This is a summary of analytical work done during the preparation of the São Tomé and Príncipe Financial Sector Development Implementation Plan by Dorothe Singer and Julian Casal, both World Bank.
Bossone, Honohan, and Long (2002) provide a discussion of how small financial systems differ from larger ones and propose policies that can help small financial systems overcome some of these challenges. In particular, they show how openness can help offset some of the disadvantages of being small. Work by Beck and De La Torre (2007), Barajas et al. (2013), and Beck and Feyen (2013) benchmarks the size, depth, and performance of financial systems relative to structural characteristics of countries such as size in terms of economic activity and population. They find that poorer countries and countries with smaller populations have smaller, shallower and poorer performing financial sectors.
Adjusted for inflation, US$1 billion in 1999 is equivalent to US$1.35 billion in 2013. See also the US Federal Reserve Board’s FRED database for the size of US banks.
Some countries with small populations have developed large financial sectors through the provision of offshore financial services. However, it is not clear that offshore financial services contribute to the quality of depth of onshore financial services in small developing economies (Bossone, Honohan, and Long, 2002).
Data on the characteristics for a large number of countries (136) are available in Claessen and van Horen’s (2014) Bank Ownership Database. The most recent year for which the data are available is 2009.
For an overview of the benefits and risks of foreign banks, see Beck et al (2014) and, for a specific overview as relevant to small financial systems, see Bossone, Honohan, and Long (2002).
Data on firm access to financial services are available from the World Bank’s Enterprise Surveys but country coverage among very small and small financial systems is too poor to calculate meaningful averages.