Own Correspondent
3rd November 2019
BIHL launched the second financial summit not simply to facilitate dialogue and rhetoric, but to help inspire positive action in as inclusive and as sustainable a manner as possible, in a country reeling from the twin evils of underemployment and poverty.
Less than half of the working population enjoy formal sector employment, with the majority occupied in less stable occupations, such as subsistence agriculture, the informal sector, household employment and social welfare projects.
More than one-quarter of youth (aged 18-35) are unemployed, amounting to over 27% according to Statistics Botswana, a rate that is projected to grow if the rate of job creation is not increased.
Catherine Lesetedi, BIHL Group Chief Executive Officer, said “Botswana remains a small though quickly advancing country in many regards, especially when it comes to our financial services sector. Botswana has often been dubbed Africa’s rising star and continues to make headlines in this regard. Let us look at the numbers.”
She said, “Our population sits at an estimated 2.3 million (2019), with an urban concentration of 68% of the population, and yet unemployment sits at 17.6% (BMTHS 2016/2016).”
According to official sources formal sector employment is just under 350,000, with nearly half employed in the public sector. A key challenge is that formal sector employment has been growing at less than 1% a year over the past five years.
Less than half of the working population enjoy formal sector employment, with the majority occupied in less stable occupations, such as subsistence agriculture, the informal sector, household employment and social welfare projects.
More than one-quarter of youth (aged 18-35) are unemployed, amounting to over 27% according to Statistics Botswana, a rate that is projected to grow if the rate of job creation is not increased.
On an annual basis, secondary and tertiary education institutions in Botswana graduate over 20,000 students. Out of this, only about 2,000 are absorbed by formal sector employment.
Poverty and income distribution inequalities continue to persist. The National Poverty Incidence was estimated at 16.3% in 2015/2016. The Gini coefficient was 53.3, about the same as Brazil.
Majority of the population, especially outside of urban centres, do not have consistent access to the Internet. Individuals using the Internet in Botswana was reported at 39.36 % in 2016, according to the World Bank collection of development indicators[2] whilst cellular penetration is high at 1.4 million users (2018)
The Summit themed The Role of Financial Institutions in Building an Inclusive and Sustainable Economy, is designed to stimulate ideas and discussion around these two very current issues within our own industry and indeed the wider economy: sustainability and inclusion.
According to officials Botswana has relatively low access to finance compared to other upper middle-income countries in sub-Saharan Africa. It is also clear that for many financial institutions, the products and services they provide are mainly focused on roughly half of the population that are engaged in formal employment.
They are much less well suited for those in less stable and less regular employment outside of the formal sector. This is a major gap. However, the experience of other countries shows that the benefits of improved financial inclusion include reduced poverty and boosted prosperity.
Product types in Botswana are believed to be as diverse as they are plentiful, with innovation increasingly apparent across all spheres. Improved collaboration across the industry to support National objectives therefore spells increasing opportunity. For example, using emerging digital technology, sometimes termed “Fintech” or “Insuretech”.
Nevertheless, in its 2017 Annual Report, the Bank of Botswana noted that Botswana has not kept pace with peers in financial derivatives that are important in risk management as well as in harnessing financial technology to reap maximum benefits.
According to Bank of Botswana(BOB), in order for Botswana to realize the full benefits of financial sector development, appropriate financial sector policies should be formulated and implemented, focusing on promotion of a conducive operating environment, sound regulatory and supervisory frameworks, fostering the development of financial markets and broadening financial inclusion.
Botswana’s financial system is governed by several pieces of legislation covering (a) the establishment, mandate, functions and accountability framework of the Bank of Botswana of 1996 (Cap 55:01), (b) Banking Act of 1995(Cap 46:04); – which deals with licensing, regulation and supervision of banks; (c) National payments, Clearance and Settlement Act of 2004- covering regulation of clearing of payment instruments by banks and settlement functions of the central bank; (d) Botswana Stock exchange – securities legislation; ( e) Non-Bank Financial Institutions Regulatory Authority – licensing, regulation and supervision of non-bank financial institutions including insurance companies, pension industry, money lending businesses without deposit taking activities, investment advisory services, fund/asset management companies, etc.
“It should be plain from the above that our laws date back to the mid-1990s and a close examination of the laws are based on the notion of a traditional bank. With the advent of fintech, big data companies and other banking models, there are serious gaps, because quiet plainly, our regulatory architecture was meant for the instruments rather than new, innovative digital channels block chain technologies and similar financial services,” said Justice Professor OBK Dingake, at the BIHL Global Financial Summit.
He said, “Furthermore, primary focus on prudential regulation without a balanced attention to market conduct risks including product mis- selling and consumer protection.”
Dingake believes that a challenge in the Botswana banking environment is the need to continue modernizing domestic regulatory framework in order to keep pace with increasing financial innovation that is happening around the world and influencing the Botswana financial sector.
There is a need to come up with smart and cost-effective regulations. There is also a greater challenge for digital finance which is currently and prospectively the main conduit of financial inclusion in a sparingly populated country like Botswana.
Bank and other domestic sector supervisors endeavor to regularly review and amend where necessary those provisions of the law that can impede effective access to finance. Immediate issues are the provisions relating to the sharing of customer credit worthiness information, customer requirements and the anti-money laundering and combatting of the Financing of Terrorism Protocols.
“Further, Bank of Botswana should continue to commit to ensuring that there exists an enabling environment for enhanced financial inclusion of unbanked members of our society,” said Dingake.
Policy, legislative and regulatory development should also embrace advances in the provision of financial services, new technology and payment methods while ensuring the integrity, resilience and stability of the financial system.
