04 Mar 2013

Member of Parliament for Shoshong, Mr Phillip Makgalemele has requested government to develop innovative ways of attracting banks to rural areas as a strategy to boost rural economic development.

Presenting the motion on Friday, Mr Makgalemele said the banking sector played a crucial role in any economy by providing financial intermediation and payment services.

Through such services, he said banks enabled efficient allocation of savings and investment while financial transactions also took place at minimum cost.

He added that ensuring that access to finance was widespread could have benefits in terms of poverty reduction and income distribution while there were also many benefits that could flow from overcoming obstacles and reducing high costs that the poor often faced in gaining access to financial products and services.

Mr Makgalemele regretted factors which he said frustrated efforts of attracting banks to rural areas. He noted that before banks could decide on where to set up, they consider a lot of factors such as profitability, access, pricing as well as risk.

Other factors, he said included the absence of provision in the Bank of Botswana regulations for registration of community banks while most banks considered rural areas as non-profitable.

Also, he said there has never been any deliberate and precise move to attract banks to rural areas as well as limited infrastructure.

However, the MP said there were some positive developments on the challenge of attracting banks to rural areas such as the merger of Botswana Savings Bank (BSB) and BotswanaPost, the success of Savings and Banking Cooperatives, the setting up of the Non-Banking and Financial Institutions Regulatory Authority (NBFIRA).

He added that the enhanced focus on rural development – the escalation of the Rural Development Council chaired by the Vice President demonstrated such commitment, mobile banking as well as increased Automated Teller Machines (ATMs).

Nonetheless, he was concerned about some factors on access to financial services in rural areas saying characteristics of un-banked and limited ability to afford bank charges above a low level meant that commercial banks were effectively with information which they can use to avoid setting up in rural areas.

To that effect, he said innovative approaches and replication of best case studies were therefore required from all stakeholders.

Also, he said there was a perception that banking services were good among urban and waged population but poor in rural, unwaged and low income population.

Consequently, Mr Makgalemele suggested fast tracking the merger of BSB and Botswana Post while the entity should be encouraged to be creative and partner with other banks to bring their services to rural areas.

He also proposed establishing the extent to which policies could creatively motivate banks to set up in rural areas as well as encouraging community banks and promoting rural areas as investment destinations of choice while also ensuring that the envisaged roll out of economic zones prioritised rural areas.

Again, he said a deliberate move to market rural areas through foreign missions could be done with the intent to boost their economies.

That, he said should be preceded through by some scientific research on comparative advantages presented by rural areas in eco-tourism, agriculture and renewable energy, among others.

He also suggested that academic institutions could be encouraged to help with research on the topic and also replicate a case study which was rolled out by the University of Botswana’s Student in Free Enterprise (SIFE) which he said demonstrated the importance of banking with the focus on the un-banked market.

He also noted that institutions such as BIDPA could help undertake necessary research to boost the effects while the Botswana Stock Exchange could be requested to repackage the venture capital product with the aim to make it help in growing the Savings and Banking Cooperatives and community banks. ENDS