Sustainable Financing Key To The Africa We Want

Africa’s financial sector, particularly in banking, has witnessed significant positive developments, both innovative and disruptive. These have been driven in part by unprecedented risk factors and consumer needs that have forced rapid reform. Our recent history has been punctuated by natural disasters, resurgent conflict, a growing and ever-present threat of climate change, fuel inflation and food shortages. The financial sector has as a result doubled down on its determination to play a leading role in supporting the continent’s recovery and resilience in a sustainable and inclusive way.

Africa remains one of the world’s most promising untapped banking markets with more than 700 banks, as highlighted in the Africa Finance Report of 2021. As income levels rise, the African continent continues to be a more attractive market for various international banks and financial products.

These products and services penetrate deeper into a much wider consumer base, increasingly at the back of technological advances and access. With the AfCFTA, this will only increase, as the world’s largest and youngest trading bloc takes shape.

According to recent data by Statista’s Research Department, the revenue of the banking sector in Africa amounted to $86 billion in 2012 and 2017 annually and is projected to increase to $129 billion in 2022.

As the banking sector in Africa continues to find more relevant and appealing value propositions, there is a huge demand for this to be delivered in an innovative way – catapulting banking services to accommodate stakeholders’ needs such as asset protection, tax benefit, fast-growing investment, attractive interest rates, and maintaining security. All in a cost-effective and timely manner.

A key highlight is the increased consumer interest in ESG-linked financing. Banks have recognised very early the importance of value-based banking and finance for all their stakeholders which will ultimately also enable the sector’s overall success and contribute towards achieving the continent’s key environmental and sustainability objectives as set out in the African Union’s Agenda 2063 The Africa We Want.

Already, nearly 70 per cent of banks in Sub-Saharan Africa see green finance as an appealing lending opportunity. When developing strategic plans, nearly 55 per cent actively consider climate change. Furthermore, more than 40 per cent of African banks have staff dedicated to renewable energy only and 10 per cent of companies have tailored their products to serve green finance.

ESG-focused trends are not new. A study by Jersey Finance which explored current trends in the banking industry found that while ESG investing has been gaining pace steadily over several years, the use of environmental, social and governance (ESG) factors in financing arrangements has seen a more recent surge. Also known as sustainability-linked lending (SLL), this approach can enable borrowers to pay lower interest rates by meeting a lender’s key performance indicators.

SLL is just one of the ways Jersey’s banking institutions are supporting the growth of sustainable finance. Nine out of the top 10 banks in Jersey by total assets have committed to the United Nation’s Principles for Responsible Banking (PRB). The PRBs were established in 2019 to encourage the banking community to make a positive contribution to people and the planet by aligning business practices with the UN’s Sustainable Development Goals and Paris Climate Agreement. Locally, these banks support Jersey’s transition to a more sustainable Island through green loans and other initiatives that focus on tackling the climate emergency.

With such expertise and best practices, banks such as Standard Bank and Standard Chartered Bank have established their footprint in the broader African market to enable the continent’s blueprint for sustainable development. Within Africa and more locally, we can applaud banks such as First Bank Nigeria and Equity Bank Kenya who have an international pedigree and a real commitment to sustainable finance. Such measures demonstrate a forward-thinking approach to tapping into opportunities presented within Africa’s banking and finance sectors.

For example, July 2022 marked the launch of the Nairobi International Financial Centre whose overall objective is to create a framework that will improve Nairobi’s status as an economic hub for foreign investment into Africa in line with one of the key pillars of ‘Vision 2030’, to move Kenya’s economy up the value chain.

The Central Bank of Nigeria (CBN) announced plans in September 2021 to establish the Nigerian International Financial Centre (NIFC) to act as an international gateway for capital and investments, driven by technology and payment system infrastructure. The NIFC will also support initiatives such as the Nigerian Commodity Exchange, National Theatre creative hubs for youths and the eNaira project.

Rwanda has also taken an innovative approach to enhance its financial services offering. In early 2020, Rwanda launched the Kigali International Financial Centre (KIFC) – a project driven by Rwanda Finance to transform Kigali into a major financial hub capable of attracting foreign investment and encouraging the creation of highly skilled jobs in the finance sector. To help achieve this goal, the country’s authorities have undertaken an ambitious restructuring of the local banking and financial sector.

These examples are a testament to the success of the banking industry in Africa as well as the opportunities that will enable growth within the sector. The acceleration of such success will be catalysed through collaborative partnerships with like-minded international finance centres, such as Jersey, which has been in operation for more than 60 years with a well-established reputation for adhering to the highest regulatory standards in tax compliance, cooperation, and transparency.

Jersey’s world-class reputation as a leading international finance centre has been endorsed by independent bodies and institutions of the highest standards including the OECD, the FATF and indeed the EU. Jersey continues to collaborate, support and work with the new IFCs across Africa sharing its experience, expertise, and knowledge, including in responsible, impactful, and sustainable finance.

Written by Faizal Bhana, Director, Middle East, Africa, and India Jersey Finance