The Potential of a Diaspora Investment Bank (DIB) for the Franc Zone

Jul 04, 2011
There is an absence of investment banks in the Franc Zone. The banking system is dominated by a small network of commercial banks whose main activities are centred on short term financing of trade, and cater for the needs of governments and public and private clientele. Although realising handsome profits and constantly running a surplus of liquidities, these banks contribute little to the productive investments that these countries desperately need.

At the same time African migrant remittances are one of the most important sources of external development finance available to African countries. Annual amounts are estimated to be between 30 to 40 billion dollars for Africa. According to the World Bank, for sub-Saharan African countries, they increased from 3.113 million dollars in 1995 to 18.586 million dollars in 2007, representing between 9% to 24% of their GDP, and 80% to 750% of the ODA they receive, making migrants, de facto, their first fund providers.

Migrant behaviour on migrant remittances markets is essentially dictated by the quality of products and services offered by banks, money transfer companies and informal operators in relation to speed of service, collection times, cost, security, accessibility of agencies and coverage.
However, the Franc Zone is characterised by a small number of commercial banks such as BNP-Paribas and Société Générale. The quasi-monopoly they enjoy explains the excessive cost of transfers due to high commission rates. This also explains the high level of the un-banked population and the local entrepreneurs’ lack of access to financial services, in spite of a thriving informal sector that contributes to the generation of up to 90% of jobs created in most of these countries.
Additionally, the Money Transfer Companies (MTC) market, present in francophone countries of the region since the late 1990s,, is dominated by Western Union which, controls up to 90% of the total volume of formal transfers in some countries.
As with commercial banks, this lack of competition allows for high profit margins and prohibitively high transfer costs which reach up to 20% of the total amount sent.

There is, therefore, in the Franc Zone a real need for the establishment of a medium and long term financing institution in order to efficiently channel remittance flows, stimulate the development of a banking mentality among the population and to increase saving rates in a way that satisfies the needs of the Diaspora, the benefiting households, and the Franc Zone States themselves.
The project for creating an African Diaspora Investment Bank seeks to meet these demands. The objective is threefold:
1. Putting in place an important network of offices, branches, representations, collection and distribution agencies in France, Europe, the USA and Africa in order to capture the flow of migrant remittances;
2. Proposing the most competitive, adapted and performing products, tailored to the needs of African immigrants;
3. Financing, in the most favourable conditions, projects contributing to the fulfilment of the objectives of regional bodies whose mandate is to foster economic integration policies.

The capital of the African Diaspora Investment Bank will be open to the Diaspora through African financial institutions, and the international financial institutions wishing to take part. The declared aim is to assemble a shareholding that guarantees an excellent financial appraisal from rating agencies, bearing in mind that, in addition to its own resources, the African Diaspora Investment Bank will mobilise resources from international and regional capital markets to finance its investment programmes. The Bank will enjoy legal status and financial autonomy, and act in strict compliance with best banking practices. It will rely on a highly valuable human capital and will work in close collaboration with the banking world. Its organisation, structures and operation procedures will be close to those of the European Investment Bank (EIB).

A multi-disciplinary engineering and advisory Bureau will also be integrated to the structures of the bank to serve as a think tank. Its purpose will be to provide technical assistance to both migrants and benefiting households in developing and spearheading innovative and specific banking products, and set up an efficient market monitoring mechanism to help adapt the bank ‘s strategies to its customers’ needs.

There is a real need to reform the banking and monetary institutions of the Franc Zone, especially with regard to exchange rate, reduction of fees and commissions. The creation of the African Diaspora Investment Bank, combined with strategic partnerships with banks and financial institutions of the Franc Zone, and of the rest of Africa and Europe, will act as a trigger for reforms, enable competition, restructure and fructify migrant savings. It will also contribute to the creation of thousands of jobs in Europe, the USA and Africa in these times of economic and financial crisis.

Sanou Mbaye, a former member of the senior management team of the African Development Bank, is a Senegalese investment banker. He is the author of "L’Afrique au secours de l’Afrique" (Africa to the Rescue of Africa).

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