Financial Integration and Development: Liberalization and Reform in Sub-Saharan Africa

Financial Integration and Development: Liberalization and Reform in Sub-Saharan Africa

Financial Integration and Development: Liberalization and Reform in Sub-Saharan Africa

Financial Integration and Development: Liberalization and Reform in Sub-Saharan Africa

Synopsis

This book examines the effects of financial liberalization on development, with a particular focus on Sub-Saharan Africa and includes studies of Ghana, Malawi, Nigeria and Tanzania.

Excerpt

This study emphasizes the importance of developing financial systems to integrate the full range of informal and formal financial institutions that inhabit the fragmented financial landscape typical of low-income countries. Its findings support the growing realization that financial sector strategies need to be more comprehensive and better integrated if they are to have a substantial impact on real sector growth and to reach lower-income populations, especially in African countries.

Well-functioning financial markets are important for growth in investment and real sector production, as well as for financial stability. Financial institutions facilitate economic growth by mobilizing savings and channeling them into productive uses. In most African countries, this developmental role has been limited by the very small proportion of the population with access to formal financial institutions and by inefficient intermediation of financial flows, especially under highly-controlled, state-dominated financial policies.

A number of African countries have undertaken substantial reforms over the last decade to liberalize financial markets and to improve the functioning of the banking sector. But this has not necessarily been translated into increased financial flows to private investors or, into deeper financial systems that serve the population as a whole. Financial systems have remained highly fragmented, with farmers, microentrepreneurs and the low-income population generally depending on a variety of informal mechanisms for savings and credit.

This study investigates the sources of fragmented financial systems in four African countries. It breaks ground in comparing the methods of formal and informal financial institutions and evaluating their relationship in order to suggest measures that can promote deeper, better-integrated financial systems. Using systematic survey data, it focuses on structural features that tend to separate market segments, high transaction costs and imperfect information in particular.

In this context, the study examines the impact of financial liberalization on the formal and informal financial sectors. The cross-country analysis yields some common characteristics and constraints. The expected positive effects

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