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Africa|Business|Business Growth|DIGITALISATION|Energy|Financial|Renewable Energy|Services|Environmental
Africa|Business|Business Growth|DIGITALISATION|Energy|Financial|Renewable Energy|Services|Environmental
africa|business|business-growth|DIGITALISATION|energy|financial|renewable-energy|services|environmental

African finance resilient to Covid-19 challenge

19th November 2021

By: Schalk Burger

Creamer Media Senior Deputy Editor

     

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The European Investment Bank's (EIB's) 'Finance in Africa 2021' report has shown the resilience of Africa’s financial sector and enthusiastic engagement to embrace digitalisation.

However, the report, which included input from 78 leading banks and financing institutions active across sub-Saharan Africa, also highlights future risks that could hinder financing for business growth, renewable energy and recovery from the pandemic, EIB VP Thomas Östros says.

“Africa’s banks are crucial for ensuring access to finance, which is essential for private sector growth and climate action. They also understand the unprecedented challenges triggered by the Covid-19 pandemic. The EIB is committed to supporting transformational private and public investment across Africa in close cooperation with financial sector partners,” he said.

The Covid-19 pandemic prompted major changes in how business is conducted, and accelerated digitalisation trends under way before the crisis. This has unlocked new opportunities for African financial institutions to innovate and drive financial inclusion, says development cooperation initiative Making Finance Work for Africa Partnership (MFW4A) coordinator Abdelkader Benbrahim.

“African banks can also play an important role in society’s adjustment to climate change and contribute to its mitigation, for example, by including environmental risks in their credit and investment processes, or by incentivising clients for green investments,” he says.

The detailed analysis of the impact of Covid-19 on financial intermediaries, backed by a survey of bank lending across the continent, concluded that Africa’s financial sector has remained stable, but that private sector financing may recover slowly, with small business and micro-entrepreneurs being the hardest hit.

The survey suggests that nearly 50% of African banks are most concerned about the quality of existing assets and more than 20% are most concerned about a reduced demand for financing and an increase in the risk of future lending.

“African financial sectors have displayed remarkable resilience during the Covid-19 crisis and a liquidity crisis in the banking sector was averted, as most banks were well capitalised before the crisis and policymakers reacted fast.

“However, lingering impacts may set back financing during the recovery. Firms across Africa have been badly affected by the crisis and the banking sector asset quality is likely to fall once support measures are withdrawn,” the EIB says.

Further, despite progress, small firms and micro-entrepreneurs remain underserved and vulnerable to losing access to finance if lending recovers slowly. Lending to smaller firms remains constrained by structural barriers, with 55% to 56% of African banks identifying credit history and collateral as major or severe constraints to financing smaller businesses. Few reported these challenges for larger corporates.

Meanwhile, the rapid adoption of mobile money has been a key driver of financial inclusion in Africa. Digitalisation of African financial services was initially driven by new entrants into Africa’s financial sectors, but the EIB Finance in Africa 2021 report reveals that the sub-Saharan African banks are now expanding their digital offering. This digitalisation drive is accelerated by the pandemic, which the banks believe will be permanent.

The survey also reveals that African banks are increasingly aware of the need to address risks posed by climate change, and are beginning to take advantage of opportunities in green finance, with 54% of surveyed banks already viewing climate as a strategic issue, and just more than 40% having staff working on climate-related opportunities.

Other financial institutions, including microfinance, private capital and insurers, are also filling market gaps in green finance, the EIB says.

The report examined the impact of the pandemic on banking and business lending, investigate how Africa’s financial sector is harnessing the digital revolution and detail the challenges and opportunities of green finance for banks.

“With this report, we aim to capture how the African financial sector has rapidly adapted to the Covid-19 pandemic, pointing to continuing challenges and highlight exciting opportunities for climate finance and digitisation,” Benbrahim said.

During 2020, the EIB provided more than €5-billion of new financing to support more than €12-billion of transformational private and public investment across Africa.

This includes launching new targeted financial initiatives in collaboration with African banks and financial institutions to help business recover from Covid-19 challenges, accelerate climate finance, improve access to finance by female-led business and enhance financing for rural small holders, the EIB said.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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