Financial Sector Development in Africa: Opportunities ... - World Bank

88 Coates and Hofmeister
trap for the sustainability of their business. When they do access these
sources (often donor funded), they tend to intermediate them into much
safer and shorter-term lending than was originally intended by the providers
of this finance. Though sometimes frustrating, they are to be lauded
for their sensible approach.
Overcoming the limitations. Rural financial services providers need longterm
support to build their balance sheets through a broad-based
approach to asset and liability management. This entails a wide-ranging
approach to improve management; to develop profitable strategies (and
to improve capitalization through retained earnings); to develop and sell
profitable products (including fee income); to boost the size of savings
(provided adequate prudential regulations and a strong regulator are in
place); to improve the information technology (IT) infrastructure and
management information systems; and to develop the competence, professionalism,
reward, and career opportunities for staff. Only if all these
complementary initiatives are adopted will rural financial services providers
be able to adopt a more aggressive and sophisticated risk strategy that
includes a significantly greater proportion of finance for agricultural
producers.
In addition, efforts need to be made to help rural banks and credit
unions in particular to organize themselves into stronger networks,
which can then help them to centralize and strip out costs, harmonize
market and product development, share information and best practice,
support each other’s balance sheets, and provide opportunities for mobility
and career progression for staff. Often this will result in the establishment
of a shared commercial banking operation, often termed an
apex bank. These apex banks, such as the Co-operative Bank in Kenya,
can facilitate access to wholesale banking markets for their core cooperative
or rural banking shareholders. They can also generate profits by
competing with other commercial banks for lucrative retail or corporate
customer bases.
Apex institutions can work with their rural or cooperative banking
networks to sell products that are most profitably developed and managed
from the center, utilizing the better economies of scale, improved
cost of funds, and greater marketing strengths. Sometimes cooperation
in marketing can extend to a shared brand and advertising costs, to further
exploit efficiencies. Sharing customer metrics and default information
can also improve product development and risk management
approaches.