AfBD acts to boost NBFIRA capacity

Brian Benza
Staff Writer | Friday July 22, 2011 00:00

 

Established in 2008 under the framework of the National Development Plan 10, NBFIRA still lacks the regulatory and technical expertise necessary to fulfil its mandate of positioning Botswana as a financial services hub of southern Africa.

Botswana's non-bank financial services sector consists of pensions, insurance, micro-lenders and capital markets players like stockbrokers. The objective of the proposed project, whose start date is in September, is to support NBFIRA in implementing a Risk Based Regulatory Model (RBRM) in line with international best practices.  The model will not only see NBFIRA providing effective regulation but also achieve financial sustainability and independence. NBFIRA needs to unlock independent funding from the private sector as the Act indicates that it should be financed through fees levied on the regulated industries. For the financial year 2011/2012, NBFIRA faced a deficit of over P49 million and has proposed to raise approximately P28.6 million from the industry through fees and levies. According to an AfDB project blueprint, experts will be provided to assist in designing the model, providing the necessary operational procedures, training and IT systems.

The project, which will be carried out by two consulting firms, will see NBFIRA adopting risk based supervision of the industry after concentrating mainly on compliance based supervision and market conduct since its inception. 'The first consulting firm will develop and support the implementation of a risk based regulatory model for pensions, life insurance, general insurance, the securities market, collective undertakings and all other capital market participants,' says a document on the project.

'It will calibrate the model for Botswana, propose changes in NBFIRAs operations to implement the RBRM, make recommendations to guide the relevant legislation, document the systems, processes and procedures, train existing staff in class and on-the-job, and prepare training manuals, in particular for new employees.

'The firm will also support the development and commissioning of an IT system designed to support the implementation of the RBRM. This involves developing specifications for the IT system. A second consulting firm will be recruited to design and deliver the IT system.'

AfDB has carried out similar projects in countries such as Mauritius and Namibia. Implementation of the project is expected to cost about P6 million, 95 percent of which will be from AfDB and the rest from government. AfDB believes that if Botswana is to achieve its goal of becoming a regional financial hub, the development of the Non-Bank Financial Institutions (NBFI) sector, which has grown considerably over the past five years, must play a central role.

Pension funds have become one of the most important segments of the financial system, following the creation of the Botswana Public Officers Pension Fund (BOPF) that has assets in excess of $4.5 billion while the asset management industry is roughly 40 percent of all the assets of the various non-bank financial services and is estimated at over US$4 billion as at the end 2010.

 With combined assets of about $4 billion, the insurance industry (which consists of short-term and long-term insurance) and the medical aid fund industry are also gaining prominence.

The Botswana Stock Exchange had a market capitalisation as at December 2010 of $54 billion.

NBFIRA will be the executing agency for the project.

CEO Oaitse Ramasedi will be the Project Coordinator and will take overall responsibility for the final outcome of the project.

The Project Team will include senior staff from the departments of capital markets, insurance, pensions, and IT.

The blueprint also says the office of a Financial Services Ombudsman is being envisaged for the appeals system to be completed.

'The small size of the market in Botswana means that a number of the specialised offices have to be combined into one office of the Financial Services Ombudsman which will cover the entire NBFI sector,' says AfDB. 

In South Africa, for example, there are separate offices for the Pension Funds Adjudicator, Life Insurance Ombudsman and Short Term Insurance Ombudsman where the public can raise complaints free of charge.

There is currently no appeals tribunal to review any NBFIRA rulings. 'Normally, when a regulator issues a ruling, the applicant or complainant should have access to an appeals tribunal headed by a retired judge or legal expert to hear and make a call regarding the correctness of the Regulator ruling,' adds AfDB. 

'As the regulatory system stands, if anyone wants to challenge the actions of a regulator, for example, they have been denied a license or have been fined, there is no obvious safety valve before the courts.' 

Apart from the NBFIRA project, AfDB has also sponsored about 14 projects in Botswana, which include the Mining and Diversification Study, the Educational Standards and Technical and Vocational Education and Training (ESTVET) and the Economic Diversification Support Loan.