The government of Sierra Leone believes its planned privatisation of key financial institutions is one of the ways it can make financial services available, accessible and a ordable to all.
I N D E P T H
THE VAST MAJORITY of Sierra Leone’s population has no access to financial services. According to the Bank of Sierra Leone, only 12.6% of adults have an account at a formal financial institution, whilst the rate for Africa as a whole is 23% and the average rate in the Fragile and Conflict Affected African States is 14%. The bulk of the population lives in rural areas and is dependent on agriculture, 70% are employed by micro, small and medium-sized enterprises (MSMEs), and 60% of young people are under-employed or unemployed.
“Most people and small businesses in Sierra Leone do not fully participate in the formal financial system. Their transactions are exclusively in cash, have no safe way to save or invest money, and do not have access to credit beyond informal lenders and personal networks. Even those with financial accounts may have only limited product choice and are financially illiterate. As a result, a significant amount of wealth is stored outside our financial system, preventing our people from engaging in economic activities that could transform their lives,” explains the central bank.
Increasing financial inclusion — particularly through microfinancing — is, therefore, a priority for the government in order to unleash dormant growth potential, notably in agriculture projects but also from small businesses. To achieve this, the Bank of Sierra Leone has implemented a National Strategy for Financial Inclusion, covering the period from 2017–2020. The objective is “to make financial services available, accessible and affordable to all Sierra Leoneans and MSMEs, and support inclusive and resilient private-sector-led growth.”
Sierra Leone started the journey towards financial inclusion ten years ago with its first comprehensive strategy for financial reform: the 2008 Financial Sector Development Plan. More recently, the Agenda for Prosperity 2013-18 also recognised the importance of financial inclusion. In 2009, Sierra Leone joined the Alliance for Financial Inclusion (AFI) — a network of central banks and other financial institutions from about 100 developing countries — and in 2012, it signed the Maya Declaration, a platform promoted by the AFI in which member institutions commit to concrete financial-inclusion targets.
In 2015, Sierra Leone also joined the Better than Cash Alliance, which encourages a transition from cash to digital payments “in a way that advances financial inclusion and promotes responsible digital finance.” Based at the United Nations, the Alliance has 60 members and is funded by the Bill and Melinda Gates Foundation, Citi Foundation, MasterCard, Omidyar Network, the US Agency for International Development and Visa.
Digital payments received an unplanned boost during the Ebola crisis, when mobile wallets were used to make fast, accurate, and secure payments to some 30,000 relief workers. Digitisation cut payment times from over a month to about a week and the plan now is to extend the system to most of the population, taking advantage of the fact that there are over 3.5 million mobile phone subscribers and that 94% of the country is covered by telecommunications networks.3 Digital Financial Services already makes up 90% of the access points and is the second-largest provider of financial services, according to the central bank.
Although there have been significant improvements in the past ten years, the banking sector remains shallow and constrained by high financing and operating costs, a low share of credit for the private sector and limited branch infrastructure. Sierra Leone has 14 commercial banks, including the state-owned Commercial Bank and Rokel Bank, 17 community banks that are supervised by the Bank of Sierra Leone-regulated Apex Bank, 13 microfinance institutions, three mobile money operators, and 59 financial services associations, which together serve 486,556 clients across the country, according to Bank of Sierra Leone figures.
Among the 14 commercial banks, the three market leaders — Commercial Bank, Standard Chartered and Rokel Bank — hold more than half of the total assets.4 The market is dominated by foreign banks, such as London-based Standard and US-based First International Bank, with Nigeria being the predominantforeigninvestor in the sector with seven establishments: Guaranty Trust Bank, First Bank of Nigeria, Access Bank, Skye Bank, United Bank of Africa, Zenith Bank, and Keystone Bank. In a June 2017 report, the International Monetary Fund (IMF) warned that “a major challenge is the weak financial positions of the two public banks and poor asset quality in several other banks. A crucial first step in improving the soundness of the banking sector will be to forcefully restructure the two-state owned banks.”5 The government is acting on this and both public banks are due to be privatised by the National Commission for Privatisation.
Another challenge identified by the IMF is the low levels of credit given to the private sector. The average between 2014 and 2016 stands as one of the lowest in the region at around 5.4% of GDP, after falling from 7.5% in 2011, and this is expected to further decrease to 4.6% in 2017. “Turning this trend around will be challenging in the short term. Over the medium term, even with declining credit to government as a share of GDP, the programme foresees only a modest increase in credit to the private sector, as banking system net foreign assets increase,” says the IMF.
Meanwhile, the insurance sector, which is regulated by the Sierra Leone Insurance Commission (Slicom), is also limited and comprised of eight companies, dealing mainly in fire, motor, marine, general accident and life insurance. Given the low income level of most of the population, it is no surprise that insurance usage remains low at about 2%, according to the National Insurance Company, which is due to be listed on the Sierra Leone Stock Exchange as part of the government’s privatisation efforts.
As for the stock exchange, although established in 2009, it has so far listed only one company, Rokel Commercial Bank. However, other entities are showing an interest in new listings; for example, the National Social Security and Insurance Trust — which administers the country’s national pension scheme — has expressed a willingness to trade shares of Golden Tulip Hotel and Radisson Blu. And the stock exchange hopes that, by listing more companies and with a relaunch in the pipeline, it will attract an increasing number of foreign investors.