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 Infobriefs reports on ongoing operational, economic and sector work carried out by the World Bank and
  its member governments in the Africa Region. It is published periodically by the Knowledge Networks,
                        Information and Technology Center on behalf of the Region.




       Reforming State-Dominated Banking Systems in Africa: Financial
               Adjustment and Technical Assistance Programs


Objective of reforms: Improve the capacity of financial institutions to serve the needs of
economic agents and the population at large.
In Côte d'Ivoire, downsizing, reorganization and (as required) privatization/liquidation of key
banks and insurance companies, in the early 1990s led to the establishment of a more efficient
and competitive banking system.

In Benin, all state-owned commercial banks were liquidated in the late 1980s, leading the way to
the emergence of a strong network of private banks serving urban areas, and of grass root-based
institutions serving people in rural areas.

Other success stories include reforms in Ghana, Madagascar and Malawi .

On the other hand, efforts undertaken in Tanzania in the late 1980s and early 1990s to
restructure the banking system met with failure. Continued fiscal disequilibria, lack of political
commitment behind the privatization of the state-owned National Bank of Commerce (NBC),
and lack of clarity on the appropriate strategy to carry out such privatization have left Tanzania
with well over 80 percent of banking assets held by NBC and with well over half of the loan
portfolios of NBC and other state-owned banks non-performing.

Lessons learned:

The "bleeding" of state-owned banks needs to be stopped immediately by preventing them from
extending yet more loans to delinquent state-owned enterprises and other "protected" borrowers.
The extent of the problem must be precisely determined by carrying out external audits of
impaired financial institutions. A time-bound program involving, as needed, the privatization of
viable institutions and the liquidation of non-viable ones must be mutually agreed on by the
various actors. A realistic sharing of the costs involved between the various participants in
impaired institutions government, creditors, as well as depositors needs to be arrived at.

A clear consensus between the concerned parties and strong government commitment are vital to
ensure effective reform implementation. Sound macro-economic policies are essential to
establish confidence and attract private capital, including foreign banks into the sector.

For more information on this specific study or copies, contact P.C. Mohan, Rm. J3-165,
Knowledge Networks, Information and Technology Center, World Bank, 1818 H Street NW,
Washington D.C., 20433. Tel. (202) 473-4114 or INTERNET at: pmohan@worldbank.org

Key Documents on the Financial Sector

Financial Systems Development:

Paul A. Popiel, Financial Systems in Sub-Saharan Africa, Discussion Paper No. 260, World
Bank (1994).

Roland Tenconi, African Banking Systems in the 1980s and Early 1990s, World Bank mimeo
(1992).

V. Sundararajan and Tomás J. T. Balíno, Banking Crises: Cases and Issues, International
Monetary Fund, Washington D.C. (1991).

The Strategies and Role of Multinational Banks in Africa, AFTPS Division, World Bank
(1995).

Venture Capital: Lessons from the Developed World for the Developing Markets, IFC
Discussion Paper #13 (1992).

Policy Framework:

World Development Report 1989: Financial Systems and Development, World Bank, pub.
by Oxford University Press, New York (1989).

World Bank Policies Guiding Financial Sector Operations, Report to the Executive Board
(1991).

Operational Directive 8.30: Financial Sector Operations, World Bank (1992).

James Duesenberry and Malcolm F. McPherson, Monetary Management in Sub-Saharan
Africa - A Comparative Analysis, Consulting Assistance on Economic Reform, Discussion
paper No. 7, draft Harvard Institute for International Development, Cambridge, MA (1991).
Interest Rate Deregulation, a DEC Policy Review Note (1994).

Micro-finance Development:

The Informal Sector and Micro-Finance Institutions in West Africa, edited by Leila Webster
and Peter Fidler, World Bank (preliminary version, September 1995).

L. Webster et al, World Bank Lending for Small Enterprises 1989-93, Private Sector
Development Dept., World Bank (1995).

M. Otero and E. Rhyne, The New World of Microenterprise Finance, Kumarian Press,
Hartford, CT. (1994; tel. 1-800-289-2664).

R. Christen, E. Rhyne, and R. Vogel, Maximizing the Outreach of Microenterprise Finance:
The Emerging Lessons of Successful Programs, IMCC (Arlington, VA) on contract with
USAID, draft, September 1994. [CAMEL analysis of 11 leading micro finance NGOs and
village banks, including ACEP (Senegal), BRK (Niger), and Kenya Rural Enterprise
Programme.] (*)

Women's World Banking, Missing Links: Financial Systems that Work for the Majority,
Women's World Banking, New York, draft paper presented to Global Policy Forum, India, April
1995. (*)

Women in Finance and Enterprise Development, World Bank, ESP Discussion Paper #40
(1994).

The Right to Borrow: Legal and Regulatory Barriers that Limit Access to Credit by Small
Farms and Businesses, Note #44, Private Sector Development Department, World Bank (1995)

J. Levitsky and R. Prasad, Credit Guarantee Schemes for Small and Medium Enterprises,
World Bank Technical Paper #58 (1990).

Sacay, Orlando J. and Bikki K. Randhawa, Design Issues in Rural Finance, World Bank
Discussion Paper No. 293, 1995.

Micro and Small Enterprise Finance: Guiding Principles for Selecting and Supporting
Intermediaries, Committee of Donor Agencies for Small Enterprise Development (1995).

E. Rhyne and S. Holt, Focus notes published by the Consultative Group to Assist the
Poorest, located at the World Bank.

Bibliographies or series of studies in the area from other organizations.(e.g., USAID
GEMINI studies: available from PACT Publications, 777 United Nations Plaza 6th Floor,
New York, NY 10017 (*) Draft documents (not published).
World Bank staff on the Enterprise Network can access more examples of Best Practice as well as
information on the work done by the Africa Region on Financial Sector by accessing the Region's
Financial Sector Home Page. To access this page click on Netscape. Under "location" type http://afr to
get to the Africa Region's Home Page. Then click on Best Practices and select Financial Sector.

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FINDINGS and Best Practices Infobriefs by clicking on either Publications or Country/Project
Information