By: Josef Kefas Sheehama
A stable and well-functioning financial system contributes significantly toward balanced and sustainable economic growth. The Bank of Namibia has developed a macroprudential toolkit used to address the build-up of risks and vulnerabilities.
An analysis of the current status of Namibia’s financial system shows that although the system is sound and well-functioning, there are weaknesses that need addressing to enable the financial sector to contribute more meaningfully to the overall performance of the country’s economy.
The Namibian economy experienced positive growth of 2.4 per cent in 2021. It is also projected to pick up to 3.4 per cent in 2022 and 3.7 per cent in 2023, according to a Bank of Namibia and NAMFISA joint media report. The Bank of Namibia has the mandate to protect and enhance financial stability. It monitors the environment and mitigates systemic risks that might disrupt the financial system.
In Namibia, banks have well-developed systems that positively influence the impact of the banking sector on the growth of the Namibian economy. In the present era, there is a lot of competition taking place in the banking sector. Every bank is trying to compete with another bank and wants to take a higher position in the economy. This is all due to competition. Every bank is trying to compete with others by offering the latest products and services and providing maximum facilities to their customers. This is so that customers do not divert to another bank and only deposit with that bank. This increases the bank’s profitability which generates surplus money to lend.
The world over, many economies have undergone various types of reforms. This enables them to cope with the changing economic cycle’s developments and challenges. Namibia is no exception.
Bank of Namibia has made considerable progress in reforming banking regulations and supervisory processes. The Bank of Namibia’s reformation strategy helped the financial sector integrate with global markets. Innovation leads to the adoption of more sophisticated financial products, and the importance of non-bank financial services is increasing.
These improvements contributed to the resilience of Namibian banking systems during the global financial crisis and led to higher capital ratios, stronger profitability, and higher liquidity among African banks.
The far-reaching reforms have created a conducive environment for expanding access to banking and non-bank financial services. However, the deepening of the banking sector in Namibia also comes with additional risks emanating from new product and service offerings, more complex financial markets, regional financial sector integration and deeper links with global financial markets.
Indeed, banks are therefore likely to be subject to more volatile capital flows, heightened credit risk, and liquidity risk.
Banking sectors are the most sensitive institutions in the financial system and therefore need the most attention from the regulatory bodies to achieve the economic objectives. In an attempt for Namibia’s economy to integrate with the global economy, various reform programmes have been introduced in the banking system. Thus, banking reform in Namibia is an integral part of the country-wide reform program undertaken to reposition the Namibian economy to achieve V2030.
The role of financial inclusiveness in increasing community equity and poverty alleviation is to open the broadest possible access to financial services for the community, especially the lower class as the unbanked group.
Inclusive finance is running a financial business that must be empowered to improve people’s lives. The financial sector is one of the most effective ways to reduce poverty levels in Namibia. The financial market is the heart of the economy which contributes to economic prosperity.
Moreover, financial inclusion is an essential component of social inclusion and economic inclusion, promoting economic growth, creating financial system stability, supporting poverty reduction programs, and reducing inequalities between individuals and regions.
An inclusive financial system is realised through people’s access to financial services so that it can increase economic capacity and ultimately open the way out of poverty and reduce economic inequality. The growth of the financial sector in Namibia has not been accompanied by adequate public access to financial services.
Financial inclusion also affects income inequality in Namibia, where an increasingly inclusive banking sector can create equitable growth so that income distribution will also be more even. People who initially did not use banking services then accessed and used repair services had the opportunity to improve their living conditions. Increasing social welfare has contributed to economic growth.
Furthermore, low-income people still do not need banking services and products because they do not have enough money. They also have no permanent job and are still unemployed, there is no benefit from the bank, and they do not need credit, do not have collateral to borrow, and cannot pay instalments on loans. There is still a sense of distrust and discomfort with the banking sector. The second party manages the money they have, the perceived transaction costs, and there is insufficient knowledge of banking products and services. This condition causes the failure to achieve financial inclusion among poor or low-income people.
In the future, inclusivity needs to be fully built into any customer-facing design, be that products, services or the marketing that companies do.
Although recent drives in the financial services sector have been towards more digital ways of operating, combining the digital and the human is extremely important for designing for inclusivity and diversity.
Forward-looking businesses are pushing towards a model that combines the digital and the customer-centric, with data and analytics shaping the vision and strategy. This means that data and technology are put at the core design of enabling organisational strategy and governance, with strategy, operations and risk management designed and executed in tandem, all focused on positive customer experience and avoiding customer friction.
In conclusion, financial sector reform has made significant positive contributions to some aspects of economic growth and development. This does not mean that the economy recorded an all-around good performance. Economic development, which the reform triggered without a corresponding increase in economic growth, means something is wrong.
Either the reform is not properly carried out, the enablement for its success is mismanaged or misappropriated, or there is a failure in the oversight function of answering authorities.
Thus, implemented reforms have not significantly moved our economy as one had expected. Some of the reforms are unnecessary or maybe ill-timed as the reform exercise badly hurt some economic growth and development dimensions.
Therefore, banking as a financial institution is the main driver for implementing financial inclusion.
Both the government and banking sector actors are working together to increase access and use of banking services by increasing every dimension of financial inclusion.
Banking penetration can be increased by encouraging people to save. The government should provide understanding to the poor or underprivileged people on the meaning and benefits of financial inclusion, both the benefits of savings and credit, so that the poor or disadvantaged can run government programs and indirectly can alleviating poverty and equal distribution of society.
