Côte d’Ivoire has been enjoying an economic upturn since the return of political stability in 2012, with an average growth rate of 9% per year. The country is viewed as a “champion” in a region where the economic climate is morose. The latest World Bank Economic Update on Côte d’Ivoire notes, however, that a more effective and more inclusive financial system will facilitate business development and improve the living conditions of the Ivorian people.
The report, entitled “The Race to Emergence: Why Côte d’Ivoire Must Adjust its Financial system,” examines the development of the Ivorian financial market. With the arrival of new regional banks, microfinance institutions, the mobile money phenomenon, the country saw an increase in bank loans and improved access to banking services. Nevertheless, its financial system continues to lag behind those of other middle-income African countries, as well as countries such as Senegal and Togo.
“Ivorians remain reluctant to deposit their savings in financial institutions. The poor prefer to keep their money under their mattress or in community savings arrangements (tontines). The more affluent invest directly in real estate or have accounts abroad,” explains Jacques Morisset, World Bank Lead Economist and author of the report.
According to the report, only one in eight Ivorians chooses to deposit his or her savings in a bank or financial institution. This reluctance can be traced to the political crisis, which created a situation of distrust between banks and their clients. The bonds of trust are slowly being reestablished, but it will take time.
“The Ivorian economy should maintain a growth rate of around 8% in the coming years. One of the greatest challenges going forward will be to better distribute the benefits of this growth. This will require an effective and inclusive financial system,” explains Pierre Laporte, World Bank Country Director for Côte d’Ivoire.
To build Ivorians’ trust in banks, the report encourages financial institutions, including micro-lenders, to develop closer ties with their customers through innovations and partnerships. The success of countries such as Kenya, Tanzania, and Brazil shows that banks can lower their transaction fees by diversifying their distribution network, making better use of communication tools, and introducing financial instruments better suited to the needs of potential customers, such as capital leases and factoring. The report also recommends the establishment of shared information systems to better assess the quality of credit applicants to reduce risk.
In parallel to these actions undertaken by commercial banks and similar institutions, mobile telephone companies could be authorized to grant loans and micro-lenders could be allowed to issue bank debit and credit cards.
Finally, the report stresses the importance of a financial market regulatory framework that is able to adapt to future innovations. Supervision and the imposition of sanctions by authorities are necessary to avoid slippages and excessive risk-taking. While there have been positive developments in Cote d’Ivoire’s financial system, the banking sector and the authorities must work together to expand access to financial services and further strengthen the system as a whole.