General

Financial Technology, often shortened as “fintech”, is the term used to describe the business of utilising innovative technology in improving and automating the use and delivery of financial services like banking services, insurance services, trading, etc. Simply, it combines anything finance with some form of technology. The world went digital a long time ago. What fintech companies realised was that more and more people are becoming tech savvy and more sophisticated, creating a growing need for a growing population to integrate technology in all aspects of their lives, including their finances. Why was PayPal such a hit? Because it seemed so easy to use compared to inputting your credit card details on websites whenever you want to make a purchase. That hassle-free life appeals to the modern man and woman and fintech companies realised that a long time ago. Those that got in early and did it well, like PayPal, made it big. Those that are big, like MTN, invest properly and massively into the tech delivery system, then they make it earlier than most would. One could argue that MTN’s Mobile Money can stand shoulder-to-shoulder with any bank any day. When a fintech has 10 million active users, with over 115,000 active agents as well as over 67,000 merchant points across the country, that’s not just like a bank; it’s more efficient too. Banking regulations and the typical oversight from the Central Bank (or the lack of these) are a distinguishing feature of fintechs from financial institutions. What makes fintechs special. An important characteristic of fintechs is that they all seem to be designed to be a threat to the established order of conventional business in the sector they are in. But that’s only market evolution taking its course. When the masses and even rivals flock to use fintech, it makes the best fintechs look to go toe-to-toe or even seem to hijack traditional financial service providers, by being flashier, more proficient, and also by providing a faster and better service. Mobile Money (affectionately now called “Momo”) is the perfect example I give when I try to explain how I feel fintech companies are outmanoeuvring the banks. Why do you go the bank? To deposit money into your account. To withdraw money from your account. To earn interest on your money you have deposited at the bank. To transfer your money to another person or institution elsewhere. Now Momo does all of these. Momo even pays interest on our Momo accounts. The banks got adaptive and told us to pay our water bills and ECG bills and DSTV bills and school fees and whatever else at the banking hall. Convenient, right? All at one place. Thing is, now I can also do all of that from my couch at home through Momo too. I am merely stating the situation as it is. As it stands now, we all know very well that now even the Mobile Money services offer loans and a very attractive and easily integrable array of other services. Gone are the days when such financial services were exclusive to banks. I say all these only to make apparent the extent of disruption fintech companies can have on any sector in the economy, even the big and powerful banks. Let us stick to the facts. This still remains an opinion piece. Other kinds of fintech aside Payment Systems. Money Payment Systems are just one example of fintech. Cryptocurrency and blockchain are typical examples of fintechs doing what fintechs do best: DISRUPTION. And it’s good (or bad) depending on which side of the evolution you currently are, or if you can change fast enough with the times. We all saw the confusion BitCoin provoked with its entry into the mainstream. The only reason why I didn’t lose my marbles was because Warren Buffet was so adamantly against Bitcoin and when the Oracle of Omaha calls something “an asset that creates nothing… has no value at all”, people tend to listen. Still, he and you and I all know crypto is here and it’s here to stay. There are also Crowdfunding apps like Kickstarter and GoFundMe. Crowdfunding apps are a great illustration of the different kinds of fintechs that dabble in a lot more that the traditional financial services activities. Insurtech. Now there is “insurtech”, as it’s being called. These are fintechs in the insurance sector. And it’s a fast-growing thing too. No industry is safe from Financial Technology disruption, not even the Insurance Industry. Insurtechs now provide easy car insurance to home insurance to anything insurance. This year, Forbes valued the popular personal finance company Credit Karma at $4 billion. And these fintechs are attracting huge funding too. An insurtech company called Oscar Health Insurance, a health insurance startup that is technology-focussed, raised $165 million in funding last year at a $3.2 billion valuation. You need the fin in your tech to be a fintech. All fintech companies are tech companies. But not all tech companies are fintech companies. You need the fin in your tech to be a fintech. Is Uber a fintech company? Ride hailing services are not financial services. So, going by that, Uber is not a fintech. Paying for the rides is a financial act. If I pay with my Visa, the Visa is the fintech that Uber then utilises, but Uber is not the fintech. If Uber handles that financial transaction themselves, then yes Uber becomes a fintech. The last time I took an Uber I paid the driver myself, in cash, not through any app. But last year Uber applied for an e-money licence. If Uber gets this licence then yes, it qualifies as a fintech because then it would be directly handling the financial transaction actions of the business. I hope I explained this clearly enough. Fintech optimises another tech use. Another thing about technology is that I find it being easily integrable with other technologies. Tech thrives on tech. Fintechs are using other technologies like machine learning and even

I smiled, on the outside, and proceeded to courteously steer the conversation elsewhere. On the inside, my jaw dropped, because his call for me to be “careful” is exactly what I have been before our semi-formal meeting, crossing my t’s and dotting my i’s. A few years ago, and he would have been thanking me for bringing him an opportunity to collaborate like this. The serial businessman had turned chicken to his textbook business opportunity that’s taken me many months to craft to his unique palate. That rattled me, a bit, for this had started to be a pattern with a significant number of others. Are they seeing something I am not seeing? Is there another shocking wave coming to the financial and business sector? Maybe people are just holding out on me. Maybe he was doing some lucrative, capital-intensive business I don’t know about. It couldn’t solely be the case. Besides, he happened to mention he had a lot of money just coming out of a fixed deposit. So, what was the problem? What IS the problem? That’s the thing; I don’t think there is a problem. There is no problem with him or his actions. Financial vigilance and conservatism should be a good thing. It is now a viral bug that has even the average Ghanaian clenching every cedi note as tightly as he can. The general public suddenly is very smart with better economic management because hope of easy money dwindled with the most recent upheaval of the finance and banking sectors. The shutting down of Menzgold and the other financial institutions was a wakeup call for the general populace and now everybody is just heavily hesitant and distrustful. It is not easy getting a 120% ROI on your money while toeing the lines of the law with minimum to no effort in the current financial climate. To not fully discredit Menzgold, NAM1 did deliver on dividend payments up until his shutdown, but this is not about Menzgold. I wouldn’t be that unsympathetic to kick him while he’s down. I actually happen to think if he escapes his legal shackles, he shall rise and capitalise on the very apparent equity of his massive public goodwill. He’s been once bitten, and I imagine he is 18 times shy now. I expect he will be bigger and better (and smarter) whenever his next attempt might be. But this is not about NAM1 or his business. This is an opinion piece. Let’s stick to the facts as usual. All facts on the ground may point to a good macroeconomic structure, validated by the international community as I so many times remember to add. Yet if people are afraid to dip their hands into their pockets, market growth becomes slow and stunted. More importantly, when the people lose hope, and their faith in the markets and economic sectors drops, it can be very disrupting. So, while many complained about how they are not “feeling” the good economy, from celebrities to political pundits, I personally had to experience a number of situations before making my own assumptions on it, my very, non-specialist, opinion-based assumptions. My conclusion: This is about Hope. This is about hope, and the very lucrative sale of hope that shoddy financial institutions sold to the unsuspecting public, against the repeated warnings of institutions like BoG. But that hope kept the public smiling. That hope kept the public spending, believing that whatever money that leaves will be replenished. The moment BoG and SEC and EOCO started finger waging, after countless warnings, a resounding ripple effect of uh-oh’s commenced, followed by a full-blown, literally hands-on-heads “ewurade medi nkwasiasem!” by both the institutions and their clientele. While institution heads face an array of punitive measures that may even include legal prosecution, the people of Ghana still want their money, and it hurt me, and I am sure you as well to bear witness to or partake in their lamentations. We all saw the news and the accounts of many people with monies stuck at many places. Livelihoods are at stake. If you’d like to fully comprehend the haunting reality of the situation, conduct the simple exercise of just imagining you losing a lot of your money, or all of your money. We are still at that phase, post the financial sector “cleanup” by the guys at the top. That’s why the air is still stuffy and unclear. That’s why the average Joe doesn’t like what’s happening in the financial sector. Because ignorance was bliss. Faith in what was not fully understood but warmly embraced brought restful slumber, for money was always on its way in dreamland. But seeing, and in many cases, feeling the effects of fiscal thoughtlessness will wake you up and make you a believer in facts, not emotions. It will shake you up. It will open your eyes to what’s real and what might not be. And at present not many like what they see or feel. Have you not noticed that virtually nobody wants to spend? Somehow everyone is suddenly so protective of every cedi. Personally, I get it. Nonetheless, though the financial surgeons of the motherland cauterise the wound for our supposed good, I feel it would only be practical to expect the accompanying ouch or adjei or however you say yours. Ɛyɛ ya. So, to the supporters of the overhaul in the financial sector, the cries of the public shouldn’t be dismissed. It is he who feels the pain that feels the pain. Now that’s a horrible pseudo-proverb but it’s true. Offence is taken by the receiver; who are you to tell an offended man he is not offended (imagine that). Also, to those that feel the pain, I say, there was a wound, it needed to be treated, and though it hurts, many argue that it was necessary to avert a much bigger crisis. Many people were unable to retrieve their monies from institutions, which was evidence of the proverbial wound that had riddled

When a company, a syndicate, a government, or any entity needs to borrow money to, let’s say, keep the business running,  to embark on new projects, to pay back old loans, for aggressive expansion, or for whatever reason, they may issue out what is called “bonds” to interested parties. Quite simply, a Bond successfully issued is a Loan accepted. The borrower is the issuer of the bond and the bond will contain the terms of the loan e.g. the interest rate (or coupon rate), how the interest payments (or coupons) will be made, the time at which the full amount has to be paid to the investor (maturity date), etc. That is a bond. What is a Eurobond? The EURObond only means the issuer isn’t in the same country or trading in the local currency of the investor/lender. A Eurobond doesn’t have to be about Europe or the Euro. It just points to the international aspect of the bond and the involvement of foreign currency. As Ghanaians, the Eurobond means the loan will be in a foreign currency, specifically, dollars. This should explain the government’s recent confidence that the arrest of the fall of the Ghana Cedi against the US Dollar was on its way. The Eurobond they were issuing meant dollars was coming into the system, thereby reducing the scarcity and the accompanying demand for the dollar. The Eurobond, also known as external bonds, is issued in one country and sold in a different one. Bonds are grouped by the currency in which they are denominated. For example, bonds issued in US dollars is known as Eurodollars. How Eurobonds Work. Anyone in need of foreign-denominated borrowings for a specified time can offer Eurobonds at fixed interest rates. Private organizations, international syndicates, and the government can offer them. The buyers or investors of these Eurobonds are generally large companies, banks or financial institutions. The interest is calculated annually, and the principal amounts paid at the maturity date. Ghana offered her first Eurobond in 2007 to the tune of $750 million, asking investors to lend that amount with the promise of paying it back in 10 years with interest. Bonds were issued through the Bank of Ghana, while the government received the cash amount in the form of a loan. The general popularity of Eurobonds is because of its ability to be a financing tool. They offer a high degree of flexibility. For governments, it’s usually an immediate, long-term finance option. An investor considers several factors when looking at which country to target for Eurobonds, e.g. favourable interest rates, a stable market, local regulations, or the presence of likely investors. These can all play a role in the decision. Ghana’s Eurobonds, present and past. I’m sure you’ve already read or heard that Ghana issued a $3 billion Eurobond. It just means we accepted a $3billion loan from outside. The Finance Minister, Ken Ofori-Atta, indicated in the 2019 Budget Statement that the government had the intention to do this. What is worthy of mention is that when we asked for $3 billion, we got offered an impressive $21 billion and we still only accepted $3 billion. The extra offers made room for lower rates and better terms of engagement, as will any bargaining scenario when the demand for what you offer is high. Also note that we issued not one but three bonds with three different maturity periods (payback times). So, we’re going to pay back the $3billion in installments, with each installment having it’s own terms and conditions. The maturity period for the first installment payment is 7years at a rate of 7.875%, the second is 12years at a rate of 8.125%, and the third is 31years at a rate of 8.950% which will be repaid in the year 2050. Ghana has never issued a 31year bond. We have issued Eurobonds seven times in our past; 2007/$750million/10year, 2012/$1billion/12-year, 2014/$1billion/12-year, 2015/$1billion/15-year, 2016/$750 million/5-year, 2018/$1billion/10-year, and again last year 2018/$1billion/30-year. The benefits of all of these depend on how the government invests the proceeds of these bonds. Eurobonds are issued in dollars. They are therefore exposed to foreign exchange risks, which can dramatically and quickly affect returns. For example, if the cedi depreciates against the dollar, the government will have to collect more taxes to translate into dollars or even borrow some more to pay our foreign creditors. Mismanagement and misallocation of funds will only harm the economy even more. And the IMF Cautions Us. Though we’ve broken up with the IMF, they seem to still slide in our DM’s with a message or two every now and then. A bond issued is a loan. The IMF cautions that, with all these monies coming in, we have to pay back sometime so if we don’t invest it well to generate growth and repayment capacity, then there will be a debt crisis on our hands later on. I have always stated that mismanagement is the biggest issue our nation ever faces. Of late the World watches Ghana. The macroeconomic data validated by the international community now points to a promising future. While the global bond markets secretly scrutinised Ghana, we left the IMF and planned for $3billion in Eurobonds but got offered seven times that ($21million). That’s like leaving your spouse and suddenly getting 21 messages from other suitors the next day after announcing the breakup, but you expected about just 3 IM’s. That means you’re hot! Ghana is looking very hot right now and the IMF is saying we face a debt vulnerability risk if the proceeds of these bonds are not managed properly. The IMF is absolutely right. Nonetheless, this increased scrutiny and attention by the international community and foreign investors have the power to strengthen macroeconomic discipline and move transparency and structural reforms forward. Because the people in whose praise we are now basking are watching us keenly. If we intend to court them further, then Ghana must manage her affairs properly. We must do away with corruption as much