By: Samuel P. Jackson, Global Economic and Financial Consultant
Ever wonder why foreigners in Liberia can fund large projects such as infrastructure, mining, agriculture, hotels and conduct trade finance seamlessly? They’ve created a parallel banking structure that includes money transfer, trade finance and gained access to the global financial system of credits and deferred payments. They don’t need the banks in Liberia except mostly as depositories for operational funds.
Let me explain. Banks provide three basic services. Safety, liquidity and income. Safety so no one can steal your money. Liquidity meaning ready access when you need your money and they give you some income if you keep your funds in savings or money equivalents such as time deposits, money market funds or investable securities.
In Liberia, banks don’t provide these services efficiently. Many people lost their monies due to banking failures in the past, had no access to their funds recently like two years ago when banks were illiquid and the returns on savings and investment accounts are minuscule.
With such limited services in the country’s banking system no wonder then that the economy doesn’t take off and provide real income and wealth to its citizens. The limitations in financial services restrain economic growth and development.
If Liberia is to achieve sustained economic growth, the Boakai administration must build upon the measured but significant improvements in the country’s financial system over the last 2 years. Liquidity has returned to the banking system due to growth in electronic transactions such as mobile money and debit card payments. More than 2 billion dollars in the circular flow. We can do more to reach 90 percent of GDP to be intermediated by electronic payments. In Kenya more than 90 percent of payments are conducted by MPESA and other forms of electronic payments. Electronic transactions are the low hanging fruits to improve access to banking. Moving the unbanked to banks. Financial egalitarianism.
The challenge is how to develop a more responsive financial system by creating credits in the banking system. Banks must provide credits to grow the economy. Cash and carry, dependence on income alone cannot effectively grow an economy. Banks must create products that provide consumer credits. Automobile financing. Home mortgages. Household credits for furniture. A housing boom and automobile ownership are signs of a growing economy and move into a middle income country. Doable in 6 years!
Banks must create products that support expansion in businesses. Credits to agriculture. Currently only 4 percent of banking credits go to agriculture. Equipment leasing to farmers. Tractors. Combines. Harvesters. Then provide services to finance inventory and factor receivables.
But none of these can be fully implemented without creating a financial architecture from the foundation. That would mean creating a national identity system. Every citizen, resident or business must be identified. That system would provide banks with the ability to avoid multiple defaults by detecting fraud. A credit reference bureau can then create profiles of consumers and businesses. Much like your Equfax. Transition. Experian. Dunn and Bradstreet.
But wait a minute how does Liberia create a domestic financial architecture without the country itself being credit worthy? That’s where creativity and innovation come in. Liberia needs a sovereign credit rating no matter how low the rating. Liberia needs to know how the international credit ratings and risk profile agencies view us. Moody’s. Standard and Poor. Fitch.
Liberia needs an international financial advisor. JP Morgan. ABSA. Deutsche Bank. Etc. The IMF and World Bank cannot play that role. Development finance institutions (DFI’s) from Breton Woods have little appetite and functionality in making countries credit worthy. That’s not their role. They don’t have the bandwidth. Thus the current Liberian government must begin to create a financial architecture that gradually removes Liberia from perpetual life support on IMF and World Bank programs to full integration into the global financial system.
Imagine Liberia having access to international credit markets. Sovereign bonds. Unsecured import and export financing. Carbon credits. Green bonds. Capital markets. Stocks. Variable products. Wealth management strategies. If it seems too far fetched it is because our brains have become limited to poverty, dysfunction and dependence.
Donor driven. Poor fragile country. Monikers. Appellation. We deserve more. Our potential as a truly great country can only be achieved by thinking and behaving as globalists not parochialists limited to the past of our ancestors. And so, it goes.
NB: Mr. Jackson earned a degree in Banking from Pace University and a diploma from the American Institute of Banking. He worked on Wall Street at Bank of America International, Credit Suisse and Drexel Burnham Lambert. He sat and passed the NASD Series 7/63 exams. He was a trade finance specialist in the merchant banking
