The Bank of Botswana Governor, Moses Pelaelo has bemoaned small, fragmented financial systems and the snail paced development of the local banking sector despite the country’s macroeconomic and financial stability.
Speaking at the Botswana Stock Exchange Limited (BSEL) opening bell ceremony recently, Pelaelo said though the local financial sector is comparable in size to other countries in the region, it remains relatively smaller and less developed compared to that of its middle-income peers.
“Financial systems remain mostly small, fragmented and un-diversified, providing only limited services to an exclusive section of the population at a relatively high cost,” said central bank governor.Though trailing behind peers, over the past ten years the local financial sector has expanded rapidly, both in size and the range of services covered.
“In this period, cumulative growth of the financial sector, in real terms, has been almost exactly 100 percent, compared to 52 percent for the economy as a whole,” said Pelaelo.However, Pelaelo highlighted that legitimate and desirable developments in financial services may be held back, discouraged, or even halted by either over regulated or outdated regulation.
He said clear leadership, guidance and consultation on the desirable direction for the development of the financial sector includes reforms to the regulatory environment. “The Bank of Botswana strongly advocates for the updating of the Financial Sector Development Strategy, which is now two years past its end date of 2016,” said Pelaelo, adding that the central bank is aware that the key legislation is out of date or missing.
The governor highlighted that consultations are on-going between the Banking Committee, Botswana Financial Markets Committee and the recently established Financial Stability Council to help spur innovation and development of the sector.Meanwhile, Pelaelo said central bankers must also do their part to avoid the risk of what might be termed ‘reckless conservatism’, and embrace opportunities that not only meet customer needs but also, in many instances, reduce systemic risks.
He said where practicable, there should be some scope for easing the burden of regulations to allow innovations to be tested. Citing “sandboxes” and other proof of concept frameworks, adopted by countries such as Singapore, Indonesia, Canada and South Africa, Pelaelo believes small scale experiments under live conditions while being exempt from some legal requirements to keep down start-up costs and remove constraints on innovation can be initiated.
Pelaelo highlighted that the South African Reserve Bank, working alongside commercial banks, recently successfully led the ‘Khokha’ project to test the viability of distributed ledger technologies (DLT) for processing wholesale interbank payments.