Posted by: Armel | November 23, 2008

The Real Deal on Banking & Africa


The Truth About the Banking Industry in the Sub-Saharan African Region  

Some have been wondering why the Sub-Saharan African Region has largely been under-banked over the years. Few people are able to make the co-relation between local banks closures (bankruptcies) in the last 20 years and the current reticence vis-a-vis financial institutions.

But the streets didn’t forget. People that lost their savings anytime during the last 2decades are still wary about banks in general.

Unlike the banking regulation in the U.S or elsewhere, there is still no Deposit Insurance to speak off in most countries in Africa. So in case of banking liquidity failure, there is no Government intervention to expect – as it was the case recently with Northern Rock in Uk-. On top of that, there are usually less tools available via the central banks. Either the regulators don’t have complete autonomy over the central bank’s policies  (zone CFA), or intervening on behalf of depositors could create a “moral hazard”.

You could advocate either position using personal judgement. I for example think that when one takes a risk and makes an investment decision, and the investment goes bust, one must assume the consequences. But in poor or developing countries, the difference between letting banking investors and clients learn their lessons from their mistakes (by letting the financial institution go bankrupt) and averting systemic failure is that former customers or clients of bankrupt banks in Africa are more likely to create systemic failure by staying completely away from bank in general for a long time.

There may be other ways to explain the current disregard people in sub-Saharan Africa still have for their financial institutions. But being worried about whether your savings are still going to be there the next time you walk in, is a concern anyone can understand. To this day, I believe it has a lot to do with the underlying behavior affecting the psyche of people in Sub-Saharan Africa.

*Re-upped from archives

Armel Njeunou



  1. […] might have noticed how often I’ve voiced my opinion on the structural mishaps facing African countries without a functioning Deposit Insurance […]

  2. I wish central bankers would take this into account during all the commissions trade talks. My mom still refuses to trust a bank with her money. After what happened in the 80’s and 90’s she just won’t let it go!

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