Financial Market Fragmentation and Reforms in Ghana, Malawi, Nigeria, and Tanzania

This article reports the findings from surveys of formal andinformal institutions and their clients in Ghana, Malawi, Nigeria,and Tanzania. It investigates the hypothesis that reformingfinancially repressive policies would not be sufficient to overcomefragmentation of financial markets because of structural andinstitutional barriers to interactions across different marketsegments. The four countries have substantially fragmented financialmarkets, with weak linkages between formal and informal segmentsand interest rate differentials that cannot be adequately explainedby differences in costs and risks. Nevertheless, the relativelylow transaction costs and loan losses of informal institutionsindicate that they provide a reasonably efficient solution toinformation, transaction cost, and enforcement problems thatexclude their clients from access to formal banking services.The findings imply that financial liberalization and bank restructuringin the African context should be accompanied by complementarymeasures to address institutional and structural problems, suchas contract enforcement and information availability, and toimprove the integration of informal and formal financial markets.     

Feature: Taking Africa Seriously: A Case for Enhanced Resource Flow to Facilitate Development and Reduce Poverty

Despite considerable improvements in the policy environmentin many African countries in the last two decades, it is stilldifficult for the rest of the world to take Africa seriously.Not taking Africa seriously affects the growth and developmentoutcomes. Investors do not show much optimism about the region'sfuture, hence the relatively slow flow of private capital intothe region. Capable Africans also show little enthusiasm aboutthe future, hence the flight of financial wealth and human capitalout of the region. In the last decade, African countries havestepped up the campaign to make their reform efforts appearmore credible, adopting more cooperative approaches and greaterinterest in governance issues within a more global and regionalframework. This article seeks to show why the current effortsat broader reform need to be considered more seriously by therest of the world.