Rural finance in Africa: institutional developments and access for the poor

Abstract

Financial market liberalization in Africa has not been effective in improving credit delivery. Many directed credit programs also have failed to improve rural credit access. Market integration is needed to loosen the structural and institutional constraints to efficient credit allocation. Integration through a financial systems development approach would allow formal credit institutions with surplus financial resources to link up with semiformal institutions that lack such resources but have a comparative advantage in reaching the poor. Strengthening ties between the formal and informal sectors is critical if credit is to be allocated equitably and efficiently. Policy can be used to enhance the development of linkages between market segments by using the fiscal system and the regulatory and supervisory systems to provide incentives for formal institutions to allocate wholesale credit through informal agents. There are comments and a discussion, pages 174-187. � 2004 Elsevier Science B.V., Amsterdam. All rights reserved.