Financial services and economic development in Africa

This paper reviews the various ways in which the financial sector could impact on economic growth and development and in the process makes reference to some theoretical underpinnings. We present the structure and characteristics of financial systems in Africa. The main characteristics of financial systems in Africa that may affect economic development include weak regulation environment, weak legal systems, bankdominated financial systems, wide interest rate spreads, poor corporate governance practices, inadequate design of deposit-safety nets, oligopolistic banking sector, absence of financial innovation, inefficient payment and clearing systems, small and shallow stock markets, market fragmentation and informal financial channels and generally low levels of financial deepening. These characteristics influence the impact of financial services on economic growth and development. Policy-makers are challenged to enact policies that mitigate against the distortionary effects of these characteristics in order to promote economic growth and development.