The dawn of the new decade promises positive strides for financial sector development in Africa. On 20th January 2020, the UK Government revealed a 5-year £320 million aid package to growth in the sector across the continent. The package will be released to the Financial Sector Deepening (FSD) Network, a nine-member alliance of financial sector development programmes, as additional funding for its nine existing programmes and to set up and scale new FSDs in high-priority markets, including Ethiopia, Ghana, Sierra Leone and the West African Monetary Union. Announcing the package, then UK Secretary of State for International Development Alok Sharma, commended Africa’s substantial investment potential, noting that many African countries have been outstripping global economic growth in recent years. Sharma said her Majesty’s Government wants investors ‘to seize the exciting opportunities that Africa offers’. This entails significant investment for Africa that has the potential to lift millions out of the cycle of poverty….and this is just what the FSD network aims for!!
The FSD Network has called the commitment ‘an important new approach’ that aims at addressing the entire system of finance from savings groups to capital market development. The ultimate goal of this ambitious post-Brexit investment is to boost economic growth and reduce poverty at scale. It is also a signal of intent that the UK is serious about trade, business and investment with Africa. Quintessential of this assertion is the fact that this announcement was made ahead of the UK-Africa summit in what Sharma says will ‘turbocharge’ UK-Africa relations.
So, what does this generous commitment mean for Africa?
The package will enable the FSD Network to employ a comprehensive, integrated approach to financial market development that is needed for the continent to achieve the Sustainable Development Goals. With these resources, the network will work towards developing financial solutions that benefit individual households, small businesses and agriculture to address the opportunities and challenges faced by Africa’s economies. This will mean applying the full spectrum of finance to address global challenges on the continent such as climate change, whose impact continues to influence the continent’s rain-dependent agriculture harshly.
Farming has always been reliant on the weather, requiring a careful mixture of sun, warmth, and rains to grow produce. In Africa, these growing cycles used to be predictable but are now at risk from climate change, and smallholder farmers, whose basic survival depends on their fields, are most affected. The UK Aid package will enable the FSD Network to invest in climate change finance that safeguards farmers across the continent through, among other initiatives, agriculture insurance.
This investment in agriculture is especially promising for Zambia’s agriculture portfolio that rests on the shoulders of an estimated 1.6 million smallholder farmers. FSD Zambia CEO Betty Wilkinson, has said her organisation will utilise its portion of the resources (£22 million over 5 years) to expand support to the extension of appropriate agriculture solutions to smallholder farmers in Zambia, in light of climate change. This will build on the organisation’s contribution to the weather index insurance scheme for the nearly 1 million farmers under the Farmer Input Support Programme (FISP). In spite of many challenges over the past two years, weather index insurance has demonstrated real potential to indemnify farmers whose crops are at the mercy of irregular weather patterns. Mary Makulupila, a grandmother and sole caregiver to eight children from Kalumbila, North-western Province, says the farming inputs she received as pay-out after massive floods washed away her maize during the 2017-2018 farming season saved her household from starvation.
In addition, Ms. Wilkinson, who is also Chair of the FSD Network Council, has pledged that FSD Zambia will use the funds to deepen work with the Ministry of General Education on introducing the Financial Education curriculum from grade 1 to 12. This is a very significant step in growing a generation of financially capable Zambians who have the knowledge, skills, and confidence required to make and exercise money management decisions that have the best impact on their lives. Financial education in schools is crucial for introducing positive financial habits during formative ages and endowing students with vital expertise that can guide their financial decisions throughout their lives. Students who undergo financial education as children are more likely to grow into responsible adults who contribute positively to the economies of their society. To put this into perspective, according to a World Bank report in Zambia where financial capability levels are low, only 50 per cent of adults save money, and nearly two-thirds are in debt. The Government recognises the importance of financial education in schools and identified financial education for children and youths as a priority programme in the National Strategy on Financial Education II (NSFE II).
FSD Zambia also pledges to invest the UK Aid commitment in its Savings Groups model that has so far established 8,000 groups saving nearly ZMW 100 Million per month! Evidence shows that savings groups enable both learning and economic empowerment for low-income households and individuals, especially in rural areas. They have been recognised as the entry point to formal financial services for low-income families. They are recommended as the gateway to achieving the National Financial Inclusion Strategy goal of 80% financial inclusion by 2022. The next five years (and beyond) of financial sector development are poised to be very exciting and impactful for Zambia. With institutions like FSD Zambia investing in financial inclusion that transforms lives, we are edging closer to a country where every citizen is financially healthy and contributes positively to national priorities.
(The author is an international communication specialist heading the communications unit at Zambian Financial Sector Deepening (FSD Zambia))