The Growth of Financial Institutions in Africa

Published: 31/07/14

Financial institutions have benefitted from a strong growth over the last decade in Africa. Supported by the development of a whole continent, certain African markets have become particularly attractive for financial institutions.

1. The African development story supporting the growth of financial institutions

Several factors have contributed to the growth of financial institutions in Africa. First is the strong increase in national GDPs across most of African countries (from 2001 to 2011, Sub-Saharan Africa economy grew at an average rate of 5.7% per annum in real terms according to the African Development Bank), combined with the booms of the prices of commodities and the increasing trade and investment flows. In addition, governance has generally improved throughout the continent, as well as business environments, as a result of recent reforms. Other factors include a sharp rise in urbanisation, a burgeoning middle class (which has tripled over the past three decades to 355 million, according to the African Development Bank) and the implementation of prudent public policies.

Certain economic trends specific to Africa also played a significant role. Among them the development of new financial services markets based on innovative infrastructure and products, such as mobile phone-based financial services. International Financial Institutions and Development Finance Institutions traditionally involved in Africa like the World Bank and the African Development Bank have significantly increased their commitment to the development of financial services through the use of standard procedures and working methods.

Usual challenges are however still affecting business transactions in Africa: small sized markets combined with large populations with low income; inefficient or absent market infrastructure in some economies dominated by a large informal sector; challenging business environments; lack of regional economic integration.

2. The most attractive African markets for financial institutions

In the light of the various elements supporting Africa’s growth, financial institutions have become aware of the potential lying within Africa’s growing consumer base and started focusing on its large ‘unbanked’ population (at most 20% of African households have any access to formal or semi-formal finance). Thus, the financial services sector in Africa has particularly improved over the last few years. Unlike many Western countries, it has proven to be resilient to the effects of the global financial crisis due to its limited exposure to complex financial products. This went along a significant and rapid expansion of retail banking (expected to grow in Sub-Saharan Africa at a compound annual rate of 15% until 2020), the tightening of banking regulations and policies (aimed at fighting corruption and increasing transparency) and the reduction in entry barriers.

According to a classification made by Accenture, it is acknowledged that South Africa and Mauritius are the African leaders, with relatively deep, established and mature financial services markets. They are followed by a group of countries including in particular Nigeria, Egypt and Morocco which have large institutionalised markets and have implemented and encouraged on-going reforms towards the development of financial services. Thus, Nigerian indicators reflect solid population growth, a significant population not having access yet to banking services, increasing urbanisation and growing prospects for banking assets. The Central Bank of Nigeria is also promoting the consolidation of the banking sector (with a better capitalised and more robust banking community) and the inflow of foreign capital. The following group includes high potential countries which are implementing reforms to overcome barriers of low income, financial access and institutional or governance deficiencies, and include Ghana, Algeria, Zambia, Senegal, Kenya or Uganda. In Uganda, growth of the financial sector is largely driven by the development of mobile payment solutions. The last group is those countries facing structural constraints like the absence of any middle-class, extremely challenging business environments and poor financial infrastructure (notably Angola, Tanzania, Mozambique, Ivory Coast and Ethiopia). Angola is recovering from civil war and benefitting from the inflows of foreign capitals attracted by investments in the commodities sector, thereby creating opportunities for commercial banks.

3. The route to financial Africa

Players active in the African market include both non-African financial institutions and African entities which have recently increased their activities in the continent and thus became African champions. Their strategies focus on the establishment of regional hubs used as a base to operate in neighbouring countries, and sometimes opening a presence in countries if justified by capital flows and services.

Non-African financial institutions are mainly European banks, traditionally involved in their historical areas of economic and political influence (French banks active in North and West Africa, British banks in English-speaking countries).

These traditional actors have been challenged over the last five years by two groups of competitors. First are African competitors, who have implemented an aggressive strategy to expand in Africa – especially South African banks (Standard Bank and First National Bank), Nigerian (such as First Bank), Togo-based Ecobank, as well as Moroccan banks (Attijariwafa bank, Banque Centrale Populaire and Banque Marocaine du Commerce Extérieur). Then come competitors from emerging markets, such as Chinese, Brazilian and Indian banks (mostly involved in corporate loans in the energy, infrastructure and commodities sectors).

The growth of the African champions can only be a further catalyst to the development of the whole continent.


  • Financial Services in Africa, KPMG, 2013.
  • At the tipping pointy: Financial services in Africa comes of age. How financial institutions can capitalise on the growth opportunities in Africa, Accenture, 2011.
  • Making Finance Work for Africa, World Bank, 2011.
  • Meeting the growing demand for retail banking services in Africa, African Development Bank website, Mthuli Ncube, 23 July 2012.

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