Resolving the African Financial Development Gap

Franklin Allen
Elena Carletti
Robert Cull
Jun Qian
Lemma Senbet
Patricio Valenzuela
Publication Type: 
Working Papers
Publication Article File: 
Journal Name: 
NBER: Forthcoming
Publication Year: 

With extensive country- and firm-level data sets we first document that the financial sectors of most sub-Saharan African countries remain significantly underdeveloped by the standards of other developing countries. We also find that population density appears to be considerably more important for banking sector development in Africa than elsewhere. To better understand how countries can overcome the high costs of developing viable banking sectors outside large metropolitan areas, we focus on Kenya, which has made significant strides in financial inclusion and development in recent years. We find a positive and significant impact of Equity Bank, a leading private commercial bank on financial access, especially for under-privileged households. Equity Bank’s business model—providing financial services to population segments typically ignored by traditional commercial banks and generating sustainable profits in the process—can be a potential solution to the financial access problem that has hindered the development of inclusive financial sectors in many other African countries.

This paper was presented at the "Financial Deepening, Macro-Stability, and Growth in Developing Countries" conference, held jointly by the International Monetary Fund, the World Bank, the Consortium on Financial Systems and Poverty, and the UK Department for International Development in September of 2012. The corresponding presentation is also available.

Africa (Sub-Sahara)
Financial Institutions
Econometrics and Statistical Methods