Botswana: NBFI Supervision and Strategy

Botswana: NBFI Supervision and Strategy

The request for assistance was initially made by the Bank of Botswana as a follow-up to a mission from the IMF in the course of the 2003 Article IV Consultations in Gabarone.  The authorities requested technical assistance in setting up a regulatory and supervisory agency to supervise nonbank financial institutions (NBFIs).

FIRST has supported several projects in sub-Saharan Africa aimed at improving the regulatory and supervisory structures of NBFIs. The Botswana example is a good one in so far as it demonstrates much of the rationale behind the need for improvement and addresses many issues that are common not only among other regional countries but also in some other parts of the world. Each country has its own particular circumstances and the solutions cannot be identical. For example, in Malawi, FIRST’s proposed changes were to bring NBFI regulation and supervision entirely under the Reserve Bank. In the case of Botswana and Swaziland, the solution proposed was to create a new NBFI regulator.

The common elements among several countries in the region were:

  • Many NBFIs were not regulated at all. In Botswana this included savings cooperatives (SACCOs), custodians, micro-credit organisations, some specialist finance companies, asset managers and pension fund administrators.
  • Some NBFIs were regulated but without legal power. In Botswana this included building societies, the Savings Bank and the National Development Bank.
  • Regulation responsibility was dispersed among several agencies or ministries.
  • Sufficiently trained, remunerated and experienced regulatory staff was scarce. This situation alone provided a strong reason for pooling resources under a single strong regulatory structure.

The consultant concluded that the case to establish a single, independent NBFI regulatory agency was quite compelling on grounds of both effectiveness and efficient use of scarce regulatory resources. In view of the need to provide adequate staffing levels and quality, and to provide flexibility in establishing regulatory independence and powers, the establishment of a separate and independent regulator (“parastatal model”) was strongly favoured over the department model (as in department of a Government ministry).

In terms of regulatory coverage it was suggested that responsibilities be divided between the Bank of Botswana and the proposed Botswana Financial Institutions Commission (BFIC) largely along the lines of whether or not a financial institution accepts deposits from the public; deposit takers would be regulated by the Bank of Botswana. On this basis, BFIC would have the following regulatory responsibilities:

  • BFIC should have regulatory and supervisory responsibility for: insurance companies, agents and brokers; pension funds and pension fund administrators; asset managers; organised exchanges; securities brokers and dealers; investment advisors; specialised finance companies; medical aid funds, microlenders; and any other NBFIs deemed by the Minister of Finance to warrant regulatory oversight.
  • BFIC should have the full range of policy and enforcement powers needed for modern and effective regulation and supervision.
  • The legislative drafting should be approached in such a way that all regulatory and supervisory powers, including licensing, monitoring and enforcement powers are consolidated under the BFIC Law, with appropriate amendments to existing industry laws to bring them into consistency.
  • BFIC should be given appropriate operational independence from the Government of Botswana in formulating, implementing and enforcing regulation and supervision of NBFIs.
  • BFIC should be governed by a board consisting of a non-executive chair, the CEO, other non-executive members and, ex officio, the Governor of the Bank of Botswana and the Permanent Secretary of the Ministry of Finance, or their nominees.
  • The BFIC Law should include extensive accountability requirements to the Minister, the industry and the public.
  • BFIC should be funded primarily by levies and license fees paid by industry.
  • BFIC should adopt a target internal structure that strikes a balance between the desire to extract synergies from an integrated approach to regulation and the need to manage change at a pace that can be absorbed by both regulatory staff and the industry. The transition to this structure should evolve over a period of up to five years.
  • BFIC should allocate a significant amount of its resources over the first five or so years to training new and existing staff in regulatory philosophy and practice.
  • BFIC should employ staff on total remuneration terms comparable with those of the Bank of Botswana.

Based on these findings an action plan was produced to assist the authorities in the legal and establishment stages of creating the BFIC.

Lessons Learned

  • Extensive capacity building is required to support the development of the new regulatory agency. As a result countries undertaking such an exercise need to be prepared to dedicate significant resources to training new and existing staff.
  • Regulators should prepare the case of additional donor support for capacity building.
  • The main impediment to building a strong regulator for NBFIs is lack of qualified or trained staff. Because there are so many different types of NBFI, the resource challenge is greater.
  • Building capacity building through mobilizing regional expertise is likely to be more accepted and more cost efficient. FIRST has supported such an initiative using retired experts in various disciplines – mainly insurance and pensions – and made this expertise available to several countries in Southern African Development Community (SADC).


The Final Report of the consultant is disseminated. Whilst the background data in this deals with the situation in Botswana, regulators in some countries will recognize issues that they also face. The Report also sets out the arguments for certain regulatory models and the type and structure of NBFI organization that could best serve a diverse NBFI sector.