OutlineWhat is Sustainable Banking?Sustainable Banking PrinciplesIs African Banking Sector Currently

(Un)Sustainable (after over 120 years)Challenges to Creating Sustainable BankingPossible Steps to Create a Sustainable

Banking Sector (Long and Short term measures)

What is Sustainable BankingSustainable banking is meeting the needs of

the present, without compromising the ability of future generations to meet their own needs. Sustainability has been conceptualised as environmental, economic and social well-being for today and tomorrow (UN Brundland Commission, 1993)

What is Sustainable BankingIt is an approach that recognises the role of

Banks in driving long-term economic development in Nigeria that is not only economically viable, but also environmentally responsible and socially relevant (CBN, 2012).

The 2012 Nigerian Sustainable Banking principles are based on leading international sustainable finance standards and established industry best practices, but developed in line with the Nigerian context and development needs (Not Sure!)

9 Principles of Sustainable Banking1.Our Business Activities: Environmental and Social Risk Management

2.Our Business Operations: Environment and Social Footprint

3. Human Rights

4. Women’s Economic Empowerment

5. Financial Inclusion

6. Environmental and Social Governance

7. Capacity Building

8. Collaborative Partnerships

9. Reporting

Neo-liberal Reasons for the Unsustainable Outcomes

Weak legal and accounting systems

Lack of skilled regulators

Complex bureaucracy

Weak and unskilled enforcement institutions

The same reason for over 120 years!

h

  REGULATORY QUALITY

RULE OF LAW

GOVT. EFFECTIVENESS

DEPTH OF CREDIT INFORMATION

  1996 2008 1996 2008 1996 2008 2004

2008

Angola -1.42 -0.94 -1.51 -1.28 -1.32 -0.98 3 3Cameroon

-0.79 -0.66 -1.42 -0.99 -0.80 -1.10 1 2

Cote’ Ivoire

-0.04 -0.93 -0.70 -1.52 0.01 -1.39 1 1

Kenya -0.36 -0.07 -1.01 -0.98 -0.41 -0.60 2 2Nigeria -1.13 -0.62 -1.42 -1.12 -1.35 -0.98 0 0South Africa

0.04 0.53 0.16 0.12 0.60 0.75 6 6

France 0.76 1.25 1.51 1.40 1.79 1.54 4 4United Kingdom

1.48 1.79 1.77 1.68 2.04 1.74 6 6

                 

CBN Financial Inclusion Targets

Financial Inclusion: IssuesFinancial Inclusion Stakeholders: Providers,

Enablers and Supporting Institutions (Key stakeholder is missing!)

Financial Inclusion Barriers- Demand-side, Supply-side and Regulatory (Not the underlying barriers!)

40m deciding for over 100m(Democracy or Autocracy!)

Because of Kenya, Brazil, Chile and Mexico

Financial Inclusion: IssuesThe approach is like a team of medical

experts (stakeholders) that prescribe a medication (financial inclusion strategy) for a patient (financial excluded Nigerians) without questioning the patient to understand the nature of his specific ailment (reasons for not using the formal banking sector) just because the same medication was used on other similar patients (Kenya, Brazil, Chile and Mexico) (Ngwu, 2014)

Real Reasons for the Unsustainable Outcomes

Given the peculiar nature and level of institutional development in Sub-Saharan Africa, the economic and legal systems are not very suitable

The adopted legal systems are not understood, accepted, internalised and obeyed, why?

Limited benefits of the formal banking system (only instrumental with no intrinsic benefit)

Lack of Social Capital (Trust) which cannot be created through more regulation

English legal development appears as a historical continuum. There is no obvious rupture, no wholesale wiping out of legal wisdom of centuries and no division of the law into a pre-and post-revolutionary era. In English law the present is never completely shut off from the past and its historical roots are easily perceived (Chrimes, 1965: 8).

Out of hard and bitter experience, Englishmen had come to learn that the remorseless, incalculable power of the past over the present was not to be dispelled by the strivings of a single generation. From 1660 onwards, England was never again entirely to forget that the secret of a nation’s strength is to have the power of the historic past behind it, not against it (Caenegem 1986: 158)

Informal Banking in AfricaIt is characterized by financial innovation,

reciprocity and consistent ways of reducing transaction and information costs for the customers

• The informal finance sector should serve as a role model to the formal financial sector in some of the above distinct features ( Adams, 1992; Barton, 1977).

• But what regulates the informal finance sector and how?

Informal Banking in AfricaSeveral studies have shown the

pervasiveness of rural informal financial intermediation in Nigeria despite the tremendous energies and resources devoted to promoting modern banking practices and government-funded credit schemes in rural areas. This is an indication that these informal financial intermediaries apparently play unique roles, do unique things or do things in unique fashion and/or use unique principles and strategies (Siebel, 2004: 235)

Regulation of the Informal Banking Sector

Informal Finance Sector is regulated by social normsCooter (1997:1) defines social norm as:

A rule that is neither promulgated by an official source, such as a court or a legislature, nor enforced by the threat of legal sanctions, yet is regularly complied with (other wise it wouldn’t be a rule).

Informal Regulatory Mechanisms

Multilateral Reputation or Punishment (better rating agencies and effective disclosure mechanism?)

Nature of informal corporate law: well understood, accepted, internalised and obeyed. Every financial agent is treated like sole proprietorship with unlimited liability

Inherent training within traditional families and society

Theoretical orientation of informal regulatory mechanisms- New institutional economics theory

Social Capital: Integration and linkage in bottom-up dilemmas of development

High Anomie Social opportunity

LINKAGE(Extra-community networks)

Low ‘Amoral individualism’ ‘Amoral familism’

Low High

INTEGRATION (Intra-community ties)

(Woolcock, 1998)

Social Capital: Organizational integrity and synergy in top-down dilemmas of development

ORGANIZATIONAL INTEGRITY (Corporate coherence and capacity) Low High

Low Anarchy Inefficiency, ineffectiveness (Collapsed states) (Weak states)

SYNERGY (State-society relations)

High Predation, corruption Cooperation, accountability (Rogue states) and flexibility (Developmental states)

(Woolcock, 1998)

Creating Sustainable Development/BankingFor sustained economic development, then,

the interaction between “top-down” and “bottom-up” must therefore be a dynamic one: in case of bottom-up development, intensive extra-community ties(integration) must begin to coexist with more extensive albeit “weaker” extra community networks (linkage), while at the same time top-down combinations of state-society relations(synergy) must coexist with cohesive corporate ties (integrity) (Woolcock, 1998: 180).

Way Forward (Long Term)A new regulatory framework deriving from

New Institutional Economics is requiredA regulation based on robust synergy of both

formal and informal Sub-Saharan African institutions

Effective integration of the African informal laws (norms) into the adopted formal laws to create a culturally oriented legal system

Creating intrinsic benefits for using the formal banking sector

Development and sustenance of social capital oriented society

Short Term: Micro → Macro CSR Using Education to enrol about 1million youths into

the formal banking sector (via informal bank managers)

Using Agriculture to enrol about 1million rural farmers into formal banking (via informal bank managers)

The banks should recruit, train and sponsor teachers that will teach courses such Entrepreneurship, Financial literacy, Law and human rights in primary, secondary and tertiary institutions

Regular training of Nigerian Police and other security agencies in Law and Human rights

Building a packaging centre near our international airports for export of agricultural products to the rest of the world (starting with Europe and USA)

ConclusionReliance on adopted economic/legal systems is

inadequate and unsustainableAppreciation of the state of both formal and

informal institutions before policy adoption is pertinent

Strengthening formal prudential regulation with informal regulatory mechanisms is advocated and crucial

Creating a social capital oriented societySUSTAINABLE DEVELOPMENT/BANKING!