CALLS TO ESTABLISH DEVELOPMENT BANKS

MBABANE - Development banks are the new paradigm for the acceleration of sustainable development.

The Southern African Research Foundation for Economic Development (SARFED) Regional Coordinator, Dr George Choongwa, says in Eswatini, such institutions would create new opportunities and frontiers for accelerated economic growth, while addressing the needs for socioeconomic development for many Eswatini individuals and enterprises. In a statement, the economist said development banks, unlike commercial banks, prioritise the urgency of socioeconomic development and sustainability, more than the profit driven models in development finance. He noted that currently, there were five commercial banks in Eswatini (namely First National Bank, Standard Bank, Building Society, Eswatini Bank and NedBank), three being private while two were public.

Revolving

He said however, the country has promoted the establishment of other financial institutions that operated in the interest of public financing such as FINCORP, the cooperative societies and the Youth Revolving Enterprise Fund (YERF) among others. He said in spite of these financial structures, there was still no development bank yet in the country. Dr Choongwa mentioned that access to funding was one of the most challenging hindrances to socio-economic inclusion and equity, especially among social enterprises in Eswatini. He said while the majority, especially those in the rural community and the unemployed remain unbankable, they were still faced with limited access to funding, hence limiting the rate of socio-economic inclusion and human capital development. He said therefore, the potential of this sector has not fully been explored, especially due to stringent conditions faced by them in accessing funding through the structured or conventional methods given by the commercial banks.

He said apart from providing substantial security as collateral, these prospective beneficiaries are also faced with other challenges such as limited technical support, reduced lead time in borrowing as well as limited investment portfolios among others. Dr Choongwa mentioned that one of the contributing factors to such limitations was what was given in the 2019 Sustainable Development Center for Africa’s report,  which states that most African countries were still faced with wide financing gaps , also an estimate of USD 500 billion which was also more than Africa’s annual collective domestic revenue in total.

Challenges

He highlighted that according to the IMF, the 2023 report on regional economic outlook for Sub Saharan Africa , most African countries are  still faced with challenges of mobilising adequate resources for both quick economic recoveries from the COVID-19 pandemic which also intensified the tightening of international financial conditions, causing a drastic reduction of domestic revenue levels as spending  increased in attempt to mitigate both the health global pandemic and other related effects such as climate change induced ones, causing high debt vulnerability for most countries including Eswatini. The economist said however, with the introduction of a development banking mechanism, both socio-economic and financial inclusion would be enhanced and accelerating the advancement of economic growth, stability and sustainable development in general. He said development banks stimulate higher levels of industrial efficiency as this will reduce the lead time between application and provision of financial support for most clients or beneficiaries.  

Plans

The ripple effect to such developments would be that of stimulating the private sector-led growth, which has at the moment, has been stagnantly characterised with slow growth trends, contributing to the wide spread gap in unemployment and general economic efficiency. He added that while the financial sector in Eswatini remained stable and sound, the country still lagged behind in establishing a development banking system which would enhance the establishment and sustainability of socio-economic frontiers in the country, as this would serve as strategic pathways for the attainment of both national development plans as well as the sustainable development goals. The economist further made recommendations which include implementing a comprehensive approach to build a resilient financial system against economic shocks; identify strategic stakeholders for sustainable investment portfolios; development banking should facilitate capital formation and ownership for the Eswatini populace; and use of the development banking system to establish an economic niche and intensifying economic resilience through development banks.  

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