Abstract
Financial sectors in low-income sub-Saharan Africa (SSA) are among the world's least developed. In fact, assets in most low-income African countries are smaller than those held by a single medium-sized bank in an industrial country. The absence of deep, efficient financial markets seriously challenges policy making, hinders poverty alleviation, and constrains growth. This book argues that building efficient and sound financial sectors in SSA countries will improve Africa's economic prospects. Based on a review of the key features of financial systems, it discusses the main obstacles and challenges that financial structures pose for SSA economies and recommends steps that could address major shortcomings in implementing the reform agenda.
Abstract
Financial sectors in low-income sub-Saharan Africa (SSA) are among the world’s least developed (see Appendix 3, Table A1). The range of institutions is narrow, and assets in most low-income African countries are smaller than those held by a single medium-sized bank in an advanced economy. Most people do not have access to even basic payment services or savings accounts, and the largest part of the productive sector cannot obtain credit. Some middle-income African countries perform notably better, however.
Abstract
Institutional coverage is limited, with a strong dominance of the banking system. Most banking systems in Africa are open to foreign entry, and foreign banks have a large market share.
Abstract
Access to financial services—savings and loans—is lower in Africa than in other LICs. Constrained by limited physical access to bank branches, high bank charges and/or administered interest rates, most households cannot afford to accumulate savings in a formal institution. Given lack of collateral, access to loans is even more constrained.
Abstract
Many SSA countries have been taking measures to address some of the financial sector challenges, but problems remain. Reforms are often undertaken in response to surveys—at times in the context of a country’s participation in the Financial Sector Assessment Program—that have identified a wide range of obstacles. Financial sector reforms are also increasingly part of IMF-supported program conditionality.33 These reforms follow up on an earlier generation of financial sector liberalization efforts where some progress was registered in a few countries (Box 5). But, overall, the effects of these reforms have remained limited largely due to incomplete coverage, inappropriate sequencing, and initiation in the context of macro-economic instability (see Appendix 1).
Abstract
Africa needs better financial sectors to provide the population with services and help achieve higher growth. Renewed reform efforts should depart from lessons learned in earlier reform rounds and focus as a priority on the identified key bottlenecks.