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Emerging Markets Still Deprived of Fit-For-Purpose Financial Systems

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By Modupe Gbadeyanka

The lack of an efficient and resilient financial system is still holding back inclusive and sustainable growth in emerging markets. Policymakers, regulators and financial services organisations should more actively shape a financial system that is fit for purpose.

These are the main findings of a new PwC Project Blue report ‘Geared up for growth: Shaping a fit for purpose financial system’. In this paper, PwC sets out what an efficient, resilient and inclusive financial system looks like across eight key dimensions; and how leading emerging markets – Brazil, China, India, Indonesia, Mexico, Nigeria and South Africa – rate against its ‘fit for purpose’ targets.

The assessment highlights considerable room for further improvement in key areas, ranging from financial inclusion to pensions and protection.

While growth in emerging markets continues to outstrip developed counterparts and hundreds of millions of people have been lifted out of poverty, developing a well-functioning financial system remains critical to tackling poverty and sustaining economic growth over the long term. Emerging markets need a robust and broad-based financial infrastructure to channel funds efficiently, draw people into the market economy and enable them to share in the benefits.

The good news for emerging markets

In the PwC research, all seven emerging markets perform well on private sector lending, which is known to drive growth. With the exception of Brazil, the banking spread (difference between bank lending and deposit rates) in the emerging markets is low, improving borrowers’ ability to service debt. Another key area in which most of the seven emerging markets do reasonably well is controlling the size of their banking system. Only the size of China’s banking sector – compared to its economy – could raise systemic concerns.

Nigeria: financial system significantly impeding growth

This can’t be said about the other African country in PwC’s assessment. Not only has Nigeria by far the highest percentage of its population living in poverty, its financial system is also showing the least progress of all seven emerging markets. In five of the eight key areas, Nigeria’s financial system scores significantly below PwC’s fit-for-purpose targets, holding back inclusive and sustainable growth. However, the success of Nigeria’s auto-enrolment pension model is a bright spot.

South Africa: on the right track, but with a long way to go

Although poverty reduction has stalled in recent years and it has the worst income inequality of all seven emerging economies, South Africa is showing the most progress towards a fit-for-purpose financial system. Four of the eight key areas for a healthy financial system are already supporting inclusive and sustainable growth, and while more work is needed – for instance on the high levels of indebtedness – the country is moving in the right direction in the other four areas.

China and Indonesia underperforming in number of key areas

Compared to the other emerging economies, China has the biggest difficulties with its pension asset management and the size of its banking system. China’s banks are facing a troubling collision of swelling balance sheets, high corporate debt levels and a rise in insolvency and default. Indonesia seems particularly off track when it comes to financial inclusion and a well-functioning housing sector.

India: financial system showing mixed signs of progress

Strong innovation coupled with regulatory support is proving to be a boon for financial inclusion in India, with the Indian payments industry standing out from its emerging market counterparts by driving above-average growth in non-cash payments. However, the country’s pension asset management and life insurance penetration are both significantly below healthy targets.

Brazil and Mexico moving in right direction with e-payments

Brazil’s household debt and comparatively high banking spread make its financial system vulnerable. But policymakers are actively working to reduce its banking spread. Another positive sign is the country’s use of electronic payments, opening up access to financial services for under-served communities. Mexico’s banking spread is already low, while it’s also actively promoting e-payments to accelerate economic development. However, it has more work to do on financial inclusion and life insurance penetration.

Hugh Harley, Global Emerging Markets FS Leader, believes policymakers, regulators and financial services organisations should be more active in shaping a fit for purpose financial system.

“A fit for purpose financial system fosters inclusion, investment, access to credit and support for people when they retire, while promoting efficiency and protecting against systemic risks. The development of this financial system isn’t organic or passive. You shape it. Strong regulation and enforcement are essential for financial systems to develop, so regulators across different market sectors should get on the front foot and work together,” he said.

Andrew S. Nevin Ph.D., FS Advisory Leader and Chief Economist at PwC Nigeria and Project Blue Global Leader, stresses that emerging markets should try and learn from their peers.

“Our analysis clearly shows that some markets are ahead of others in different dimensions. Ask yourself the question: what can we learn from each other’s experience? Specifically financial services organisations should realise that many of the ground-breaking innovations in FS are being spearheaded in Asia and other emerging markets. Without ageing legacy systems to hold them back, they have clean sheets upon which to harness the latest developments in technology and develop their own distinctive business models,” he submitted.

Modupe Gbadeyanka is a fast-rising journalist with Business Post Nigeria. Her passion for journalism is amazing. She is willing to learn more with a view to becoming one of the best pen-pushers in Nigeria. Her role models are the duo of CNN's Richard Quest and Christiane Amanpour.

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Economy

Crypto.com to Delist Tether’s USDT, Others January 31

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By Aduragbemi Omiyale

On January 31, 2025, the stablecoin of Tether, USDT, will be delisted from one of the world’s largest cryptocurrency exchanges, Crypto.com

Business Post gathered that eight other tokens would also be yanked off the platform by Friday, with deposits for the affected digital coins disabled after the delisting.

The other tokens are Crypto.com Staked ETH, Crypto.com Staked SOL, PayPal USD, Wrapped Bitcoin, PAX Gold, PAX Dollar, XSGD, and DAI.

The decision to remove these coins from its trading platform is to comply with the Markets in Crypto-Assets Regulations (MiCA).

On January 17, 2025, the European Securities and Markets Authority (ESMA) asked exchanges to drop non-compliant tokens, stressing the need for crypto asset service providers (CASPs) to align their services in compliance with the MiCA regulations.

However, holders of these affected coins will have until March 31 to convert their assets to MiCA-compliant alternatives.

If this is not done, the crypto exchange will automatically convert assets to MiCA-approved stablecoins or assets.

Tether’s USDT is one of the most popular stablecoins in the world but in recent times, it has started to lose its market share because of the regulatory uncertainty in Europe, particularly due to MiCA, going from about $150 billion to $139 billion.

The new regulations in the EU require 60 per cent of stablecoin reserves in the region to be in Euros, which Tether’s chief executive, Mr Paolo Ardoino, said threatens the future of stablecoins.

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Economy

NGX RegCo, EFCC, to Strengthen Partnership on Market Integrity

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By Aduragbemi Omiyale

To boost market surveillance and combat financial crimes in Nigeria’s increasingly digitalized capital market, the NGX Regulation Limited (NGX RegCo) and the Economic and Financial Crimes Commission (EFCC) have called for enhanced partnership.

This call was made during a meeting between the two organisations at the EFCC’s headquarters in Abuja on Tuesday, January 28, 2025.

The chief executive of NGX RegCo, the independent regulation subsidiary of NGX Group Plc, Mr Olufemi Shobanjo, informed the head of the EFCC, Mr Ola Olukoyede, that, “The digitalization of our markets has brought new challenges, necessitating a more robust collaborative approach.”

“While our 2013 MoU established initial cooperation parameters, the substantial market growth in 2024 demands an enhanced partnership framework.

“As a frontline regulator, we recognize the EFCC’s crucial role in providing enforcement support and specialized expertise to combat market abuse and protect investor interests,” he added.

Mr Shobanjo emphasized NGX RegCo’s dedication to maintaining market integrity and expressed confidence that reinforced collaboration with the EFCC would strengthen investor protection mechanisms.

Responding, Mr Olukoyede commended the desire to strengthen the existing relationship between the two agencies and assured that the commission was ready and willing to collaborate.

“I know you are also concerned with regulatory compliance because the issue of compliance is a key issue. It is part of our mandate to enforce compliance.

“Under my administration, we have strengthened our bond with different regulatory bodies. Let’s see how we can have a desk where we can work better and attend to you. I have a special interest in the capital market in respect of the abuse of assets and trades.

“We will try to review the MoU, make our observations in line with the relevant laws and regulations, and communicate our views to you. We pledge our commitment to this,” he said.

The strategic dialogue highlighted both organizations’ shared commitment to fostering a secure, transparent, and globally competitive Nigerian capital market that instils investor confidence and promotes sustainable economic growth.

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Economy

Risevest Reaffirms Operational Compliance as SEC Raises Fresh Alarm

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Risevest Technologies

By Adedapo Adesanya

Risevest, a digital investment platform, has once again reaffirmed its committment to regulatory transparency and compliance as the Nigerian Securities and Exchange Commission (SEC) raised another red flag about the activities of the firm.

The SEC in another statement on Tuesday notified the public that Risevest Technologies Limited is not registered by it to operate in any capacity in the Nigerian capital market.

“Accordingly, the public is advised to refrain from engaging with Risevest Technologies Limited or any of its representatives in respect of any business pertaining or relating to the Nigerian capital market,” the regulator shared on its X platform.

This follows an earlier caution on Sunday, warning Nigerians against engaging in investment transactions with two unregistered platforms—Risevest Cooperative Multipurpose Society Limited and Stecs Multipurpose Cooperative Society, commonly referred to as Stecs.

SEC warned that engaging with unregistered and unregulated entities in the capital market exposes investors to significant risks, including fraud and the potential loss of funds.

Risevest following the initial warning said it was engaging with the regulator to straighten out the issue.

Now, Risevest in its latest communication, admitted that some of the regulatory frameworks it adopted, particularly for its cooperative subsidiary, needed to evolve to meet the expectations of the commission.

“As we’ve grown, we’ve realized that some of the regulatory frameworks we initially adopted, particularly for our Risevest Cooperative subsidiary, need to evolve to meet the expectations of the SEC. This is a natural part of our journey as we scale, and we are taking additional action steps to close any remaining compliance gaps across all our subsidiaries,” the company said.

The firm reiterated its commitment to supporting the SEC in its efforts to protect investors and ensure innovation aligns with robust investor safeguards.

“We want to reassure you that our investments and operations remain secure and unaffected by this process, as they are delivered through regulated third parties. Your trust is of utmost importance to us, and we see this as an opportunity to raise the bar even higher for compliance and operational excellence,” it added.

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