Financial sector policy in Botswana was unusual. In most other African countries, newly independent governments intervened extensively in the ownership, management and credit allocation of domestic banks. At independence in 1966, Botswana did not even create a central bank or issue its own currency. The country continued to be part of the South African monetary system, using South African currency. In 1976, the government did eventually create a new central bank and issue its own currency.
The government’s approach to financial policy remained untypical, however, in that it continued not to interfere directly with the commercial banks which dominated the financial sector, but opted mostly for indirect policy instruments.
Botswana did eventually introduce measures to liberalise further its already relatively liberal financial sector at the end of the 1980s. It was again untypical, however, that this was not done as a response to economic crisis, and therefore not as part of IMF or World Bank conditionality. On the contrary, Botswana wanted to increase the efficiency of the financial intermediation of the economy’s large financial surpluses.
Botswana was, unfortunately, rather more like other countries in having to close or rescue non-bank financial institutions. The financial sector policy changes were only partially successful. The entry of new commercial banks, all foreign, introduce some much needed competition. This improved some aspects of banking, but with some negative side effects, and did not result in any significant expansion of the type of bank finance provided.
Moreover, although Botswana’s banking legislation and bank supervision were adequate, no small locally-owned commercial banks were licenced; this was definitely preferable to the practice in some other countries of licencing such banks before the reform of banking law and bank supervision, but may have prevented the development in Botswana of potentially valuable finance.