quizzes on financial products
and services. In this regard, it is equally important to engage customers
on ways and means for optimising the benefits of digital and electronic
platforms, but also highlighting the associated risks and mitigation
measures. It is worth mentioning that banks need to practice, at all times,
acceptable market conduct through increased transparency, fair pricing,
quick and timely resolution of both failed transactions and fraud incidents.
Distinguished Guests, in line with the 2012 - 2016 Financial Sector
Development Strategy, a number of initiatives are underway to enhance
cost-effective access to finance, including the establishment of a robust
and effective credit information system as well as promulgation of
electronic payments services regulations. Also, as announced by the
Minister of Finance and Economic Development in the 2015 Budget
Speech, Government has adopted Making Access Possible approaches
to financial inclusion. This is a multi-country initiative to support financial
inclusion using a process of evidence-based country diagnostic and
stakeholder dialogue. Some of the Making Access Possible priorities
include, improving the payments eco-system, both domestic and cross-
border transactions, facilitating low cost, accessible savings products
through the use of mobile savings accounts and less onerous Know Your
Customer requirements for low risk savings accounts.
I will now address financial regulation as a perceived barrier to financial
inclusion. Distinguished guests, the domestic regulatory framework is
gradually being modernised to keep pace with financial innovation. I must
admit that, given the dynamic, evolving and innovative financial sector, it
is always going to be a challenge to come with smart and cost-effective
regulations. This challenge is even greater for digital finance, which is
currently and prospectively, the main conduit of the financial inclusion,
especially in a sparsely populated country like Botswana.
It is generally accepted that rigid and excessive regulation can be an
obstacle to financial inclusion. Therefore, the Bank and other domestic
financial sector supervisors endeavour to regularly review and amend,
where necessary, those provisions of the law that can impede effective
access to finance. The immediate regulatory issues are the provisions
relating to the sharing of customer creditworthiness information, both
positive and negative data, know your customer requirements and the
Anti-Money Laundering and Combatting of the Financing of Terrorism
protocols. The Banking Act confidentiality provisions are also being
reviewed to allow for the sharing of customer creditworthiness information
and to facilitate the establishment of credit bureaux.
As regards the anti-money laundering and combatting the financing of
terrorism measures, much as both the Financial Intelligence Agency and
the Bank of Botswana subscribe to a risk-based approach and seek to
avoid undue regulatory burden, it is equally important to safeguard the
integrity and overall stability of the country financial system by
implementing and adhering to the international standards on AML-CFT
matters. Moreover, there is need to guard against the impact of de-risking
and loss of correspondent banking relationships that could be detrimental
to trade, procurement, financing and payments arrangements.
Distinguished guests, the Bank of Botswana, as a primary partner in the
evolution of the financial landscape, is committed to ensuring that there
exists an enabling environment for enhanced financial inclusion of the
unbanked members of our society. For the Bank, greater financial
inclusion enhances the potency of its policies and functions. In particular,
given that monetary policy is transmitted by the financial sector, it has a
greater and wider effect when a greater part of the population and
businesses use financial services and products. For example, an
individual or business that use the financial system to save or borrow is
affected by a change in interest rates; therefore, their reactions in that
regard, collectively affects the rate of increase in prices and economic
activity.
It is, therefore, notable that the key mandates of the Bank collectively
relate to protecting the intrinsic value of the national currency; and that
achievement of the Bank's objectives promotes financial
inclusion,
literacy and capability. In particular, the Bank has responsibility for
issuance of good quality banknotes and coin, while pursuing stability with
respect to domestic prices, the exchange rate and the financial sector. To
the extent that these objectives are met, the Bank helps to minimise
erosion of the purchasing power of the currency, while ensuring that it
remains integral to storage of value, monetary valuations, means of
payment, and access to foreign currencies as needed, as well as
credibility of the domestic financial system. In the horizon, there are
issues of digital currencies and block chain technologies. While
Distributed Ledger Technologies, albeit not yet mature, offer hope and
opportunities for enhancing the efficiency and resilience of the payment
infrastructure, for central banks, digital currencies are not yet convincing
and, in my view, rightly remain an area for other stakeholders. This is not
to suggest that these developments are not keenly watched and
monitored.
The Bank has also entrenched a transparent and, I would say, effective
policy framework for management of inflation and related expectations
that has so far been successful. Since 2013, inflation has been within
-
and, at times, even below the objective range of 3 6 percent. In this
environment, there is scope for affordable access to financial resources,
their productive deployment and greater opportunities for generating real
returns. The transparency of the exchange rate framework and absence
of exchange controls removes uncertainty and encourages use of various
platforms for financial inclusion, as well as informed decision-making and
planning by economic agents. Effective supervision of the banking sector
and oversight of the payments system and related infrastructure also
contributes to financial inclusion. In particular, this is to the extent that
policy, legislative and regulatory developments embrace advances in the
provision of financial services, new technology and payments methods,
while ensuring that integrity, resilience and stability of the financial system
is maintained. In this regard, there is continuing patronage and growth in
usage of the financial sector and related services, as evidenced by the
sustained expansion of financial services and increasing share in GDP.
In concluding, Distinguished Guests, Ladies and Gentlemen, a stable
macroeconomic environment, characterised by low and predictable levels
of inflation, safe, sound and inclusive financial sector, supportive
regulatory environment and well-informed consumers of financial services
is positive for wealth creation and preservation, as well as inclusive
growth.
I thank you for your kind attention.