Andrew Mayen worked in the banking sector in America before he came back home, together with thousands of others, to South Sudan after the 2005 peace agreement. His new place of work is very different. Buffalo Commercial Bank opened in February 2008, the third and newest of the South’s indigenous banks in a very small sector hoping for considerable growth over the next few years. Buffalo, owned by a group of southern entrepreneurs, has dreams of branches across the war-torn South’s ten states and providing southerners with their first bank cards and the South’s first ATM machine, but Mayen knows that it will be some time before that becomes a reality.
Currently, indigenous banks are forced to fly cash around in chartered planes and organize transfers through emails and sometimes satellite telephone text messages after they have been entered in giant, dusty ledgers: there is not much precedent for Buffalo’s envisaged “state of the art” banking.
For Mayen and the Buffalo team, even turning a former furniture shop into their bank’s headquarters was a major achievement. Everything needed to be imported, from laptops to desks, to door handles. Staff with very little previous experience had to be sent overseas for training.
Building new branches in much of the swampy south — without sand or stones let alone cement supplies — is hard work and four or five times as expensive as similar work in East Africa. There are few roads and many of these are unusable during the long rainy season. Without a steady supply of fuel, no generator, no VSAT and business grinds to a halt.
The hard road ahead
These are the kinds of challenges that also have NGOs and government service providers up in arms. Change has been hard, even with the new peace and renewed accessibility. But at Kenya Commercial Bank (KCB) the South Sudan manager John Ndungo thinks that they made a difference to the nascent economy just by appearing, presenting a challenge to the South’s still-large black market in cash. “Everyone was charging whatever they wanted. We stabilized the market by having a stable rate of exchange,” he said.
KCB, with some 40 staff, is the only international bank and is generally perceived as the safest bet for deposits by many southerners and foreigners in the capital Juba. The Kenyan bank has done well out of its time in the South, with $15 million in capital paid up in the Bank of Southern Sudan and around $100 million in customer’s deposits held in its accounts, Ndungo said. Customers pay $10 a month for the privilege of just having an account there, and one percent of any transaction in or out. But despite costs many would consider unacceptable elsewhere, the queue half an hour before the bank opens is sometimes 30 people long. “We have had much faster growth than we expected, now we have more than 3,200 customers,” Ndungo said, adding that the Nairobi-listed bank is looking for larger premises but like other businesses is struggling to find an office or land to purchase.
KCB’s success is partly due to its history in — or rather for — the South. Already stationed in Nairobi’s United Nations headquarters, KCB provided banking for much of the agencies in Operation Lifeline Sudan, the wartime humanitarian effort that was, prior to the peace deal, the world’s largest. When all the agencies moved into the South’s capital Juba it was natural for KCB to come too.
Another bank might find the South, with most of its estimated 10 million inhabitants living with little if any cash, intimidating. But in contrast to many post-conflict African nations, the South has developed oil fields that provide it with up to $1.7 billion every year. Ndungo thinks that with the growing peacetime economy and his bank’s slowly increasing business clients there is room in Juba for more international banks to move in.
But the Kenyan bank has already made sure that it keeps risk down to a minimum. For the sake of sensitivity, all deposits in the southern branch are kept there and are not invested elsewhere. “If people found out that we are investing their money in Kenya for example, they could think we are trying to rip them off,” Ndungo said.
KCB is only now beginning to organize loans, and is proceeding with caution. Under Bank of Southern Sudan rules KCB’s $15 million will have to be invested in the South, or else the bank will pay a $1.5 million fine, the BoSS head Elijah Malok said. “We are telling them now that they have to begin investing here.” But KCB is in no hurry to start spending in the South that many analysts say could return to war with the North at any time. “We have not yet really started investing here, we are still watching,” Ndungo said.
According to Buffalo’s Mayen the bank sees itself as the “people’s bank” but they too are proceeding with caution on lending. “We are not yet giving any loans but that is a priority,” Mayen said. The pressure on banks to provide lending services to cash-starved prospective businessmen and women is increased because so far very little money has been made available for microfinance. The government will add another $1 million (enough for microfinance for around 5,000 people) to the World Banks’ $1 million set aside that BoSS head Elijah Malok called “a joke.” Buffalo has a paid up capital of around $6 million and a staff of around 35. Although its owners will put up more capital over the next years — up to $20 million — the experience of another indigenous bank may caution it to take loans and other investment slowly. Because top rebel leaders were so involved in Nile Commercial Bank’s origins it is often thought of as government-owned. But Acting Managing Director Charles Whyte said NCB is privately-owned with only 5,000 of its 43,360 shares owned by members of the South’s former rebel movement that now leads the semi-autonomous government.
Bailing the ship
Whyte was brought in together with a life-saving injection of cash into the southern bank after it over-spent on loans, many of which could not be repaid. “We lent a lot of money to the public, around 15 million Sudanese pounds, and to state government… which basically bankrupted us,” said one of the bank’s officials in July 2007, adding that NCB had also incurred unaffordable costs while setting up 23 branches across the South. How much cash the bank received is not clear, but BoSS officials said that they expect to have spent $10 million on shoring up the bank’s capital by the end of this year.
Four years after foundation, NCB’s shareholders have capital of around $4.5 million according to Whyte. “We need to expand that rapidly,” he said. Although the 22 branches remaining are expensive, and eat up capital furiously, they are crucial to the bank’s significance as they are often the only way to get cash moved from one part of the South to another bar hand-carrying, still the preferred method for many who sometimes get onto planes with hundreds of thousands of dollars.
But getting money around the country so that these branches work is a continuous struggle, Whyte said. Expensive charter planes — one of which recently crashed in the middle of the South, killing at least 23 people — sometimes cannot fly in bad weather and that means no cash at the other end. Sudden large demands can shake the whole system.
Lending is also problematic. Like many aspects of banking in the South, laws still have not been passed. Over the past three years the southern parliament has passed only some ten laws and has dozens more stacked up, including a land law. “Who owns the land? There are not title deeds, no registry,” Whyte said. “If it is community land, then who can bond or mortgage that land?”
Like other laws, the current corporation law will be re-written as soon as possible. But just like the current labor law and numerous others, the legislation is inappropriate for the South. “The law says that you have to send out a copy of the annual report to every shareholder within 14 days. How can you do that here where there’s no postal service?” Whyte said. But the lack of regulations goes beyond a lack of laws. Like KCB and Buffalo Bank, Whyte said he is running the bank using international best practice.
There are some regulations: as a branch of Sudan’s central bank, the BoSS should be using Khartoum’s regulations. But the South only allows conventional banking and Khartoum’s regulations apply to Islamic banking, explained BoSS head of banking operations Othom Ajak Rago. “We need rules for opening an investment account,” Rago said, adding that at the moment the BoSS plays a more informal regularizing role. “We can ask them, please change your interest if it is too high,” he said.
In banking, as in so much else in the South, the complexities of ‘one country, two systems’ may have provided a political solution but created technical complexities. The ambiguity over current and future regulations and what will be done with them exists because the BoSS is wearing two hats, explained Mayen. “Conventional systems in the South are licensed and supervised by the BoSS. But when it comes to regulations, we are under the Central Bank of Sudan.”
