Banking Sector, the solution is digital
John Baimba Sesay
The Bank of Sierra Leone has a critical role in ensuring an improved regulatory framework more so in providing effective supervision of banks to ensure a safe and vibrant financial sector and to protect depositors. This is vital given that Sierra Leone continues to witness a high-pitched surge in commercial banks in the last decade. This is a noteworthy leap for our growth path, but at what cost?
The country has a market that is wider than the available financial resources or the available banking options. The need for wider financial inclusion by making financial services accessible at affordable costs to all individuals and businesses across the country is also core to the sector.
Discussing the apparent increase in number of banks in the country would require an assessment of the scopes which permeate the sector. There are critical indicators like access to finance, number of banks per hundred thousand of the population, number of branches per hundred thousand population, financial intermediation, percentage of credit requirement that is served and the need for banks to be able to cut across in the less advantaged areas and be able to go to small, medium and micro scale enterprises.
With all these indicators, when Sierra Leone is rated across the sub region, across Low Income Growing Countries or even across sub Saharan African countries, it does not rate too high, according to Dr. Walton Ekundayo Gilpin, Managing Director, Rokel Commercial Bank and this eventually provides more room for banking intermediation. In his view, Sierra Leone does not necessarily need more banks; rather it needs banks that could go deeper into financial intermediation, deeper into financial inclusion, and deeper into providing financial services to a wider sector of society so as to meet the needs of the economy and help enhance our GDP growth and human development should be a strategic goal of the banking sector.
Forex Value/ Leone Depreciation:
The boom in the banking sector has its upheaval difficulties. From competing for the ‘not too encouraging’ banking population, to struggling to provide better service to customers, the sector is also faced with negative public perception over forex and how it is being traded in the unofficial economy, the black market. There have not been official statistics for this, but public concerns are that some banks are colluding with those operating the unofficial economy. And this is not too good for a growing banking industry.
With millions of dollars auctioned by the central government as a way of curtailing the depreciation of the legal tender, not much of that was felt in the economy, with banks not having enough to sell to the public. The decision by government to auction was not a prudent one since the Leone continues to depreciate. This is a major concern especially for the business community. Prices of commodities are tied to the exchange rate of forex. Public perception has not been good for the banking sector. Government should therefore find ways of curtailing that. If forex is readily available through the official economy, people would not need to go out and buy from the unofficial economy.
With currency depreciation, two things would normally happen; one is having a current account deficit (by way of balance of payment) or there is a reduction in a nation’s international reserve. Persistent deficit would require funding by either increasing sales, eventually getting foreign exchange or by depleting foreign currency reserve. Unfortunately, Sierra Leone has a high import propensity. Not much is being done towards diversifying the economy. Agriculture could be a way of building on our economy and in addressing the Leone deprecation if we had done better in improving on our export in that sector.
Forex inflow could also come either from the Non-Governmental Organizations, from Foreign Direct Investment-FDIs or from the export of our commodities, goods and services. Tourism, when properly marketed and its potential thoughtfully utilized could also help bring up the forex base.
Serving the Urban Poor:
Notwithstanding the above, the surge in commercial banks has also led to their branch networks expanding, eventually touching every corner of the country. This is an encouraging development because it largely helps serve the rural community, the urban poor and the rural less advantaged, something Dr. Gilpin of Rokel Commercial Bank agreed with, saying, banks should not just be looking at banking fundamentals, the macro and micro economic fundamentals are also critical since the banks themselves cannot be divorced from the whole psyche of the economy. If banks collapse, the system will collapse and the economy will struggle.
Having outlets across the country is critical since there is a subset of the population that would need financial services. The advent of mobile cash transfers is a good development. But this too comes with limitations; it doesn’t give users access to the financial ecosystem. Mobile cash transfers allow users do their remittances but with no access to loans or even access to small overdraft as the normal banking system would provide. Being in the rural communities should also provide the banks an opportunity to be able to cater for the farmer, the rural kid who wants to be able to know what it means to have an account.
Banks may not need to build massive structures across the country in a bid to serve the rural poor; small outlets could serve the same purpose as a big structure. For less cost, banks can effectively serve the same population; one approach traditional banks have taken. Traditional banks in the country have been making steady progress in going out of the capital, many of them, not least, Rokel Commercial Bank.
Digital Revolution In the Sector:
Banks should look beyond their desired commitment of serving and making profit. Revolutionizing the sector by way of digital banking is also another strategic area investment is needed; better still more should be done in this area. This provides customers with faster service and enables them manage their accounts almost anywhere.
“The solution is digital” for Dr. Gilpin. There is no way banks could survive today in a world that is going aggressive every day without having digital solution to what it does. Going Fin-Tech (Financial Technology) is therefore the way banks should follow.
What today pertains in many developing countries is that every individual with a phone is being able to have a facility to access their finance and transact business. There is also a better profit margin in all of this for banks. In the words of Dr. Gilpin “If banks can effectively do that with the public who are part of the banking ecosystem, have accounts that are utilized, even the banks can make profits from the little commissions they get from such transition. So, digital is the easy way to go.”
By 2017 when he took over as MD, exploring available opportunities for the bank was one goal to achieve. The bank had a large loyal market but a proportion of that market had been poached by other banks because RCB seemed to be going down at the time.
Attracting the customers back to Rokel became a strategic goal to be achieved. The bank had to build on the area of digital revolution and strategic marketing, added to improving on the ambiance of the bank’s infrastructure itself. A coordinated approach towards bringing success out of the bank got the bank moving and growing. For Gilpin, Rokel Commercial Bank is a Sierra Leonean bank that should not fail otherwise it becomes a laughing stock for the whole region; that foreign banks came and dominated us. This is a challenge for all locally owned banks, more so given the competitive market they are faced with today.
Strengthening the digital financial systems of our commercial banks in critical to sustaining our economic growth and in providing better service to their customer base across the country. There are challenges to innovation and one could be effectively delivering solutions that ensure a real difference in the lives of customers. The time is now for banks to foster economic growth by taking advantage of the growth in technologies, eventually ensuring efficiencies in service delivery.