RETHINKING BANKING, FINANCIAL TRANSFORMATION

I have been pondering about the current banking system and access to finance in the kingdom and the implications on the development trajectory of the country.

The current banking system hinges on traditional banking values and norms. The current system offers multiple benefits in that it ensures stability of the banking sector, however, it also contributes to financial exclusion. In this era of tight money and tight lending, it becomes difficult for commerce and households to meet the specifications of a prime client, or a client who meets the lending requirements of the banking system. I have been thinking about the impacts of credit extensions and the resulting impacts on economic growth and economic recovery of the country. My thoughts landed on financial transformation and rethinking traditional banking values.

Financial transformation

Finance transformation can unleash the power of your finance systems. Integrate data, processes and people in a single platform to let you optimize decision making and planning across the bankers system. Finance transformation can unleash the power of your finance systems. Finance transformation can aid the banking sector improve the position on the balance sheet, balance sheet management, speed up financial processes and closing on transactions, improve forecasts, improve compliance and maximize profits for the sector. Profits can be improved through improved calculations of key performance variables, improved business support and improved decision making. Furthermore, it would aid in calculating contributions to the bottom line including inter-alia net interest margin of each instrument’s interest rate, maturity and payment stream.

The state of the banking system shows signs of keeping with the times on financial transformation, however, this has not led to the rethinking of traditional banking values, revolutionising and broadening the reach of the banking system through the effective use of data gathered through all these platforms. This signals the dire need for data scientists within the banking system and commerce overall; data is the new oil and financial transformation needs to go hand in hand with effective data mining and sound data science to improve on decision making. Scope exists for broadening credit, however, it requires the ability to marry traditional banking norms with new developments and data to inform decisions.

Rethinking traditional banking

Evidence, coming through multiple institutions piloting guarantee schemes, has shown that entities that do not meet the requirements of the banking system usually never cash in on the bonds or guarantees. They are actually able to pay their obligations and the enterprises stay afloat. These are entities that do not have the required collateral, entities run by the youth and other cadres that would otherwise not qualify for a bank loan.  This has a negative impact on economic growth as ideas that require financing are excluded from access to credit, hence the economy does not reach its full potential. The sad reality is that even entities that are setup purely to address this problem also act as the traditional banks. One understands the need to keep the bottom line within favourable regions, however, there has to be considerations on the impact of the requirements on the determination of the prime client and who ultimately ends up with access to finance.

Sad story of traditional banking

This is a call to the banking sector and other non-bank financial service providers to improve on the efficiency of banking and ensure that the banking sector works for commerce and personal banking reasons. I had an interesting conversation with a young fellow from Zambia, during my travels, he contended that no bank wanted to give him a loan to start his business because he lacked collateral. However, when he landed a nine to five job, the banks started calling him to offer him a number of loan products. I related to his story as mine is also the similar sad story banks seem not to see vision but would rather finance less risky endeavours such as those that will be backed by a pay cheque or collateral. This leaves start-ups with marginal access to finance. Furthermore, they are left with very marginal means to grow and flourish. The sad reality is that in Eswatini and Africa, as a whole, most of the businesses are small, micro and medium enterprises. Big companies in the region are rather the multinational corporations with local big companies being owned by a few wealthy individuals. It is, therefore, imperative to open up access to credit so that we can incubate start-up businesses and charge local and sustainable economic growth.

Alternative financing modalities

Some of the top ways to raise capital are through angel investors, venture capitalists and government grants. In Eswatini the government has a number of access to credit programmes that do not require much from the entrepreneurs, however, the amounts are usually small to grow a business to sustainable levels. Furthermore, access to an angel investor usually requires networking opportunities. It is imperative that the country sets up platforms for high net worth individuals to interface with the innovators for direct access to capital.

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