Shaping banking regulatory reforms in Africa
Submitting InstitutionUniversity of Birmingham
Unit of AssessmentBusiness and Management Studies
Summary Impact TypeEconomic
Research Subject Area(s)
Economics: Applied Economics, Econometrics
Commerce, Management, Tourism and Services: Banking, Finance and Investment
Summary of the impact
The development and introduction of a new international regulatory
framework for banking and financial markets (known as Basel III) following
the 2007/8 financial crisis has been challenging for all parties. Murinde's
research has helped shape the response to Basel III by banking and stock
market regulators in Africa. In particular, this work has enhanced
the competitiveness of the financial services sector underpinned the
articulation of the African voice on the transition to Basel III as
expressed at the G20 Summit in Seoul in 2010; and directly enhanced
the skills and knowledge of stock exchange regulators. As a result
of this impact, the African Development Bank invited Murinde to contribute
directly to knowledge and capacity building in Africa, and he was
subsequently appointed the first Director of the African Development
Institute at the African Development Bank in May 2011, on a three-year
secondment from the University of Birmingham.
Bank regulation in Africa is at a crossroads. The transition from the
Basel I international banking regulatory accord to Basel II was relatively
smooth, although many regulators had doubted the feasibility of the Basel
II codes. With the global financial crisis and the collapse of Basel II,
the new financial regulatory architecture has been anchored on Basel III.
Bank regulators in Africa, and commercial bankers in the continent, were
worried about many features of Basel III, and the African voice has not
been represented in the ongoing design of Basel III. Murinde's work uses
econometric studies to generate evidence to support practitioners and
policy makers involved in shaping the landscape of bank regulation in
During 2008-2013, the core empirical work at the Birmingham Business
School by Murinde (Professor of Development Finance, Birmingham Business
School) on `banking in Africa' appeared in the European Journal of Finance
(see output R1 below). This work stemmed from earlier research by Murinde
on British banking (R2, R3).
The core paper (R1) generated empirical models to identify bank-specific
factors and specific macroeconomic variables which underpinned the
performance of 89 commercial banks in nine Sub-Saharan African countries,
for the period 1992-99. It was found that, in general, bank performance is
seriously undermined by high costs, which are exacerbated by bad loans,
high capital ratios and financial liberalisation. However, the size of the
bank does matter: larger banks are more efficient. Also, foreign banks are
generally efficient. Important policy implications are generated for bank
managers and regulators in Sub-Saharan Africa.
Murinde's work also considered regulatory reforms for capital markets.
The work has generated empirical methods for measuring the impact of these
reforms in terms of desired outcomes such as enhanced liquidity, less
volatility, lower transaction costs, or enhanced access to finance by
firms. The core methods were developed during work on the UK stock
exchange (R4). The methods were further refined and applied to the Indian
stock exchange, which shares similarities with African stock markets (R5).
The work investigated the impact of the March 1995 move to screen-based
trading on the Mumbai Stock Exchange, using separate samples of more
liquid (A) and less liquid (B) shares. It identified a significant
cross-sectional relationship between the size of cumulative abnormal
returns and firm-specific improvements in liquidity, efficiency, and
volatility, with differences in the effects of reform on A and B shares.
The study offers key specific regulatory lessons for stock markets and for
company executives in emerging markets.
Murinde's work also uncovered evidence to support the argument that
banks, financial markets and company finance were part of the story of why
6 out of the 10 fastest growing countries in the world during the last 10
years were in Africa (R6).
References to the research
R1) Kirkpatrick, C., Murinde, V. and Tefula, M. (2008), `The measurement
and determinants of x-inefficiency in commercial banks in Sub-Saharan
Africa', European Journal of Finance, Vol. 14, No. 7, pp. 625-639.
R2) Matthews, K., Murinde, V. and Zhao, T. (2007), `Competitive
conditions among the major British banks', Journal of Banking &
Finance, Vol. 31, No. 7 (July), pp. 2025-2042. [DOI:
R3) Zhao, T., Matthews, K. and Murinde, V. (2013), `Cross-selling,
switching costs and imperfect competition in British banks', Journal
of Banking & Finance Volume 37, Issue 12, December 2013, Pages
5452-5462 [DOI: 10.1016/j.jbankfin.2013.03.008].
R4) Green, C.J., Maggioni, P. and Murinde, V. (2000), `Regulatory Lessons
for Emerging Stock Markets From a Century of Evidence on Transactions
Costs and Share Price Volatility in the London Stock Exchange', Journal
of Banking and Finance, vol. 24, pp. 577-601 [DOI:
R5) Green, CJ, Manos, R, Murinde, V, Suppakitjarak, N (2010), `Share
liquidity and market microstructure reform: the case of screen-based
trading in Mumbai', Asia-Pacific Journal of Financial Studies,
39(3), pp. 361-395 [DOI: 10.1111/j.2041-6156.2010.01014.x].
R6) Brambila-Macias, J., Massa, I. and Murinde, V. (2011), `Cross-border
bank lending versus FDI in Africa's growth story', Applied Financial
Economics, Vol. 21, No. 16, pp. 1205-1213 [DOI:
Details of the impact
Murinde's work on `African banking' has helped shape banking regulation
and stock exchange reform in a number of major African countries including
Nigeria, Algeria and Egypt. This was achieved through take-up of his
models by the African Development Bank (ADB) and through his further
collaboration with the African Economic Research Programme and with senior
African policy makers. This provided timely input for African countries in
the process of revamping their regulatory policies in transition from
Basel I and Basel II rules to the new Basel III codes for regulating banks
and financial markets. As a consequence, the African Development Bank
invited Murinde to contribute directly to knowledge and capacity building
in Africa, and he was subsequently appointed the first Director of the
African Development Institute at the African Development Bank in May 2011,
on a three-year secondment from the University of Birmingham. He returns
to the University of Birmingham in June 2014.
Enhancing competitiveness in the financial services sector through the
The ADB has 53 African member countries and its mission is to spur
sustainable economic development and social progress in its regional
member countries, thus contributing to poverty reduction [see source 1
below]. The immediate impact achieved from Murinde's work was that the
models in the core paper were operationalized by the ADB to guide the bank
in helping their African member countries enhance their competitiveness in
the financial services sector.
The Chief Economist and Vice President (CE&VP) of the Bank asked
Murinde to lead a team of Bank staff to produce a blueprint. The output,
titled "Restructuring for Competitiveness: The Financial Services Sector
in Africa's Four Largest Economies", was part of the African
Competitiveness Report 2009, produced by the African Development
Bank, the World Bank, and the World Economic Forum. The team of
collaborators include Mr Louis Kasekende (CE&VP of the African
Development Bank at the time) and Mr Kupukile Mlambo (who was Advisor to
the CE&VP at the time and is now Deputy Governor of the Reserve Bank
of Zimbabwe). The impact of the work was that it underpinned the African
Development Bank intervention in the financial services sector in Algeria,
Nigeria and Egypt.
The research output also formed the key information for the subsequent
strategic meeting of Committee of 10 (C-10). The C-10 is a committee of 10
African Ministers of Finance and Central Bank Governors of Algeria,
Botswana, Cameroon, Egypt, Kenya, Nigeria, South Africa, Tanzania, the
Central Bank of West African States (CBWAS), the Central Bank of Central
African States (CBCAS). The African Development Bank serves as the
Secretariat, jointly with the African Union (AU) and the Economic
Commission for Africa (ECA). The C-10 introduced policy measures that the
CE&VP of the ADB has said were "instrumental in maintaining bank
viability and mitigating the adverse effects of the financial crisis of
2007-8. The major policy consensus was on strengthening of bank capital,
which is also the key finding throughout Murinde's work." [source 2]
Another example of impact of the core paper was that the Chief Economist
& Vice President of the African Development Bank commissioned a
research project, led by Murinde, to use modified versions of the
empirical models in the core paper to generate country-specific case
studies. Murinde led a team of Bank staff and researchers from Africa and
the UK to conduct eight empirical case studies of competition and
efficiency of the banking sector in Algeria, Egypt, Ghana, Kenya, Nigeria,
South Africa, Tanzania and Zambia. These technical studies were published
in a Special Issue of the Bank's journal, African Development Review,
Vol. 23, No. 1, March 2011, guest edited by Murinde and a staff of the
Bank, Kupukile Mlambo. The African Development Review is a
professional journal devoted to the study and analysis of development
policy in Africa which emphasises the policy relevance of research
findings, rather than purely theoretical and quantitative issues.
After the completion of the case studies, the African Development Bank
asked Murinde to extend the work on Nigeria and undertake a special study
that would inform the Board of Directors of the Bank about the viability
of Nigeria's banks, in order to guide the intervention and portfolio
interest in these institutions. A special Board paper was completed in
October 2010 and presented to the Board in March 2011, to identify the
financial viability of the top banks in Nigeria. The African Development
Bank subsequently increased its equity stake in the viable banks. It is
important to note that Nigeria banks have spread across the African
continent, with branches in Ghana, Kenya, Uganda, among other countries.
Hence, the impact of this research goes beyond Nigeria and extends to
other African countries where the banks operate.
In addition, the case studies provided strategic input into the Senior
Policy Programme of the African Economic Research Programme (AERC), the
leading think tank in Africa. The AERC asked Murinde and his team to
produce a non-technical version of the case studies for the Twelfth Senior
Policy Seminar (SPS XII) of the AERC, which was held in Mombasa, Kenya, on
22 - 24 March 2010. Participants included the Governor of the Central Bank
of Kenya, the Deputy Governor of the Bank of Uganda, senior bank managers
and senior bank regulators from 18 African countries. The output of
SPS-XII was published by Palgrave Macmillan, on behalf of the AERC, as Bank
Regulatory Reforms in Africa, edited by Murinde [source 2].
African voice on banking regulatory reform
Subsequently, some African senior policy makers at the AERC SPS-XII asked
that the research findings be used to write a clear articulation of the
African voice on the new architecture for banking regulatory reform
(transition to Basel III) at the G20 Summit in Seoul, Korea [source 3].
Murinde joined a Brookings seminar on issues surrounding the 2010 Seoul
G20 summit. That grew into a further conference in Washington and
eventually a major symposium in Seoul. Murinde presented the African voice
at the September 2010 G20 Seoul International Symposium, where the
headline speaker was Paul Martin, former prime minister of Canada [source
4]. The report was included in the volume for the Summit which contains
contributions from three dozen top experts from all over the world [source
The same report was adopted by New Rules for Global Finance Coalition, a
Washington-based international network of activists and researchers
concerned with reforms of the international financial architecture, and
was subsequently presented by Murinde and the Executive Director of New
Rules for Global Finance, Dr Jo Marie Griesgraber, to Governor Daniel K.
Tarullo, of the US Federal Reserve Board, who is driving US and global
reforms of banking regulation [source 6].
Financial Market Reform
There are two specific examples of how Murinde's work on financial market
reforms has been of interest to policy makers in Africa. The first example
relates to invitations to share research findings with think tanks and
policy makers, in terms of relevance to policy problems and for shaping
their own work. Specifically, Murinde presented a key note to the Annual
Meeting of African Stock Exchange Regulators, which was held in Accra,
Ghana, on September 14, 2009, on "Market microstructure reforms in Africa
and implications for corporate financing". The work drew evidence from
Murinde's empirical work, especially R5 and R7 above.
The second example of impact is that, following the Accra meeting, the
Director General of the Securities and Exchange Commission of Nigeria
invited Murinde to draw up a programme of knowledge and training for SEC
staff and staff of the Nigeria Stock Exchange Securities for 2010-2013.
Consequently, the SEC undertook training programmes for Board members, as
reported in Annual Report of the SEC for 2011 (page 14) [source 7].
Sources to corroborate the impact
- Corroboration of all of the impact achieved via the African
Development Bank has been provided in a statement to the University by
the Bank's Chief Economist & Vice President (6th August
- Corroboration can be provided by the Executive Director, Africa
Economic Research Consortium.
- Corroboration about work with the Brookings Institution and G20 Summit
in Seoul can be provided by a Non-resident Senior Fellow, Global Economy
and Development, Brookings Institute, Washington DC.
- Murinde, V. (2011), "Bank Regulation in Africa: From Basel I to Basel
II and Now at a Crossroads", in Bradford, Colin I. and Lim, Wonhyuk
(Editors), Global Leadership in Transition: Making the G20 More
Effective and Responsive, Washington DC: Brookings Institution Press
with the Korean Development Institute, Chapter 9, page 101-124. ISBN-13:
- Corroboration can be provided by the Executive Director, New Rules for
Global Finance Coalition, Washington DC.
- Corroboration can be provided by the Director General & Chief
Executive Officer, Securities and Exchange Commission, Nigeria.