The recent collapse of Silvergate Bank and Silicon Valley Bank has sent shockwaves through the global startup community, highlighting the importance of reviewing existing business continuity policies, particularly on how much saved money a startup can recover from failed banks. These incidents have emphasized the need for startups to be prepared for the worst-case scenario and have sparked discussions on the role of regulators in ensuring the safety and stability of the financial sector across ecosystems. This article will examine the impact of potential bank failures on startups in Africa, particularly exploring the government insurance policies that are in place to protect them.
Ghana:
In Ghana, the maximum compensation given to a bank depositor in the event of bank failure is GHC6,250.00 (USD$508).
If a depositor has more than the insured amount, the excess will be refunded by the collapsed bank’s receiver.
read also Crypto Banking Pioneer Silvergate Closes Shop
If, on the other hand, a person had a bank deposit account in his own name with a primary amount of GHc8,000, and his bank collapsed, he would be reimbursed GHc6,250, and the Reciever would refund the remaining GHc 1,750.
Regulatory Body: Ghana Deposit Protection Corporation
Rwanda:
Amounts up to Rwf 500,000 (USD$460) per depositor per member bank and microfinance institution are now protected by the Rwandan Deposit Guarantee Fund, in the event of bank failure.
Deposits that exceed the predetermined limit are not given any further protection by the Deposit Guarantee Fund.
The maximum protected amount is Rwf 500,000 and it is calculated by adding the total balance of all bank accounts held by one depositor, including any accrued interest.
Regulatory Body: Deposit Guarantee Fund
Kenya
Only deposits made to a member institution’s bank accounts up to Ksh. 500,000 (USD$3,895) per depositor are insured. If a depositor has many accounts with a certain institution, all of those accounts are combined and reimbursed up to a maximum guaranteed amount of Ksh. 500,000.
Upon the liquidator’s successful recovery of sufficient monies from the sale of the institution’s assets and the collection of debts, a deposit in excess of Ksh. 500,000 is paid as a liquidation dividend.
Regulatory Body: Kenya Deposit Insurance Corporation
South Africa
The Corporation for Deposit Insurance (CODI) has the responsibility of safeguarding deposits held by natural or non-financial persons in South Africa. The protection offered by CODI is R100 000 (USD $5,458) per eligible depositor and per bank.
Separate insurance will be provided for sole proprietorship accounts and individual bank accounts. If the bank is able to pinpoint the accounts the person uses for their sole proprietor business, the coverage maximum will be R100 000.
Up to the amount of R100 000, deposits made in foreign currencies are likewise insured. Prior to paying a depositor when a bank collapses, foreign currency balances will be converted to South African rand.
When they have bank amounts of more above R100 000, eligible depositors are not permitted to purchase additional deposit insurance coverage. Depositors may make claims against the collapsed bank’s estate, which the liquidator will manage, for amounts over R100,000.
Regulatory Body: Corporation for Deposit Insurance (CODI)
Central African Deposit Guarantee Fund
Insures deposits in all six countries that the Economic and Monetary Community of Central Africa comprises of (Cameroon, Central African Republic, Chad, Equatorial Guinea, Gabon and Republic of the Congo).
The Fund will reimburse savers’ deposits and other assets placed with banks in the CEMAC (Economic and Monetary Community of Central Africa), up to 5 million FCFA maximum.
Deposit Guarantee Fund in Central Africa (FOGADAC), created seven years ago by the Banking Commission of Central Africa (COBAC)
West African Monetary Union Deposit insurance Fund
This agency is tasked for protecting deposits throughout all eight West African Monetary Union member nations (Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo).
Only deposits owned by natural or artificial persons and denominated in CFA francs are insured, up to the ceiling set by the Council of Ministers.
The WAMU Council of Ministers, by Decision №009 of 06/30/2017/CM/WAMU, has set the compensation ceilings as follows:
One million four hundred thousand CFA francs (CFAF 1,400,000 or USD$2,271), per holder, for all deposits held in the books of a member credit institution
Three hundred thousand CFA francs (CFAF 300,000 or USD486), per holder, for all the deposits held in the books of a member Decentralized Financial System.
The Fund compensates depositors within three months, except in cases of force majeure.
Regulatory Body: Deposit Insurance and Resolution Fund in the West African Monetary Union (FGDR-UMOA)
Nigeria
In the event of the failure of a participating financial institution, the Nigerian Deposit Insurance Corporation is mandated to guarantee payment of deposits up to the maximum insured sum of N500,000 (USD$1,091) to a depositor in Money Deposit banks and primary mortgage banks and N200,000 (USD$436) to a depositor in microfinance banks.
Regulatory Body: Nigeria Deposit Insurance Corporation
Morocco
The current amount of compensation per natural or legal person is 80,000 DH (USD$7,744). (There are proposals to raise the threshold to at least 120,000 DH.)
Regulatory Body: Moroccan Deposit Insurance Corporation
Algeria
In Algeria, the compensation ceiling per depositor is set at two million Algerian dinars (2,000,000 DA or USD$14,639)
Compensation is made in national currency (DA).
Deposits in foreign currencies are converted into national currency at the rate in force on the date on which the banking commission declared the unavailability of the deposits.
Regulatory Body: Bank Deposit Guarantee Fund Algeria(FGDB)
Tunisia
In Nigeria, the maximum amount of compensation received by each depositor from the bank deposit guarantee fund is set at 60,000 dinars (USD$19,218) or its equivalent in convertible currencies based on the exchange rate in effect on the date of publication of the decision of compensation for the balance of all of his accounts per bank.
The FGDB guarantee is automatic and does not need depositors to seek it in order to profit from it. Depositors can also use it for free.
Regulatory Body: Bank Deposit Guarantee Fund, Tunisia (FGDB)
Uganda
For the balance of all of his accounts with each bank, the maximum compensation that can be received by each depositor from the bank deposit guarantee fund is set at 10,000,000 Ugandan shillings (USD$2,703.99) or its equivalent in convertible currencies, based on the exchange rate in effect on the date that the decision of “compensation” was published.
Deposits in excess of the insured amount will be repaid by the liquidator following the sale of the defunct bank’s assets. The amount paid out will depend on the recovery made.
Regulatory Body: Deposit Protection Fund of Uganda (DPF)
Tanzania
The maximum coverage is TZS 1.5 million (USD$644) per depositor per bank.
Deposit Insurance Board of Tanzania
Zimbabwe
- USD deposits: With effect from 1 January 2022, the maximum deposit protection cover level is set at US$1,000.00 (one thousand dollars) per deposit class per banking institution and US$500.00 (five hundred dollars) per deposit class each deposit-taking microfinance institution;
- ZWL deposits: From 17 February 2022, the maximum deposit protection cover level is set at ZWL120,000.00 (One Hundred and Twenty Thousand Zimbabwean Dollars or USD$ 331) per depositor per bank and ZWL5,000 (Five Thousand Zimbabwean Dollars or USD$13) for customers of deposit-taking microfinance institutions..
- Clients who have accounts with balances equal to or below the established cover limit are assured to receive full reimbursement in the event that a member institution fails.
- Deposit amounts in excess of the authorised cover limit will be paid out pro rata during the liquidation procedure.
- The cover limit is reviewed from time to time in line with the growth of the Fund and market conditions.
Regulatory Body: Deposit Protection Corporation Zimbabwe
Mauritius
In Mauritius, the coverage limit per insured depositor shall be 300,000 rupees (USD$6,380) as per the Mauritius Deposit Insurance Scheme Act of 2019.
Regulatory Body: Mauritius Deposit Insurance Corporation Ltd.
Egypt
According to the Central Bank and Banking System Law №194 of 2020, the Deposit Insurance Fund should be directly linked to the Central Bank, have a legal personality and an independent budget, include all banks as members, have a board of directors that is chaired by the governor, and be based in the governorate of Cairo.
No information on insurable limit.
Bank failure Africa startup Bank failure Africa startup Bank failure Africa startup Bank failure Africa startup
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer, who has several years of experience working in Africa’s burgeoning tech startup industry. He has closed multi-million dollar deals bordering on venture capital, private equity, intellectual property (trademark, patent or design, etc.), mergers and acquisitions, in countries such as in the Delaware, New York, UK, Singapore, British Virgin Islands, South Africa, Nigeria etc. He’s also a corporate governance and cross-border data privacy and tax expert.
As an award-winning writer and researcher, he is passionate about telling the African startup story, and is one of the continent’s pioneers in this regard