Founder and Chairman, Africa Initiative for Governance (AIG), Mr. Aigboje Aig-Imoukhuede sat with Prof Peter Tufano, Dean of the Said Business School, in an interactive keynote session at the Oxford Business Forum Africa. He shared insights on human capital development as the solution to Africa’s performance and the role AIG plays in building talent for the public sector among other things.

Capital market, not banks, can resolve high interest rate problem – Aig-Imoukhuede

Frank Eleanya, BusinessDay Newspapers

Double digit interest rate which has been a major problem facing most small and medium scale businesses in Africa could be resolved if asset managers in capital markets, not banks, leverage peer-to-peer lending, says Aigboje Aig-Imoukhuede, founder, Africa Initiative for Governance (AIG) and Coronation Capital.

According to him, banks are unable to offer competitive interest rates to businesses because of the deposit structure of the African financial institutions.

“If you look at the deposit structure of African banks you would find that there is a disproportionate amount of deposit on the short end either in savings demand or time deposit,” Imoukhuede said during a panel session at the Oxford Business Forum Africa on Saturday.

The nature of the products is also responsible for the low earnings depositors receive from banks.

“Most banks in Africa built themselves on a model where you have a large spread between the deposit rate and the lending rate,” he says.

To bring down the lending rate; banks will need depositors or the savers earning a lot more money on their deposits. Imoukhuede said he does not believe banks are capable of offering this solution. However, asset management products are capable of bringing a more sustainable solution because they are more flexible.

“I am not sure it is going to be single digits, but what you want to have is a situation where, because you have a direct relationship between the saver and the investor and the user of money, you bring down the spread,” he said.

Technology can accelerate and scale the process. He sees peer-to-peer having a very different effect as it has had in Europe and the United States of America. Peer-to-peer is defined as when there is a clear situation where an individual who earns probably 3 to 10 per cent on deposited money decides to lend to another at a slightly higher interest rate of about 12 per cent to 13 per cent which is far lower than 23 to 30 per cent that traditional banks ask for.

Imoukhuede’s organization not only plans to play a big role in releasing such products to businesses, it has plans to launch an institution that trains public servants to make the right policies that helps businesses thrive and ultimately engender development. For him, every example of a great economic opportunity in Africa has behind it the right policy context, and behind the policy context is a public servant who has done the right thing.

“Our aim is to provide transformational solutions to Africa’s challenges. Private sector needs a level of extraordinary competence in the public sector for it to thrive and for societal development to take place. This understanding informs the establishment of AIG,” he said.

Businesses on the continent also need the right type of talents. Imoukhuede noted that to build an effective team requires people with complete mastery of subject matter and people with strong local knowledge.

“No matter the amount of available resources, without talent succeeding with the idea of your business it is impossible,” he said.