Western Union launched Nigeria’s first outbound remittance payment service, which is expected to boost business growth in the country.

What Cross-Border Banking Means for Africa

Africa’s consistent financial growth over the past ten years has placed it in a very opportune position, both globally as well as within its own borders. This growth is due to a number of factors, including climbing commodity prices and increasing urbanisation in many African countries.

Such signs of growing economic stability sets Africa into the position where it is not only looking like a favourable option for overseas investors, but is also creating the situation where certain African countries can now invest in their neighbours, increasing their equity while at the same time advancing Africa’s economy as a whole.

Improved infrastructure through competition

The appearance of regional banking institutions in new countries forces the host country to up their game when it comes to the banking infrastructure they are offering consumers. It’s the bigger banks who will be moving into different countries, and therefore will be offering more sophisticated banking dealings to customers – the domestic banking industry must not only be able to integrate these offerings effectively, but also must now work to advance their own offerings.

By big banks crossing the border, they are opening up the banking field in the different countries and offering new life and competition into the sector. In order to win over customers, the new banks will bring with them better offers for the consumers, offers which the established banks will have to take into account and better in order to survive. This is all great for customers, creating a flurry of financial activity.

Factors constraining the integration of the regional market

As beneficial as cross-border pollination is, it can also present a few obstacles in getting off the ground. A main issue is that of differing legal and financial structures in different countries. Overall supervising of the different branches can be made difficult by differing tax regimes, as well as other regulatory inconsistencies in the different countries. This is an obstacle the regional banks must overcome in order to avoid time wasters such as duplicate reporting to immediate supervisors and regional supervisors. Banks must integrate a framework that makes the crossover as seamless as possible, in order to be effective.

Currently, there is quite a difference in host and home supervisors of crossover institutions. It is the job of the host supervisor to make sure that their branch has enough money available to meet all the requirements of the business, as well as its customers, while it is the home supervisor’s job to ensure that the entire enterprise stays solvent.

Once African countries start seeing themselves as a united front then it will be easier for regulatory practices to be standardised and then for institutions such as banks to integrate and grow into different countries. Countries such as Kenya, Tanzania and Uganda have already made strides to integrating their real time gross settlement systems (RTGS), with Rwanda and Burundi starting down the same path.

The more regulatory practices are standardised across all African countries, the better for business. If this is realised, then institutions will be able to licensed under a single license, making transactional times shorter, and the overall running of the business smoother.

That being said, another factor that crossover banks must take into consideration, and work towards minimizing, is the risk that a branch in one country that faces an economic crisis could infect the entire institution. Banks must ensure that their ventures across borders are free-flowing enough to allow adequate liquidity for each branch, as well as with strict enough regulations so that one branch doesn’t affect every branch in times of trouble.

Once all these factors are taken into account, with solutions found to possible obstacles, then African countries are set to benefit not only from foreign investors, but also from what their fellow Africans are able to offer them. This is a very empowering position for Africa, with the cross-pollination of the different countries poised to unite and strengthen Africa’s economic standing greatly.

David Okwara

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