I discovered recently that African banks are the MOST PROFITABLE banks in the world!
This shocked me and so I wanted to share with you all. Did you already know this?
I ran to a strange situation recently applying for a grant for cross-border transactions. It costs 1% to send $200 from the US to Canada, 3% from the US to Kenya and 8.9% on average from Kenya to Uganda. Moreover, cross-border money transfer generates $2.9b in fees in Africa annually.Â
Why has such a large opportunity gone unsolved?
So I did a little digging…
There are three primary reasons:Â
The governments protect banks
African countries don’t trade well with eachother
African banks focus on lending which is 🚀
We will discuss these one at a time:
Banks are protected from competition
Due to the protected regulatory status of banks, there isn’t much space for competition. With high (and increasing) minimum asset holdings, few banks can compete.Â
Indeed, Africa has the most profitable banking sector in the world.
This last chart with the most surprising to me. I would have thought banks in Africa were losing money but no quite the opposite.
Cross-border transactions are not attractive for banks
 despite the large Market size for cross-border transactions in Africa it's highly fragmented between 54 countries. Further the amount send Viber mittens is relatively small compared to other sources of capital for banks. Remittance only makes up 3% of GDP (Compared with deposits at 34% in Kenya, for example). Furthermore, remittance money is often spent right away, not held at the bank, thus making the remittance sector even less attractive for banks to serve properly.
Cross Border trade in Africa isn’t much more attractive and is particularly low.
Banks have less incentive to build solutions for cross-border trade if few are using it. This has a negative feedback loop: high costs discourage intra-regional African trade, which discourages banks from investing in solving the problem. Therefore, an estimated 80% (!!) of all cross-border commercial payments sent by African banks are settled via North America or Europe in USD, EUR or GBP.Â
Banks are focused elsewhere
African banks have the highest loan growth of all regions.
But African loans have the highest default rates in the world.
To make cheap, borderless payment a reality a company must be focused, not distracted by other opportunities/problems.
We so quickly dismiss so called 'developing countries' in regards to financial opportunities yet so much of Africa is way ahead of the US in cell phone money transactions and other forward thinking banking. Thanks for helping us be aware of what is really going on.
We so quickly dismiss so called 'developing countries' in regards to financial opportunities yet so much of Africa is way ahead of the US in cell phone money transactions and other forward thinking banking. Thanks for helping us be aware of what is really going on.