Abstract
This Selected Issues paper takes stock of poverty in the Democratic Republic of the Congo (DRC). Poverty has receded in the DRC over the last decade on the back of gradual stabilization in the security and political situation, strong economic growth, and sharp decline in inflationary pressures. Most social indicators also improved during the period. However, poverty remains pervasive with a level still among the highest in sub-Saharan Africa, and DRC will likely not achieve any of the Millennium Developments Goals by 2015. Policy actions should focus on fostering the development of labor-intensive sector, increasing social spending, and redirecting public resources to the poorest regions of the country.
Financial Inclusion in the Democratic Republic of the Congo: Performance and Challenges1
The Democratic Republic of the Congo (DRC) has made some headway toward financial inclusion over the past decade. A benchmarking analysis reveals that DRC’s financial inclusion performance is broadly in line with its fundamentals. However, direct comparison with countries of the Southern African Development Community (SADC) shows that the DRC is lagging behind, suggesting that there is scope for further improvements. This calls for increased public efforts to address market failures that impair the use of financial services.
A. Recent Trends
1. Both supply-side and usage indicators point to progress in financial inclusion over the past decade. Indicators of access, such as bank branch and ATM density, as well the number of bank branches and ATMs per 100,000 adults, suggest that financial inclusion has increased over the past ten years in the DRC. A similar pattern is observed for indicators of usage such as the number of depositors and borrowers per 1,000 adults. These trends are illustrated in Figure 1.
2. Better macroeconomic and political environments are the driving forces behind this progress. Indeed, DRC’s economic recovery after a decade-long macroeconomic and political instability, real GDP grew on average by over 6 percent 2004–13, translating into an increase of per capita income of about 32 percent. Inflation fell to less than 1 percent by 2014 from about 21 percent in 2005, benefiting from a prudent fiscal policy stance. Volatility of the exchange rate was significantly reduced. This strong macroeconomic performance together with improvement in the political and security situation provided incentives for banks to expand, and customers to deposit and borrow. Another important contributing factor to this progress in financial inclusion is the “bancarisation” policy implemented from 2011 whereby civil servants’ wages and salaries are paid through bank accounts.
B. Benchmarking DRC
3. The DRC’s financial inclusion performance is benchmarked against its potential. To this end, we first ran a cross-country regression for sub-Saharan Africa (SSA). The regression coefficients are then used to generate predicted levels of financial inclusion for each SSA country. The actual level of financial inclusion in DRC is then compared to the predicted value derived from the regression.
Democratic Republic of the Congo: Access to and Use of Financial Services
Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A005
Source: FAS, IMF.Democratic Republic of the Congo: Access to and Use of Financial Services
Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A005
Source: FAS, IMF.Democratic Republic of the Congo: Access to and Use of Financial Services
Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A005
Source: FAS, IMF.4. Variables of the model. We used two financial inclusion measures: the number of depositors with commercial banks per 1,000 adults and the number of borrowers with commercial banks per 1,000 adults. These variables come from the IMF’s Financial Access Survey (FAS) and only cover the year 2013. We assumed that financial inclusion is affected by three types of factors: structural characteristic, economic development, and policy environment. The list of variables as well the sources are presented in Table 1.
5. The benchmarking regression suggests that there is no financial inclusion gap in 2013. Put it differently, DRC is about where it should be based on its fundamentals. However, it is worth noting that the predicted level of financial inclusion derived from this regression is not the optimal one, but rather the level based on a set of SSA countries’ fundamentals (Appendix).
Democratic Republic of the Congo: Financial Inclusion Gaps in DRC and SSA
Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A005
Sources: World Development Indicators, 2013, The World Bank; and IMF staff estimates.Democratic Republic of the Congo: Financial Inclusion Gaps in DRC and SSA
Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A005
Sources: World Development Indicators, 2013, The World Bank; and IMF staff estimates.Democratic Republic of the Congo: Financial Inclusion Gaps in DRC and SSA
Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A005
Sources: World Development Indicators, 2013, The World Bank; and IMF staff estimates.C. Barriers to Access
Challenges
6. Despite this recent progress, financial inclusion in DRC remains low compared to other SADC countries. According to the 2014 FinScope Survey (demand-side survey conducted by FinMark Trust), DRC has among the lowest inclusion financial levels in the SADC region (Figure 3). Only 48 percent of adults in DRC are financially included compared to 73 percent in Tanzania, 77 percent in Zimbabwe or 86 percent in South Africa. Similarly, DRC is lagging behind in terms of bank penetration as only 12 percent of adults use financial services provided by banks as compared to 75 percent in South Africa and 30 percent in Tanzania.
Democratic Republic of the Congo: Access Strand Across the Region
(Percent)
Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A005
Sources: World Development Indicators, 2013, The World Bank; and IMF staff estimates.Democratic Republic of the Congo: Access Strand Across the Region
(Percent)
Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A005
Sources: World Development Indicators, 2013, The World Bank; and IMF staff estimates.Democratic Republic of the Congo: Access Strand Across the Region
(Percent)
Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A005
Sources: World Development Indicators, 2013, The World Bank; and IMF staff estimates.7. Financial inclusion is more limited among the most vulnerable segments of the population. Individuals at the bottom of the income distribution are the most financially excluded (see Figure 4), in particular people making a living in farming activities. There is also a small gender gap: 56 percent of women are excluded compared to 48 percent of men.
Democratic Republic of the Congo: Access Strands 2014 by Income Categories
(Percent)
Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A005
Sources: World Development Indicators, 2013, The World Bank and IMF staff estimates.Democratic Republic of the Congo: Access Strands 2014 by Income Categories
(Percent)
Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A005
Sources: World Development Indicators, 2013, The World Bank and IMF staff estimates.Democratic Republic of the Congo: Access Strands 2014 by Income Categories
(Percent)
Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A005
Sources: World Development Indicators, 2013, The World Bank and IMF staff estimates.8. Financial awareness and income levels are reported as being the two key barriers to financial inclusion in the 2014 FinScope Survey. Awareness is cited as the first reason for not using financial services. The next most commonly reason for not using formal financial services is limited income. Besides awareness and income levels, the survey also reveals that financial illiteracy and lack of trust, particularly in non-bank financial institutions are important barriers to financial inclusion.
9. Mobile money accounts have become a convenient alternative to traditional bank accounts. Mobile banking services have helped overcome some of the logistical challenges associated with a large and inaccessible territory. By 2013, more Congolese had a mobile money account than a traditional bank account (Figure 5). However, the use of mobile money is still less common than in other Great Lakes Region countries and, given the low awareness and knowledge, there is substantial scope for improvement: only 35 percent of surveyed adults in DRC know about mobile money. Moreover, DRC has one of the lowest mobile cellular subscription rates in SSA. A more rapid expansion of the cellular network could be particularly beneficial for financial inclusion.
Democratic Republic of the Congo: Mobile Money Accounts in DRC and SSA
Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A005
Source: World Development Indicators, 2013, The World Bank.Democratic Republic of the Congo: Mobile Money Accounts in DRC and SSA
Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A005
Source: World Development Indicators, 2013, The World Bank.Democratic Republic of the Congo: Mobile Money Accounts in DRC and SSA
Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A005
Source: World Development Indicators, 2013, The World Bank.10. Firms’ access to finance is more limited in DRC than in other SSA countries. According to the World Bank Enterprise Survey, about 57 percent of enterprises in DRC reported having a checking or savings account in 2013 as compared to 87 percent in SSA; only 9.4 percent of enterprises have a loan or line of credit against an average of 23.1 percent for SSA. While the percentage of firms identifying access to finance as a major constraint is broadly similar (about 40 percent), the proportion of investments and working capital financed by banks are lower in DRC than in SSA.
Democratic Republic of Congo: Enterprise Survey Indicators, 2013
Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A005
Source: Enterprise Survey, The World Bank.Democratic Republic of Congo: Enterprise Survey Indicators, 2013
Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A005
Source: Enterprise Survey, The World Bank.Democratic Republic of Congo: Enterprise Survey Indicators, 2013
Citation: IMF Staff Country Reports 2015, 281; 10.5089/9781513590189.002.A005
Source: Enterprise Survey, The World Bank.D. Policy Recommendations
Enhancing financial inclusion will carry substantial benefits for the DRC’s economy in terms of resilience to shocks, resource allocation, diversification, and management of risks. In addition, by strengthening policy transmission, further financial inclusion will improve the effectiveness of monetary and fiscal policies. Therefore, fostering access and financial inclusion should be a top priority for the DRC’s authorities. In line with the 2014 Financial Sector Assessment Program (FSAP), priority actions are the following:
11. Filling the information environment gap. The BCC’s credit registry is limited to banks’ data, and a very small share of the population has proper documentation to engage in financial transactions. According to the 2014 Finscope, only 8 percent of the surveyed population has proof of residence, 6 percent has proof of income, and less than 4 percent has ID equivalent (passport, driver’s license or others). Actions are underway to modernize the credit registry and set up a credit bureau. For these reforms to be successful in terms of reducing moral hazard and therefore facilitating access to credit, all stakeholders will have actively participate and a connection between the two systems established. Efforts to provide documentation to the population will help enhance access to financial services.
12. Providing conducive regulatory frameworks. Several regulatory frameworks that govern the activities of the technology-based financial services, such as mobile financial services and payment systems, are missing or need to be updated to harness the potential of technological innovations (mobile banking, mobile payments, internet banking, and biometric identification). Recent evidences show the importance of flexible regulatory environment in encouraging the development of technology-based financial services (the M-PESA in Kenya). Research also underscores the role of flexible regulatory environment in the development of new financial products taking into account specific consumer needs. For instance, there is a need to adopt a specific regulatory framework for leasing to facilitate access to credit by SMEs, as recommended by the 2014 FSAP.
13. Restructuring and strengthening the oversight of the microfinance institutions (MFIs). As pointed out by the 2014 FSAP, the microfinance sector in the DRC has great potential to support financial inclusion, but the financial position of most of the MFIs is precarious. The impaired financial position of MFIs is mainly due to governance and internal audit deficiencies. Some steps have been taken to clean up the sector with the liquidation of 37 inactive MFIs and the withdrawal of 63 licenses. However, much remains to be done to put the sector on a sound footing. Priority actions include enforcing the minimum capital requirement and strengthening the supervision.
14. Promoting contractual savings. The impaired financial situation of the sole non-life insurance company (Société nationale d’assurances—Sonas) and the social security system prevent them for providing a significant contribution to the development of medium-and long-term savings. The authorities have recently taken steps to increase competition with the enactment of a new law liberalizing the insurance industry. In addition, a new Insurance Code aimed at strengthening governance and the powers of the supervisor has been adopted. Further actions are needed to strengthen the contractual savings sector. In particular, there is a need to raise the minimum capital requirement in the insurance industry and to restructure Sonas. With regards to pensions funds system, the authorities should initiate a reform process to ensure an actuarial balance and explore the possibility of extending the coverage of pensions plan. In addition, they should ensure that institutions responsible for pension management have an adequate organizational structure, tools and resources in place (see 2014 FSAP).
15. Strengthening insolvency and credit rights. Shortcomings in the legal framework and weaknesses in the functioning of the judicial system constitute a major obstacle to financial inclusion. As recommended by the 2014 FSAP, the authorities should strengthen compliance with the Organization for the Harmonization of Business Law in Africa (OHADA) framework, financial and human resources for commercial tribunals and modernize critical professions for the application of the laws.
16. Other specific policies to boost financial inclusion include:
Making use of the formal financial sector to make government payments and collect taxes. In this regard, the policy in place since 2011 to pay all civil servants via bank accounts is a good step, and should be pursued and extended;
Fostering financial literacy. The lack of awareness/knowledge calls for financial literacy program targeted to unschooled and financially illiterate households to show them how technology-based financial services work and the risks involved ;
Improving access of the population to information and communication technologies. Indeed, low levels of access to internet and mobile phone are impairing the widespread use of technology-based financial services.
References
Allen, Franklin, Elena Carletti, Robert Cull, Jun Quian, Lemma Senbet and Patricio Balenzuela, 2013, “The African Financial Development and Financial Inclusion Gap,” Wharton Financial Institutions Center Working Paper 13–09, University of Pennsylvania.
IMF, 2014, “Financial Sector Stability Report, Democratic Republic of the Congo,” IMF country report no.14/315.
FinMark Trust, 2014, “FinScope Consumer Survey, DRC 2014,” FinMark Trust, Johannesburg.
Global Financial Development Report, 2014, Financial Inclusion, Washington, DC: World Bank.
Variables Description
Variables Description
| Variable | Description and Unit | Source |
|---|---|---|
| Depositors with commercial banks | Per 1,000 adults | IMF Financial Access Survey database |
| Borrowers from commercial banks | Per 1,000 adults | IMF Financial Access Survey database |
| Mobile cellular subscriptions | Per hundred | World Development Indicators, World Bank) |
| Internet per hundred | People with access to the worldwide network (Per hundred) | World Development Indicators, World Bank) |
| Population | Total population / 1,000,000 | World Development Indicators, World Bank |
| Population Density | People per square km of land area / 1,000 | World Development Indicators, World Bank |
| Urban population | Percentage of total population | World Development Indicators, World Bank |
| Rural population | Percentage of total population | World Development Indicators, World Bank |
| Oil-rich countries | Dummy variable that takes the value 1 if the country is an oil-rich country and 0 otherwise. | IMF |
| GDP Per Capita | In US$ | World Economic Outlook, IMF |
| Growth GDP Per Capita | GDP per capita growth (annual %) | World Development Indicators, World Bank |
| Inflation | Inflation, consumer prices (annual %) | World Economic Outlook, IMF |
| Political stability | It captures perceptions of the likelihood that the government will be overthrown by unconstitutional or violent means, including politically motivated violence and terrorism. Estimate gives the country’s score on the aggregate indicator, in unit of a standard normal distribution, i.e. ranging from -2.5 to 2.5. | World Development Indicators, World Bank |
| Credit coverage | Public credit registry, in percent of the adult population | World Development Indicators, World Bank |
| Rule of law | It captures perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence. The country’s score ranges from -2.5 to 2.5. | Worldwide Governance Indicators, World Bank |
Variables Description
| Variable | Description and Unit | Source |
|---|---|---|
| Depositors with commercial banks | Per 1,000 adults | IMF Financial Access Survey database |
| Borrowers from commercial banks | Per 1,000 adults | IMF Financial Access Survey database |
| Mobile cellular subscriptions | Per hundred | World Development Indicators, World Bank) |
| Internet per hundred | People with access to the worldwide network (Per hundred) | World Development Indicators, World Bank) |
| Population | Total population / 1,000,000 | World Development Indicators, World Bank |
| Population Density | People per square km of land area / 1,000 | World Development Indicators, World Bank |
| Urban population | Percentage of total population | World Development Indicators, World Bank |
| Rural population | Percentage of total population | World Development Indicators, World Bank |
| Oil-rich countries | Dummy variable that takes the value 1 if the country is an oil-rich country and 0 otherwise. | IMF |
| GDP Per Capita | In US$ | World Economic Outlook, IMF |
| Growth GDP Per Capita | GDP per capita growth (annual %) | World Development Indicators, World Bank |
| Inflation | Inflation, consumer prices (annual %) | World Economic Outlook, IMF |
| Political stability | It captures perceptions of the likelihood that the government will be overthrown by unconstitutional or violent means, including politically motivated violence and terrorism. Estimate gives the country’s score on the aggregate indicator, in unit of a standard normal distribution, i.e. ranging from -2.5 to 2.5. | World Development Indicators, World Bank |
| Credit coverage | Public credit registry, in percent of the adult population | World Development Indicators, World Bank |
| Rule of law | It captures perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence. The country’s score ranges from -2.5 to 2.5. | Worldwide Governance Indicators, World Bank |
Regression Results
Regression Results
| Dependent variable: | ||
|---|---|---|
| log(Depositors per 1000) | log(Borrowers per 1000) | |
| log(GDP per capita) | 0.286 | −0.317 |
| Oil-rich | −0.937 | −0.022 |
| Rule of law | 0.260 | 0.349 |
| Political stability | 0.453 | 0.693 |
| Population density | 0.000 | −0.002 |
| Rural | −0.012 | −0.001 |
| Inflation | 0.055 | 0.015 |
| Internet per hundred | 0.031 | 0.059 |
| Mobile cellular subscriptions | 0.000 | 0.000 |
| Public credit bureau coverage | 0.033 | |
| Private credit bureau coverage | 0.020 | |
| Constant | 3.763 | 5.231 |
| Number of observations | 34 | 29 |
| Adjusted R-squared | 0.77 | 0.75 |
Regression Results
| Dependent variable: | ||
|---|---|---|
| log(Depositors per 1000) | log(Borrowers per 1000) | |
| log(GDP per capita) | 0.286 | −0.317 |
| Oil-rich | −0.937 | −0.022 |
| Rule of law | 0.260 | 0.349 |
| Political stability | 0.453 | 0.693 |
| Population density | 0.000 | −0.002 |
| Rural | −0.012 | −0.001 |
| Inflation | 0.055 | 0.015 |
| Internet per hundred | 0.031 | 0.059 |
| Mobile cellular subscriptions | 0.000 | 0.000 |
| Public credit bureau coverage | 0.033 | |
| Private credit bureau coverage | 0.020 | |
| Constant | 3.763 | 5.231 |
| Number of observations | 34 | 29 |
| Adjusted R-squared | 0.77 | 0.75 |
Prepared by Mesmin Koulet-Vickot and Klaus Peter Hellwig
