International transmission of shocks via internal capital markets of multinational banks: evidence from South Africa

Adeline Pelletier looks at the policy implications of internal capital markets among multinational banks

SMS Financing by banks in East Africa: Taking stock of regional developments

The banking sector in East Africa has evolved considerably over the last 10-15 years with the regional expansion of African banks, coupled with financial innovations and regulatory changes. As a result, the banking landscape is marked by the co-existence of several types of banks: global banks from developed countries, emerging banks (mainly from Asian countries), foreign regional African banks and domestic African banks. Given the difficulty of access to credit experienced by SMEs, in a context of low transparency and information on borrowers, the expansion of regional African banks could have an important impact on the financial and economic development of the region. Indeed, if these regional banks are better able to evaluate SME credit risk than global banks, they might offer more loans to SMEs, thus fostering a sector which is the backbone of East African economies. In a constrained institutional setting, with a large unbanked population and little information available on borrowers, how do foreign and domestic banks screen and monitor borrowers? To what extent do regional African banks’ lending practices and perception of the business environment differ from that of domestic African banks and of global banks? What is the impact of the regional expansion of African banks on SME financing

Essays on performance, corporate financial strategy and organization of multinational banks in Africa

This thesis is composed of three stand-alone essays interlinked within the context of banking markets in sub-Saharan Africa. This research is motivated by the lack of comparative research on North-South and South-South foreign direct investment (FDI), especially on the service sector and on the African context, despite the rapid expansion of multinationals from developing and emerging countries over the last two decades. Theoretically, this thesis builds on strategy, corporate finance and organizational economics theories. The first chapter compares the financial performance of the foreign affiliates of global banks to that of regional African banks in sub-Saharan Africa over a 10-year period. The results suggest that affiliates of regional African banks are significantly less profitable (lower return on equity and higher cost income ratio) than those of global banks. Furthermore, the performance differentials are not strongly related to the quality and sectoral allocation of banks’ loan portfolio but to differences in their access to funding. The second chapter examines the benefits and drawbacks of being part of a large banking group by analyzing the flows of internal capital between foreign affiliates located in an emerging economy, South Africa, and their global headquarters. It provides evidence for a support motive to internal funding, as foreign affiliates receive on average more internal group funding when their solvency ratio declines. However, using the event of the East Asian Crisis, I show that foreign affiliates’ balance sheet are not immune to “reversal of fortune” when other members of their banking group need large amounts of internal capital to cushion capital losses, leading to abrupt reallocation of internal capital. Finally, using an instrument variable technique I find a positive impact of the volume of internal funding received by a foreign affiliate on its credit supply in the mortgage market. In the third chapter I examine how environmental and firm factors influence the organizational structure of multinational banks relying on survey data on commercial banks located in 14 sub-Saharan African countries. I find evidence of a positive and significant association between several indicators of environmental distance between host and home countries (institutional, economic and cultural distance) and centralization of operational processes inside multinationals. In addition, I find that lower quantity of “hard” information available on borrowers in the host markets and higher reliance on qualitative or “soft” information by bank managers is negatively and significantly associated with centralization

The World of Banks and Finance in Kenya

Kenya is the dominant banking centre in East Africa with 43 commercial banks (as of 2014). This sector evolved considerably over the course of the last decade with the regional expansion of African banks, along with financial innovations and regulatory banking changes. As a result, the banking industry is particularly dynamic and is characterised by the coexistence of several types of banks; local Kenyan banks (31), subsidiaries of foreign banks (including global banks in developing countries..

Innovations in emerging markets: The case of mobile money

Mobile money is a financial innovation that provides transfers, payments, and other financial services at a low or zero cost to individuals in developing countries where banking and capital markets are deficient and financial inclusion is low. We use transaction costs and institutional theories to explain the growth and impact of mobile money. Having developed a new archival dataset that tracks mobile money deployment across 90 emerging economies during 16 years between 2000 and 2015, we address the question of relative economic impact of the banking and telecoms sectors in the provision of mobile money. We show that telecom groups and not banks are more likely to launch mobile money in countries where legal rights are weaker and credit information less prevalent. However, it is when mobile money is offered via a banking channel that the spillover effects on the economy are greater. Findings have significant implications for policy and strategy

Volunteer and satisfied? Rural households' participation in a payments for environmental services programme in Inner Mongolia

Using survey data from Inner Mongolia, this paper explores the role of stakeholder engagement in the implementation of the Sloping Land Conversion Programme, a payments for environmental services (PES) programme designed to restore forest in degraded land. Based on the idea that volunteerism and satisfaction with the programme's outcome are two important components of the programme's viability, we successively analyse the intensity of households' participation in the programme and their reported satisfaction with its economic achievement, which we relate to their stated volunteerism. We show that households' participation intensity in the SLCP is primarily driven by land and location characteristics, and that these findings hold true whether or not the households voluntarily enrolled in the programme. Moreover, as far as participants' satisfaction can be interpreted as an indicator of potential long-term support for the programme, our findings also support plausible sustainability for the programme

Migrant workers’ remittances: what is the impact on the economic and financial development of Sub-Saharan African countries?

Remittances from migrant workers have become a major source of financing for developing countries. Latin America and Asia have benefited since the mid-1990s from a particularly sustained rise in income transferred by their emigrant workers. Migrant workers’ remittances have also increased in Sub-Saharan Africa (SSA), where they play an essential role in poverty alleviation. Moreover, they have the advantage of building a more stable source of external financing than official development assistance (ODA) flows and foreign direct investment (FDI) and, by sustaining private consumption they have a stabilising effect on these countries’ economies, acting as a buffer. In contrast, their direct impact on long-term growth in SSA has not been established. Recent empirical studies carried out on this subject have not enabled a consensus to be formed, and the relationship between remittances and business investment is not clear-cut. Nevertheless, workers’ remittances can have an indirect impact on growth by favouring financial development in the recipient countries. Increased formalisation of remittances from African migrant workers would contribute to this objective, by enabling the local financial systems to fully play their role in the allocation of resources. While the increased formalisation of workers’ remittances is hindered by obstacles of a structural nature, notably the low financial depth in African economies, several avenues may nonetheless be explored. In sender countries, strengthened transparency and competition in the money transfer market could lead to a reduction in transfer costs. In recipient countries, improved access to financial services (notably via the growing role of microfinance and new payment technologies) and the continuation of structural reforms already underway are all important preconditions for increasing the efficiency of remittance transfers

Privatization in developing countries: what are the lessons of recent experience?

This paper reviews the recent empirical evidence on privatization in developing countries, with particular emphasis on new areas of research such as the distributional impacts of privatization. Overall, the literature now reflects a more cautious and nuanced evaluation of privatization. Thus, private ownership alone is no longer argued to automatically generate economic gains in developing economies; pre-conditions (especially the regulatory infrastructure) and an appropriate process of privatization are important for attaining a positive impact. These comprise a list which is often challenging in developing countries: well-designed and sequenced reforms; the implementation of complementary policies; the creation of regulatory capacity; attention to poverty and social impacts; and strong public communication. Even so, the studies do identify the scope for efficiency-enhancing privatization that also promotes equity in developing countrie

African Banking Groups: Recent Trends and Strategic Issues

In this chapter we examine the recent trends in the banking sector in sub-Saharan Africa based on information from banks’ financial statements and from a unique survey of selected large banking groups operating in the region

Mobile payment services in developing countries. Information, trust, and training: The ingredients for retail agents’ success

Financial services in developing countries are often expensive, leaving many of the poorest citizens without access to bank accounts. However, the growth of mobile payment services have been seen as a way to increase access by allowing individuals to send and receive payments through their phones. Although there has been much research on the benefits of ‘mobile money’, there has been relatively little academic inquiry into the firms who provide such services and their effectiveness. This research comprised of two country level surveys of the retail agents involved in selling mobile payment systems in Bangladesh and Tanzania. Its aim was to understand their relationship with the distributors or master agents for whom they sell the service for. The findings of the research suggest that the performance of retail agents in Bangladesh and Tanzania are strongly affected by the relationship they form with their distributors or master agents, particularly in terms of communication, training, and goals. The researchers conclude that in order to improve the performance of retail payment agents, it is important to select agents carefully and train them well