Banks can bend their way around disruptive trends without breaking

Tuesday August 03 2021
East African Community Banks

Closer home, regional integration efforts particularly the East African Community have borne fruits with banks extending their reach across the region. ILLUSTRATION | JOHN NYAGA


The world has been struggling with the ravages of the Covid-19 pandemic for one-and-a-half years and it is also at the cusp of the Fourth Industrial Revolution, whose transformative powers are already evident in the financial sector. This revolution will transform the way we live, work, and relate to one another.

Both these elements portend stormy times, for our way of life, society, families, and the institutions that we represent. But how should we react? We can attempt to stand firm, unyielding against these perils, and fully aware that they may destroy us. Or we can accommodate some of the pressures with the grace of a palm tree, and build back better—bend, but don’t break. Let me set the stage by highlighting three disruptive trends in the current global context.

First, the entrenchment of globalisation. This product of the third industrial revolution has redefined the terrain for governments, businesses and citizens, shortening distances and brought together disparate people in common markets. Global supply chains have overhauled the traditional manufacturing and production processes with resultant efficiency gains. Markets have increasingly opened up allowing businesses to expand their global footprints.

The absence of a navigable route to the sea for Uganda and other landlocked countries need no longer be a handicap to economic development. Closer home, regional integration efforts particularly the East African Community have borne fruits with banks extending their reach across the region. The imminent operationalisation of the African Continental Free Trade Area is expected to create an Africa-wide market with resultant benefits from economies of scale.

Second, is the proliferation of innovations and new technologies. From mobile banking to cloud computing, artificial intelligence to blockchain technology, internet of things, and robotics, all heralding significant opportunities to re-engineer the operations of governments and business and transform lives and livelihoods.

Even before the Covid-19 pandemic, digitalisation had transformed the African financial sector landscape. In Kenya, we had seen access to financial services triple from 26 percent of adults in 2006 to 83 percent in 2019. These transformational financial inclusion stories riding on digitalisation were replicated across the continent including in Uganda, Tanzania, Rwanda and Ghana.


Undoubtedly, digitalisation has been the silver lining during this pandemic. With the various containment measures, digitalisation has enabled access to not just financial services but also other essential services including health and education. E-commerce has exploded as businesses pivoted to the digital marketplace. Workplaces have changed with a shift to working-from-home on a scale that was unimaginable before the pandemic.

Third, is the rise of sustainability concerns. It is now widely appreciated that businesses can only be as successful as the societies they operate in and draw their existence from. Environmental, Social and Governance considerations are now paramount in any organisation’s strategy and operations. Most notably, the adverse impact of climate change has become evident. In the last few weeks, once-in-a-millennium floods have ravaged Europe, while heatwaves and bushfires have scorched the western parts of the US.

In these circumstances, the urgency to meet targets to reduce greenhouse emissions under the Paris Climate Agreement has been amplified. Significant financing will be required as the world moves to mitigate and adopt to climate change. Will banks rise to this challenge?

Let me identify the walls we must navigate around in three areas.

First, we must not forget that it is all about people. While Returns On Equity (ROEs), Price-Earnings (P/E) ratios and the bottom-line are easy clutches, people-centricity must be at the heart of products, services and operations of financial institutions.

Supporting the recovery process will be at the heart of banks that will thrive in the new age. Targeted financial services to Micro, Small and Medium Enterprises (MSMEs) and other vulnerable groups particularly women and the youth will be imperative. This will need to be supplemented by finance plus, particularly in the form of business advisory services, as MSMEs pivot their business models to fit in the new normal.

Second, innovation presents opportunities but also risks. How do we maximise opportunities while minimising risks? Emerging technology including Artificial Intelligence is a goldmine in building credit profiles and enhancing access to financial services for segments of our populace with thin credit files and who lack collateral. For financial institutions saddled with moribund ICT legacy systems, the cloud presents an opportunity to upscale to the anytime anywhere cutting-edge financial services platforms demanded by today’s discerning customers.

Even as we reap from innovation, we must remain alive to the risks. In the region, we have seen an upsurge in online scams, identity theft and social engineering attacks. We must therefore reinforce our cyber defences internally to neutralise the insider threat. Externally, as a financial sector, we must build a circle of trust, nationally, regionally and globally to share information and co-ordinate our cyber responses.

Third, strong governance should underpin the culture in banks. This goes beyond the classical tenets of an effective board, management and staff with clearly defined responsibilities and accountability. Governance in the age of the fourth industrial revolution would also be about the public good, for instance, supporting appropriate behaviour in the financial markets. Appropriate market conduct is therefore imperative to avoid short term profitability gains jeopardising the long term societal good.

Dr Patrick Njoroge is the Governor of Central Bank of Kenya