## _afr1605 ## Source details **Canonical URL:** [_afr1605](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/dp/2016/_afr1605.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/dp/2016/_afr1605.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/dp/2016/_afr1605.pdf.json) --- ### Preface — Purpose, scope, and why financial development matters - Provides a comprehensive review of financial development in sub-Saharan Africa and discusses how financial development can boost economic growth and make it more inclusive and less volatile. - Builds on a chapter in the April 2016 Regional Economic Outlook for sub-Saharan Africa and draws on country-specific and cross-country work undertaken in the African Department of the IMF. - Undertakes in-depth empirical analysis on the macroeconomic impact of financial development and its drivers. - Highlights comparative performance—areas of strength (e.g., adoption of mobile banking technologies) and areas of shortfall—and provides a detailed set of policy recommendations. - Deeper financial development increases deposits and loans, accessibility, and financial sector efficiency; mobilizes savings and directs funds into productive uses; supports product variety, risk management, payments, and monitoring; provides instruments to help households and firms cope with negative events. ### Executive summary — objectives and headline statistics - Purpose: Gauge the role of financial development in sub-Saharan Africa’s sustainable growth by answering three questions: 1. How has sub-Saharan Africa’s financial sector developed in the past few decades, compared with other regions? 2. With the changes over the past decades, is the financial sector now able to make a more positive contribution to growth and reduce its volatility? 3. What will it take to draw further benefits from the financial sector, and what role can policies play in the process? - Selected statistics: - Median ratio of private sector credit to GDP: increased by almost 10 percentage points since 1995, to about 21 percent in 2014. - Banking sector assets: average of 57 percent of GDP in 2014. - Around 90 percent of total outstanding local-currency denominated debt is issued by governments themselves. - Debt instruments with maturities longer than 10 years became recently common in Benin, Burkina Faso, Kenya, Mali, Tanzania, and Zambia. - Mobile‑telephone–based financial services have led the world in innovation (notably in East Africa); microfinance has grown rapidly; pan-African banks expanded presence and competition but bring supervisory challenges. ### Empirical magnitudes and macro effects (growth and volatility) - Quantitative impact estimates: - Impact of filling the financial development gap relative to peer regions: about 1½ percentage points of additional annual growth for the median sub-Saharan African country. - Raising the median financial development index to the benchmark level is associated with an increase in growth by about 1.5 percentage points. - For low-income countries the potential boost to growth is about 1.9 percentage points. - Growth boost for oil producers is about 0.5 percentage point. - Example: raising Niger’s financial development index from 0.08 to Kenya’s 0.18 yields a positive growth impact of 1.9 percentage points; a further increase to Namibia’s 0.28 adds 1 percentage point. - Relaxing borrowing constraints could increase GDP levels by 8 to 20 percent through substantial improvements in TFP over the long term. - Nonlinear volatility relationship: - Financial development initially reduces growth volatility but beyond a threshold it increases propagation and amplification of shocks. - Estimated threshold for sub-Saharan Africa: about 0.4. - Most sub-Saharan African economies are below that threshold; further financial development remains, on net, volatility-reducing for the region. - Empirical model and sample (selected): - Estimation approach: panel GMM (following Sahay and others 2015b). - Observations: 216; Number of countries: 39 (growth regressions example). - Selected coefficients (Table 1): Financial development index coefficient: 27.00 ** (11.6); Financial development index (squared): –33.83 * (19.9); Financial institution index: 9.956 *** (3.51); Financial market index: 0.794 (19.19); Financial institution index * financial market index: –19.590 (24.82). - Threshold literature context: Arcand, Berkes, and Panizza (2012) identify adverse impact above private credit-to-GDP of 100 percent—far above SSA levels. ### Financial sector structure and key descriptive findings - Deepening and structure: - The region’s median ratio of private sector credit to GDP has doubled from its 1995 level. - With the exception of middle-income countries, financial market depth and institutional development remain much lower than in other regions. - Pan‑African banks: out of six PABs domiciled in the region, all have a presence in at least 10 countries; some represented in more than 30 countries; frequently among the three largest banks in several African countries. - Pan‑African banks expanded via subsidiaries, broadened activities (capital markets, insurance, pensions, money transfers, microfinance, leasing), improved profitability and cost‑to‑income ratios (Stijns 2015), and broadened funding sources (bond issuance, capital augmentations). - State‑owned banks: - State‑owned banks allocate about 10 percent of total credit on average in Africa (World Bank 2012). - Many state‑owned banks suffer weak governance, unclear mandates, fiscal costs, and misallocation of credit. - Financial inclusion and mobile finance: - Cellphone ownership growth among the poor, the less well educated, and women presents significant potential to expand mobile payments. - In 2014, 11 percent of the population in sub-Saharan Africa held mobile banking accounts (compared with less than 6.5 percent in other regions); Kenya almost 60 percent. - Uganda and Tanzania: mobile money transactions doubled in terms of broad money, reaching about 30 percent in mid-2015. - M‑Pesa: average value of mobile payments US$24; transactions conducted through over 123,700 agents; compared with 1,440 bank branches and 2,700 ATMs (as of end-2014). - Value of mobile money transactions at 62 percent of GDP increased commercial banks’ deposits (which stood at 60 percent of GDP). - Cross-border remittances via mobile phones estimated to generate up to 20 percent of all cross-border transactions. ### Financial inclusion, microfinance, and gender gaps - Microfinance scale and indicators: - Microfinance in SSA served about 45 million clients in 2014, following an average growth rate of about 20 percent per year in borrowers and depositors since 2005. - Microfinance market estimated to grow by 15–20 percent in 2015–16. - In 2014, about 60 percent of MFI borrowers were women in SSA. - Depositors outnumbered borrowers four to one in 2013–14; total volume of deposits exceeded gross loan portfolio in all subregions. - MFIs’ loan loss rate rose to about 5 percent in 2012–14; share of loans at risk has risen steadily. - Gender and labor force participation: - Only 24 percent of Muslims have a bank account compared with 44 percent for non-Muslims (Demirguc‑Kunt, Klapper, and Randall 2013). - Narrowing the gender gap in financial inclusion by 10 percentage points is associated with a decrease in gender gaps in labor force participation by 2 to 3 percentage points globally; in SSA a 10 percentage point reduction associates with decreases of more than 4 percentage points in labor force participation gaps. - Greater equality in financial inclusion correlates with higher GDP per capita, lower poverty rates, lower net Gini, and more equal labor force participation rates. ### Commodity price shocks and financial fragility — magnitudes and channels - Panel study: 71 commodity exporters, 1997–2013, including 22 sub-Saharan African countries. - Key FSI channels and findings: - Commodity price declines → higher nonperforming loans (NPLs), higher bank costs, lower ROA and ROE, lower liquidity, lower provisions to NPLs, and higher likelihood of banking crises. - A 50 percent decline in commodity prices (similar to July 2014–June 2015, equivalent to a 3.6 standard deviation) results in: - an increase in NPLs of 3.5 percentage points for the whole sample, and - an increase in NPLs of 4.5 percentage points in sub‑Saharan Africa. - Selected coefficients from Table 8 (price shocks impact, significance noted): - NPLs: 2.2840*** (standard error 0.52) - Provisions to NPLs: -16.0300*** (standard error 3.69) - ROA: -0.5810*** (standard error 0.13) - ROE: -6.5350*** (standard error 1.58) - Cost: 1.5370* (standard error 0.90) - Liq. Assets: -1.9730** (standard error 0.93) - Index: -0.0083*** (standard error 0.002) - Crisis: 1.8750** (standard error 0.78) ### Drivers and impediments of financial development - Benchmarking exercise (152 countries, 1980–2013) finds financial development in SSA generally below benchmark; exceptions include some middle‑income countries and large oil exporters. - Angola: bank deposits increased from 21 to 49 percent of GDP, bank loans from 5 to 24 percent of GDP between 2005 and 2013, surpassing the benchmark. - GMM drivers (selected coefficients reported exactly): - Financial development index (t–1): 0.549 *** [0.017] - Capital account openness (de facto, t–1): 0.005 ** [0.002] - Trade openness (total trade/GDP, t–1): 0.044 *** [0.006] - Real GDP per capita (t–1): 0.087 *** [0.007] - Inflation rate (t–1): –0.021 *** [0.003] - ICRG country risk rating: 0.123 *** [0.016] - SSA * capital account openness (t–1): 0.009 *** [0.003] - SSA * trade openness (t–1): –0.042 *** [0.009] - SSA * inflation rate (t–1): –0.017 [0.014] - SSA * ICRG country risk rating: –0.105 *** [0.033] - Constant: –0.714 *** [0.046] - Observations: 1,809; Number of countries: 82 - Interpretation: - Macroeconomic fundamentals (real GDP per capita, openness) support development; high inflation harms it. - Institutional quality matters—judicial independence, protection of minority shareholders, auditing and reporting standards are among top institutional levers to reduce distance to benchmark. ### Institutional quality — ranked institutional levers (selected coefficients) - Protection of minority shareholders’ interests — 0.0614 **, R-squared 0.153 (Ranking 1) - Strength of auditing and reporting standards — 0.0468 **, R-squared 0.158 (Ranking 2) - Judicial independence — 0.0343 **, R-squared 0.119 (Ranking 8) - Strength of investor protection — 0.0251 *, R-squared 0.118 (Ranking 12) - Interpretation: Improving legal frameworks (minority shareholder protection, judicial independence) and corporate governance (auditing and reporting standards) are important to accelerate financial development convergence. ### Islamic finance — size, composition, and potential - Islamic finance assets in SSA at end-2014: - Islamic financial products took up about 15 percent of total financial assets in sub-Saharan Africa. - The region accounts for 1 percent of global Islamic finance assets. - Breakdown (Percent of total assets, end-2014): Banking assets 84%; Sukuk outstanding 5%; Islamic Fund assets 8%; Takaful contributions 3%. - Recent sukuk issuances: - Senegal Sukuk US$164 million. - Côte d’Ivoire Sukuk US$246 million. - South Africa Sukuk US$500 million. - Opportunities: Islamic finance may support inclusion, SME financing, infrastructure (sukuk), and stability through risk-sharing. Constraints: regulatory, supervisory, and monetary policy operational challenges. ### Financial stability, supervision, and recent trends - Recent pressures and risks: - Key financial soundness indicators improved over recent decades but weakened somewhat more recently; capital adequacy ratios largely flat and NPLs rising in past five years. - Government debt held by banks increased from 18 percent to 22 percent of banks’ total assets between 2011 and 2014 in the WAMEU region. - Examples of macro‑financial stress: WAEMU fiscal imbalances and bank holdings of government securities; Malawi domestic payment arrears and NPL increases; Namibia housing boom risks; CEMAC/Namibia/Uganda credit concentration and dollarization risks. - Progress in supervisory standards and frameworks: - Most countries have moved or plan to move to international reporting standards; six countries still rely on national standards (including Angola, Guinea, South Sudan). - Deposit insurance implemented in: CEMAC, Kenya, Nigeria, Tanzania, Uganda, Zimbabwe. - Basel II implemented in: Malawi, Mauritius, Mozambique, South Africa. - Microprudential and macroprudential priorities: - Improve supervisors’ enforcement power, risk-based supervision, off-site consolidated reporting, IFRS adoption, and resolution frameworks. - Close data gaps, build macroprudential tool capacity, implement stress testing and early-warning systems. ### Policy recommendations — priorities and specific measures - Legal, institutional, and corporate governance: - Protect interests of minority shareholders; foster contract enforcement and judicial independence. - Improve corporate governance and information disclosure; align accounting, auditing, and financial reporting with international best practices. - Supervision and crisis management: - Strengthen supervisory capacity and enforcement powers; enhance cross-border oversight and consolidated supervision; harmonize regulations and supervisory procedures. - Establish mechanisms for resolving nonviable financial institutions (for example, through a special resolution regime) and ensure functioning deposit insurance schemes. - Financial market development: - Establish long-term yield curves via regular auctions of benchmark instruments; consider primary dealership systems; diversify nonbank financial institutions; upgrade legislation to allow saving vehicles. - Financial inclusion, mobile banking, and MFIs: - Enable regulatory environment for mobile money: address legal framework, financial integrity, fund safeguarding, operational and payment risks; decide institutional oversight arrangements; coordinate cross-border frameworks; consider capital/reporting requirements for nonbanks. - Support MFIs with flexible regulation, stronger internal controls, improved record keeping, and financial literacy programs. - Promote bank competition and lower participation costs (distance to banks/ATMs, documentation requirements). - Public finance and commodity shock resilience: - Strengthen public finance management to avoid domestic arrears; build fiscal buffers and sovereign wealth funds where appropriate; diversify export bases. - Islamic finance: - Promote awareness; amend legal/supervisory/accounting frameworks; build supervisory capacity; revise monetary policy operational frameworks while weighing trade-offs in shallow markets. *Source: IMF staff and chapters summarized from _afr1605_* ### Preface ................................................................................................................ ### Preface ### Purpose and scope - Provides a comprehensive review of financial development in sub-Saharan Africa and discusses how financial development can boost economic growth and make it more inclusive and less volatile. - Builds on a chapter in the April 2016 Regional Economic Outlook for sub-Saharan Africa and draws on country-specific and cross-country work undertaken in the African Department of the IMF. - Undertakes in-depth empirical analysis on the macroeconomic impact of financial development and its drivers. - Highlights comparative performance—areas of strength (e.g., adoption of mobile banking technologies) and areas of shortfall—and provides a detailed set of policy recommendations. ### Why financial development matters - Deeper financial development increases deposits and loans, accessibility, and financial sector efficiency. - Mobilizes savings and directs funds into productive uses, facilitating startup capital and more efficient allocation of resources. - Supports creation of a larger variety of products and services, improves risk management, eases payments, and helps lenders monitor clients. - Provides instruments (e.g., insurance packages) and information to help households and firms cope with negative events, supporting more stable consumption and investment. ### Key descriptive findings - The financial sector has deepened—the region’s median ratio of private sector credit to GDP has doubled from its 1995 level. - With the exception of the region’s middle-income countries, financial market depth and institutional development remain much lower than in other regions. - The region has led the world in innovative financial services based on mobile telephony, especially in East Africa; rapid spread of systems such as M-Pesa, M-Shwari, and M-Kopa in Kenya has reduced transaction costs and facilitated transactions without traditional infrastructure. - Microfinance has grown rapidly, expanding services to customers at the lower end of the income distribution and increasing general access to financial services. - Financial inclusion still lags well behind other developing regions despite progress; cellphone ownership growth among the poor, the less well educated, and women presents significant potential to expand mobile payments and reach underserved populations. - Pan-African banks now have a presence in the vast majority of sub-Saharan African countries, filling service gaps left by European and U.S. banks, promoting greater economic integration, and increasing competition. - The expansion of Pan-African banks brings supervisory challenges: it stretches supervisory capacity of home and host supervisors and adds complexity to oversight. ### Empirical magnitudes and impacts - The impact of filling the financial development gap relative to peer regions is about 1½ percentage points of additional annual growth for the median sub-Saharan African country, with variations across country groups. - Higher financial development can reduce the volatility of growth, especially when initial financial development is relatively low; however, beyond a certain threshold, further financial depth may increase propagation and amplification of shocks, reducing its contribution to lowering volatility. ### Policy priorities and risks - Vigilance is needed against risks to the financial system and spillovers to the broader economy. - Many countries’ regulations are not yet fully aligned with global best practices and implementation remains weak. - Priority reforms include: - Improving the regulatory framework. - Strengthening supervisory capacity and enforcement powers. - Harmonizing regulations and supervisory procedures to avoid regulatory arbitrage. - Establishing appropriate mechanisms for resolving nonviable financial institutions. - Supervisors should carefully monitor risks related to mobile money transactions as they grow in popularity among the low-income segment—ensuring households’ funds are safe while preserving access to transactions, savings, and credit. ### Author - Anne-Marie Gulde-Wolf, Deputy Director, African Department, International Monetary Fund, Washington, DC. *Preface, _afr1605* ### Executive Summary ### _afr1605 - Executive Summary ### Background and objectives - Purpose: Gauge the role of financial development in sub-Saharan Africa’s sustainable growth by answering three questions: 1. How has sub-Saharan Africa’s financial sector developed in the past few decades, compared with other regions? 2. With the changes over the past decades, is the financial sector now able to make a more positive contribution to growth and reduce its volatility? 3. What will it take to draw further benefits from the financial sector, and what role can policies play in the process? ### Theoretical channels linking financial development to growth - Financial development affects growth through channels important for sub-Saharan Africa: - Catalyzing savings into more usable forms, supporting efficient allocation of capital and enhancement of total factor productivity. - Supporting diversification and management of risk. - Reducing information asymmetries, and transaction and monitoring costs. - Reducing volatility by providing instruments and information that help households and firms cope with adverse shocks through consumption and investment smoothing. - Reference: Levine (2005) finds a robust linkage between financial development and growth. ### Key findings on progress and gaps - Substantial progress over the past decade, but still considerable scope for further development, especially versus other regions. - Until about a decade ago, many countries had regressed relative to the early 1980s. - Except for the region’s middle-income countries, both financial market depth and institutional development are lower than in other developing regions. - Mobile-telephone-based financial services have led the world in innovation (notably in East Africa) and increased financial inclusion, but large untapped potential remains in other countries. - Microfinance has grown rapidly, serving lower-income customers, but rapid financial developments pose potential financial stability risks. - Pan-African banks: - Have promoted greater economic integration, competition, and financial inclusion. - Have increasingly filled gaps left by European and U.S. banks. - Pose challenges: lack of adequate supervisory oversight on a consolidated basis and relatively weak internal governance frameworks, creating potential systemic risks. ### Financial sector depth and structure (selected statistics) - Median ratio of private sector credit to GDP: - Increased by almost 10 percentage points since 1995, to about 21 percent in 2014. - Banking sector assets: - Average of 57 percent of GDP in 2014. - Government securities: - Around 90 percent of total outstanding local-currency denominated debt is issued by governments themselves. - Longer maturities: - Debt instruments with maturities longer than 10 years became recently common in Benin, Burkina Faso, Kenya, Mali, Tanzania, and Zambia. ### Multifaceted measurement of financial development - The financial development index (Sahay and others 2015b; Svirydzenka 2016) combines institutions and markets across depth, access, and efficiency. - Institutions indicators include: private sector credit to GDP; pension fund assets to GDP; mutual fund assets to GDP; life and non-life insurance premiums to GDP; commercial bank branches per 100,000 adults; ATMs per 100,000 adults; net interest margin; lending-deposit spread; non-interest income to total income; overhead costs to total assets; return on assets; return on equity. - Markets indicators include: stock market capitalization (percent of GDP); stock market turnover; international government debt securities outstanding; total debt securities of private nonfinancial corporations; percent of stock market capitalization outside top 10 companies; total number of debt security issuers; stock market turnover ratio. - The composite index suggests lackluster financial development over three decades, with modest acceleration over the past 15 years, and large cross-country variation (rapid progress in some middle-income countries; regression in some conflict-affected countries). ### Empirical estimates of impact on growth and volatility - Financial development has supported growth and reduced its volatility in sub-Saharan Africa, although the region’s level is below its benchmark. - All countries in the region are well below the threshold at which financial development could adversely affect growth and volatility (per Sahay and others 2015b). - Quantitative estimate: Raising the median financial development index to the benchmark level is associated with an increase in growth by about 1.5 percentage points. - Results on growth impact are consistent with a salutary impact on reducing the volatility of growth and other macroeconomic variables. - Caveat: Countries need vigilance about emerging macro-financial risks to manage risks associated with financial development. ### Policy recommendations (high-level) - Provide strong legal and institutional frameworks and promote sound corporate governance: - Protect interests of minority shareholders; foster contract enforcement and judicial independence. - Improve corporate governance and information disclosure; align accounting, auditing, and financial reporting with international best practices. - Strengthen supervision, including cross-border oversight and consolidated supervision: - Give supervisors more enforcement power; strengthen supervisory agencies’ capacity. - Enhance cross-country collaboration among home and host supervisors and inter-institutional cooperation within countries. - Expedite harmonization of regulations and supervisory procedures; close gaps in crisis management. - Establish mechanisms for resolving unviable institutions (for example, through a special resolution regime) and ensure adequate functioning of deposit insurance schemes. - Introduce an enabling regulatory environment to broaden financial inclusion: - Low transaction costs and technological innovations (mobile banking) are key for expanding access, particularly in East Africa. - Monitor risks related to rapid growth of mobile money transactions and increasing transaction complexity. - Strengthen consumer protection, especially for low-income populations relying on mobile money. - Support bank competition by policies related to entry (licensing) and exit (resolution regimes); allow entry of well-capitalized and well-managed institutions and timely exit of insolvent ones. - Note: Empirical studies indicate fostering competition may require more regulation, particularly in early stages of financial development (Chami, Fullenkamp, and Sharma 2010; World Bank 2012). ### Organization of the publication - Chapter 1: Overview of progress in financial deepening and broader financial development, including Pan-African banks. - Chapter 2: Positive impact of further financial development on growth and mitigation of volatility of output and investment. - Chapter 3: Empirical identification of structural and policy drivers of financial development. - Chapter 4: Financial inclusion—mobile payments and mobile banking, microfinance, and effects of financial access gaps on income inequality. - Chapter 5: Financial stability developments, including analysis of commodity price shocks on financial stability indicators. - Chapter 6: Concluding policies for supporting financial development and stability. *Source: Executive Summary of _afr1605 - Executive Summary* ### 1. Oil Exporters ### 1. Oil Exporters ### Financial Development Patterns in Sub‑Saharan Africa - Where financial development has been fast, it typically occurred through both financial institutions and financial markets. - Development has been supported by the banking and the nonbank financial sector; examples: - Botswana: multitude of financial institutions; Botswana Stock Exchange’s share and institutional investors’ share in the financial system grew rapidly in the first decade of the millennium. - Namibia: both the banking sector and nonfinancial institutions grew rapidly within the past two years, with pension funds and insurance companies combined exceeding the share of commercial banks in total financial assets. - Rise of Pan‑African banks has significantly affected the region’s financial sector landscape. - Financial development indices and components referenced (1980–2013) include: - Financial Institutions Index and Financial Markets Index (20 to 80 percentile range and median shown across 1980–2012). - Comparative groupings: SSA low‑income countries; SSA middle‑income countries; SSA fragile countries; SSA oil exporters; SSA; Emerging market and developing Asia; Latin America and the Carribean. ### Homegrown (Pan‑African) Banks (PABs) - Expansion and systemic importance: - PABs and their subsidiaries have grown rapidly; scale of operations in Africa has become larger than that of traditional European and American banks in the region. - Out of six PABs domiciled in the region, all have a presence in at least 10 countries, while some are represented in more than 30 countries. - PABs are frequently among the three largest banks in several African countries. - Modes of expansion and activities: - Expansion mainly by establishing subsidiaries in host countries, operating under host countries’ regulations and supervision. - Some PABs entered activities beyond traditional bank intermediation: capital markets, insurance, pensions, money transfers, microfinance, leasing, and nonfinancial transactions. - Contributions to markets and firms: - Increased competition for loans and deposits. - Clients include large domestic and multinational entities and increasingly underserved SMEs and individuals. - Many banks deploy mobile banking services and web‑based technologies. - Greater involvement in syndicated loans for infrastructure projects. - Funding and financial instruments: - Broadened funding sources to include longer‑term financing through bond issuance, capital augmentations, and financing from international financial institutions. - Opportunity to expand financial instruments and products, contributing to economic growth. - Many PABs report higher profitability and improved cost‑to‑income ratios (Stijns 2015). - Risks and supervisory challenges: - Cross‑sectoral and cross‑border exposures increase potential for spillovers and vulnerability to exogenous financial shocks. - Supervisory capacity is stretched by a limited number of highly skilled professionals. - Oversight of interconnected and cross‑border banks increases complexity and requires cross‑institutional and cross‑country collaboration. - Lack of fully unified reporting standards; partial adoption of International Financial Reporting Standards with incomplete compliance and high‑quality reporting. - National secrecy laws often prevent publication or sharing of detailed financial data with supervisory authorities in host jurisdictions. - Implementation of Basel accords remains uneven; higher standards adopted in only a few countries: Kenya, Malawi, Mauritius, Mozambique, South Africa. - Underdeveloped crisis management arrangements and general lack of financial safety nets, with exceptions: Kenya, Nigeria, Tanzania, Uganda, Zimbabwe, and Economic and Monetary Community of Central Africa—CEMAC—zone countries. - WAEMU example: lack of clarity about resolution powers; resolution is a joint responsibility of national and regional authorities but there is no clear and time‑bound procedure to resolve a failed bank, leading to delayed resolutions and regulatory forbearance. - Concerns that many deposit insurance schemes remain underfunded and may not be ready to cover 80 percent of the retail deposits in systemic banks. - Progress in cross‑border cooperation: - Nigeria: authorities require a Memorandum of Understanding with the foreign supervisory authority as a precondition to license a bank from a new jurisdiction. - Kenya: joint examination pursued by Kenyan and East African Community supervisors; establishment of new supervisory colleges to exchange information among supervisors. ### State‑Owned Banks - Prevalence and role: - Although most banks in sub‑Saharan Africa have become privately owned, state‑owned banks still allocate substantial credit in some countries. - State‑owned banks allocate about 10 percent of total credit on average in Africa (World Bank 2012). - Objectives and performance: - Typically created to overcome perceived gaps in credit allocation. - Some success stories where banks received clear mandates and sufficient independence (examples cited: Botswana, Chile, Korea). - In most African countries, no clear goals or performance measures are set for these banks. - Driven by weak governance and capacity constraints, state‑owned banks often allocate credit to politically connected groups, lend to cover losses of inefficient public enterprises, or finance central government deficits. - Many have failed financially without achieving intended objectives but have been kept in operation with heavy fiscal costs, undermining efficient credit allocation. ### How Much Room Is There to Catch Up? - Benchmarking exercise: - An empirical analysis of 152 countries from 1980 to 2013 obtains benchmark levels of financial development consistent with individual countries’ structural characteristics (factors not easily changed in the short term). - Dependent variable: overall index of financial development and index of financial institutions. - Explanatory variables include: log of real GDP per capita and its square term, population, population density, the age‑dependency ratio, dummies for oil exporters and legal origin, and time dummies. - Main findings: - Financial development in the region is generally below the benchmark level. - Relatively fast financial development over the past decade led to catch‑up or surpassing the benchmark only in: - Middle‑income countries that expanded financial institutions beyond the banking sector (Cabo Verde, Mauritius, South Africa), - Côte d’Ivoire, - Large oil exporters (Angola, Chad, Nigeria). - For large oil exporters, benchmark levels are typically comparatively low because oil production is often self‑financed or from offshore sources, producing particularly low predicted values (example: Nigeria). - Angola experienced rapid development: bank deposits increased from 21 to 49 percent of GDP, and bank loans rose from 5 to 24 percent of GDP between 2005 and 2013, and has consequently surpassed the benchmark level. - A similar benchmarking for the financial institutions component yields very similar results. - Empirical visualization: - Figure 5 presents Actual and Predicted Financial Development, 2013 (1 = most developed; 0 = least developed) for listed countries, distinguishing oil exporters, resource‑intensive, and non‑resource‑intensive countries; Actual and Predicted series are displayed. *International Monetary Fund (excerpt from chapter 1: Oil Exporters)* ### 2. Financial Institutions: Actual and Predicted ### 2. Financial Institutions: Actual and Predicted ### Financial development, growth, and volatility — key conclusions - Financial development in sub-Saharan Africa has supported growth and reduced its volatility. - Raising the median financial development index to its benchmark value would be associated with an increase in growth by about 1.5 percentage points. - The impact on growth is stronger for countries at a lower level of financial development: - For low-income countries, the potential boost to growth is about 1.9 percentage points. - The growth boost for oil producers is about 0.5 percentage point. - Example: raising Niger’s financial development index from 0.08 to Kenya’s 0.18 yields a positive growth impact of 1.9 percentage points; a further increase to Namibia’s 0.28 adds 1 percentage point. - Relaxing borrowing constraints could increase GDP levels by 8 to 20 percent through substantial improvements in TFP over the long term. - The relationship between financial development and growth volatility is nonlinear: financial development initially reduces volatility but beyond a threshold it increases volatility. - The estimated threshold for sub-Saharan Africa is about 0.4. - Sub-Saharan African economies are below that threshold, so further financial development remains, on net, volatility-reducing for the region. ### Channels through which financial development affects growth - Mobilizes savings from domestic and foreign sources and supports efficient allocation of capital. - Increases total factor productivity. - Eases exchange of goods and services. - Supports better risk management. - Facilitates information flow and enhances corporate governance; reduces information asymmetries, transaction and monitoring costs. - Allows risk diversification, improves allocation across investment projects, and increases economic resilience by providing instruments to withstand adverse shocks. - Strengthens transmission of monetary and fiscal policies through improved information sharing and instrument diversification. - Financial inclusion reduces inequality of opportunity and mitigates adverse effects of inequality on the level and durability of growth; women’s financial inclusion produces better welfare results. ### Empirical estimation and key statistics - Estimation approach follows Sahay and others (2015b) using panel GMM to address endogeneity. - Sample and model reporting: - Observations: 216 - Number of countries: 39 - Selected reported coefficients (Table 1): - Model 1: Financial development index coefficient: 27.00 ** (11.6) - Model 1: Financial development index (squared): –33.83 * (19.9) - Model 2: Financial institution index: 9.956 *** (3.51) - Model 2: Financial market index: 0.794 (19.19) - Model 2: Financial institution index * financial market index: –19.590 (24.82) - Note: Robust standard errors in parentheses; *** p < 0.01, ** p < 0.05, * p < 0.1. - Literature and threshold context: - Arcand, Berkes, and Panizza (2012) evidence of adverse impact of finance on growth above a private credit-to-GDP threshold of 100 percent—far above actual levels in sub-Saharan Africa. - The parameter on the square term of financial development is not significant in the most parsimonious model reported. ### Financial development and volatility — detailed findings - Financial development reduces growth volatility up to a point; beyond that point, deeper finance can increase propagation and amplification of shocks. - For sub-Saharan Africa: - The nonlinear (U-shaped) relationship is present but the threshold (~0.4) lies above current index levels for most countries, implying continued net volatility reduction with further development. - The threshold for sub-Saharan Africa is lower than for other regions, reflecting weaker legal and institutional frameworks and greater frequency/magnitude of commodity-related shocks. - Component effects: - Both financial institutions and financial markets dampen growth volatility, with financial institutions playing a more prominent role in sub-Saharan Africa. - Financial development reduces overall growth volatility but only up to a certain point; results for investment volatility indicate pronounced reduction in investment volatility in sub-Saharan Africa (attributed to greater access to credit for large firms that account for most investment). ### Policy implications and priorities - Further financial deepening can support higher and less volatile growth in sub-Saharan Africa, especially for low-income countries with larger gaps to benchmarks. - Policy focus should include: - Removing binding borrowing constraints (e.g., improving contract enforcement, reducing asymmetric information that raises collateral demands and lowers leverage). - Lowering participation costs (distance to banks/ATMs, documentation requirements) to increase inclusion. - Strengthening legal and institutional frameworks to raise the threshold at which financial development would begin to amplify volatility. - Monitoring and managing emerging macro-financial risks as financial development proceeds. - Expanding development of financial infrastructure and competition, particularly for financial markets, to enhance their positive impact. *Source: IMF staff estimates and analysis from "Financial Development, Growth, and Volatility" (chapter 2).* ### 2013. The high magnitude of financial development variables’ ### 2013. The high magnitude of financial development variables’ coefficients on investment volatility could be explained by the substantial volatility of investment across countries and over time ### Macro-financial risks: vigilance needed - Further financial sector development in sub-Saharan Africa could yield significant macroeconomic gains but may also generate substantial spillovers if excessive risks are taken. - Recent country developments highlighting emerging macro-financial risks: - WAEMU: widening fiscal imbalances and accommodative monetary policy by BCEAO allowed banks to significantly increase holdings of government securities to take advantage of the interest rate margin of government bonds over the low BCEAO refinancing rate, raising the sovereign financial risk (IMF 2015g). - Malawi: insufficient fiscal adjustment led to accumulation of domestic payment arrears and more recourse to domestic financing, resulting in increased nonperforming loans and elevated financial sector exposure to government risks and heightened economic uncertainty (IMF 2015d). - Namibia: a booming housing market posing a great risk to banks and potential fiscal risk. - CEMAC, Namibia, Uganda: banks’ credit growth accompanied by significant concentration risks (IMF 2015c, 2015e, 2015f). In Uganda, high dollarization in loans and deposits poses potential credit risks due to possible currency mismatches in borrowers’ balance sheets. - These developments could initiate bank–sovereign risk feedback loops, easily exacerbated by: - lack of enforcement of prudential rules, - weak judiciary systems, - weak crisis resolution frameworks in the region. - Regional statistic noted: Government debt has increased from 18 percent to 22 percent of banks’ total assets between 2011 and 2014 in the WAMEU region. ### Boosting financial sector development: focus areas - Sound macroeconomic fundamentals have driven financial development in sub-Saharan African countries, while weak institutional quality has hindered it in many countries. - Improvements in legal frameworks and corporate governance seem to be the most promising avenues to boost financial development in the region. - Empirical and sector-study evidence cited: - Deficiencies in property rights protection impede banking sector development (Gulde and others, 2006). - Institutional factors affect financial depth and access more than asset quality and profitability in sub-Saharan Africa (Anayiotos and Toroyan, 2009). - Differences in financial development between CFA franc zone and non-CFA countries may be attributed to differences in institutional quality (Singh, Kpodar, and Ghura, 2009). - Weak judicial enforcement identified as a major impediment to banking system development (Mlachila, Park, and Yabara, 2013). ### A summary review of the literature (drivers of financial development) - Three strands of literature summarized: - Macroeconomic fundamentals: economic growth encourages banking sector development; inflation negatively related to financial development (Boyd, Levine, and Smith, 2001). - International integration: trade and capital openness can foster financial depth (Svaleryd and Vlachos, 2002; Klein and Olivei, 2008); political economy channels matter (Rajan and Zingales, 2003). - Institutional quality: better institutions (creditor protection, property rights) are positively related to private credit and financial development (Acemoglu, Johnson, and Robinson, 2004; Djankov, McLiesh, and Shleifer, 2005; Sahay and others, 2015b). - Interaction of integration and institutions: financial liberalization increases development primarily where political and legal institutions are well developed (Tressel and Detragiache, 2008; Chinn and Ito, 2005). In sub-Saharan Africa, weak institutions limit the gains from international integration (David, Mlachila, and Moheeput, 2015). ### Macroeconomic fundamentals driving financial development — key empirical findings - Method note: GMM estimation used; data for 1980–2013 for about 90 developing countries (excluding oil exporters) unless otherwise noted. Interaction terms with sub-Saharan Africa (SSA) show incremental regional impacts. Results should be interpreted with caution due to model specification uncertainty. - Core findings: - Macroeconomic fundamentals have a positive impact on financial development in developing countries generally and sub-Saharan Africa in particular. - High inflation—a proxy for macroeconomic instability—has a negative effect on financial development. - Income effect is significant, indicating scope for financial development as the middle class emerges in sub-Saharan Africa. - International trade integration (share of total exports and imports of goods and services in GDP) positively affects financial development in developing countries but the effect almost disappears in sub-Saharan Africa. - International financial integration (share of international assets and liabilities as a share of GDP) positively affects financial development in developing countries and more so in sub-Saharan African countries. - Lower country risk appears conducive to financial development in developing countries, with a diminished effect in sub-Saharan Africa—suggesting financial market participants demand a higher risk premium in sub-Saharan African countries even for the same risk rating. - Policy implication: institutional reform addressing financial market information infrastructure can further stimulate financial development. - Selected GMM estimation output (Table 3; coefficients reported exactly as in source): - Financial development index (t–1): 0.549 *** [0.017] - Capital account openness (de facto index, t–1): 0.005 ** [0.002] - Trade openness index (total trade/GDP, t–1): 0.044 *** [0.006] - Real GDP per capita (t–1): 0.087 *** [0.007] - Inflation rate (t–1): –0.021 *** [0.003] - ICRG country risk rating: 0.123 *** [0.016] - SSA * capital account openness (t–1): 0.009 *** [0.003] - SSA * trade openness (t–1): –0.042 *** [0.009] - SSA * inflation rate (t–1): –0.017 [0.014] - SSA * ICRG country risk rating: –0.105 *** [0.033] - Constant: –0.714 *** [0.046] - Observations: 1,809 - Number of countries: 82 - Estimation method: GMM - Additional empirical note from the investment volatility analysis: - Aggregate coefficient of financial development positive for the global sample. - Financial development coefficient for sub-Saharan African countries (FD + FDxSSA) is statistically significant and negative while the coefficient on the square term is statistically significant and positive at the 5 percent level. ### Weak institutional quality inhibiting financial development - While macroeconomic fundamentals are primary drivers, many sub-Saharan African countries remain below the financial development benchmark; institutional quality is an important explanatory factor. - Empirical associations: - Judicial independence and strength of investor protection are associated with higher financial development. - Overall institutional quality appears only weakly related to the degree of underdevelopment relative to the benchmark, but some institutional indicators matter more than others. - Some oil exporters (Angola, Nigeria) outperform benchmarks—suggesting oil revenue inflows into the financial system may induce financial development despite weak institutional quality. - Suggested policy focus: - Improve legal frameworks, corporate governance, creditor protection, and judicial enforcement to help countries catch up to financial development benchmarks. - Strengthen regulatory frameworks and financial market information infrastructure to reduce the higher risk premia demanded in the region. *Italic: IMF staff summary of chapter content.* ### 1. Judicial Independence ### 1. Judicial Independence ### Institutional quality and distance to the benchmark - The overall level of institutions may not be strongly associated with the distance to the benchmark, but specific aspects of institutional quality matter for the degree of financial underdevelopment (Figure 9). - The institutional quality index was obtained from the Global Competitiveness Index’s Pillar 1 (Institution) by the World Economic Forum. Using alternative indicators, such as the World Bank Country Policy and Institutional Assessment index or the World Bank’s Doing Business indicators, yields similar results. - The same exercise was conducted with the World Bank’s Doing Business indicators, and the institutional indices of Polity IV. The results are similar but less robust than those from the Global Competitiveness Index. ### Detailed institutional indicators linked to reducing financial underdevelopment (Table 4) - Coefficients are ranked from high to low; higher coefficients indicate institutional aspects that help improve financial development more efficiently. - Top-ranked institutional indicators with their coefficient with the distance to the benchmark and R-squared: - Protection of minority shareholders’ interests — 0.0614 **, R-squared 0.153 (Ranking 1) - Strength of auditing and reporting standards — 0.0468 **, R-squared 0.158 (Ranking 2) - Efficiency of legal framework in challenging regs. — 0.0424, R-squared 0.073 (Ranking 3) - Efficiency of legal framework in settling disputes — 0.0400, R-squared 0.079 (Ranking 4) - Transparency of government policymaking — 0.0385, R-squared 0.044 (Ranking 5) - Efficacy of corporate boards — 0.0379, R-squared 0.040 (Ranking 6) - Property rights — 0.0346, R-squared 0.072 (Ranking 7) - Judicial independence — 0.0343 **, R-squared 0.119 (Ranking 8) - Intellectual property protection — 0.0326, R-squared 0.064 (Ranking 9) - Irregular payments and bribes — 0.0326, R-squared 0.079 (Ranking 9) - Ethical behavior of firms — 0.0309, R-squared 0.032 (Ranking 11) - Strength of investor protection — 0.0251 *, R-squared 0.118 (Ranking 12) - Interpretation: Improving legal frameworks (including protection of minority shareholders’ interests and judicial independence) and corporate governance (auditing and reporting standards) are important levers to reduce the distance to the benchmark for financial development in sub-Saharan Africa. ### Islamic finance: opportunities and constraints - Islamic finance defined: provision of financial services in line with Islamic ethical principles and law (Shari’ah). Main categories: 1. debt-like financing in the form of sales or deferred payments, 2. equity-like financing in the form of profit-and-loss sharing, 3. financial services. - Size and coverage in sub-Saharan Africa: - Islamic financial products took up only about 15 percent of total financial assets in sub-Saharan Africa at the end of 2014. - The region accounts for only 1 percent of global Islamic finance assets (Figure 10). - Breakdown of Islamic finance assets (Percent of total assets, end-2014): - Banking assets 84% - Sukuk outstanding 5% - Islamic Fund assets 8% - Takaful contributions 3% - Financial inclusion and Muslim population: - Only 24 percent of Muslims have a bank account compared with 44 percent for non-Muslims (Demirguc-Kunt, Klapper, and Randall 2013). - Figures show negative correlation between financial inclusion and the size of the Muslim population (Figure 11); reported R-squared values: R² = 0.1571 and R² = 0.1154 for depicted relationships. - Potential benefits: - Empirical work indicates Islamic banking is conducive to economic growth and financial inclusion in low- and middle-income countries, including sub-Saharan Africa (Imam and Kpodar 2015; Kammer and others 2015). - Islamic finance principles (risk-sharing and asset-based financing) may promote macroeconomic and financial stability through better risk management. - Sukuks are considered well-suited for infrastructure financing, supporting long-term growth and economic development. - Islamic finance principles are considered to serve SME financing well, promoting inclusive growth. - Recent sukuk issuances mentioned: - Senegal issued Sukuk of US$164 million. - Côte d’Ivoire issued Sukuk of US$246 million. - South Africa issued US$500 million aiming to become the Islamic finance hub for sub-Saharan Africa’s infrastructure financing. - Challenges: - Regulation, supervision, and monetary policy face particular challenges owing to Islamic finance specificities, e.g., profit-sharing investment accounts and Shari’ah governance; regulatory and supervisory frameworks should account for these features. ### Promoting financial inclusion: overview and innovations - Access to traditional financial services in sub-Saharan Africa remains low relative to other regions, particularly for the poor, the uneducated, and women. - Mobile payment systems and mobile banking have compensated for shortcomings in some countries, with East Africa leading the world in expansion of mobile financial services. - Microfinance institutions play an important role by providing services to low-income populations, smoothing income and consumption. - Constraints to bank lending: insufficient information on borrowers (credit history and credit risk), lack of collateral registries, difficult contract enforcement. - In fragile countries, access to financial services is particularly limited; examples: - Less than seven ATMs and less than three financial branches per 100,000 persons in Central African Republic, Comoros, Guinea-Bissau. - Access disparities: - In all country groups, access is higher for the more educated, the top 60 percent earners, and men. - Access is particularly low in rural areas where branches are mostly concentrated in urban centers. - Mobile finance and microfinance complementarity: - Mobile payment systems (e.g., M-Pesa, M-Shwari, M-Kopa in Kenya) reduce transaction costs and facilitate personal transactions. - M-Shwari and M-Kesho enable customers to save, earn interest and access small amounts of credit via mobile phone. - M-Kopa initially sold small solar panels to rural populations and evolved into a provider of mobile money services. - Microfinance is well adapted to the poor with little or no collateral, especially in rural areas, enhancing financial inclusion through savings mobilization and, to a lesser extent, credit provision. ### The cost of unequal financial access and gender gaps - Gender inequality in financial inclusion is high in sub-Saharan Africa and is associated with higher income inequality. - Access to financial services is generally lower in sub-Saharan Africa, especially in fragile and low-income countries, compared with other developing regions. - Gender gaps: - Gender gaps in most country groups are higher than in emerging and developing Asia or Latin America and the Caribbean; fragile states are an exception because access levels are equally low for both genders. - The gender gap is lower for informal activities: more women than men save in a savings club or with a person outside the family; men and women are equally likely to borrow from family and friends. - Associations between gender equality in financial inclusion and macroeconomic outcomes (Figure 15): - More equal access of women and men to financial services (account at a formal financial institution) is closely correlated with higher economic development (measured by higher GDP per capita or lower poverty rates). - Greater equality in financial inclusion is associated with a more equal income distribution (lower net Gini coefficient). - Greater equality is associated with more equal labor force participation rates between men and women; more equal labor force participation rates have been previously associated with higher growth and a more equal income distribution. - Empirical finding: - Using a broader index of formal financial inclusion (constructed via principal components analysis from Global Findex indicators), higher gender equality in financial inclusion is associated with lower income inequality, even when accounting for other determinants of inequality. - Standard drivers of income inequality still matter: government expenditure appears redistributive and is associated with lower income inequality; at lower stages of development, financial depth is associated with increases in income inequality, but this effect disappears for more advanced economies; a larger agricultural sector is associated with lower income inequality. *Source: IMF staff estimates and text from the content unit.* ### 4. Financial Inclusion and Female Labor Force Participation ### 4. Financial Inclusion and Female Labor Force Participation ### Financial inclusion and female labor force participation: empirical findings - Greater gender equality in financial inclusion is significantly and positively associated with equality in labor force participation rates. - Narrowing the gender gap in financial inclusion by 10 percentage points is associated with a decrease in gender gaps in labor force participation by 2 to 3 percentage points globally. - The relationship is stronger in sub-Saharan Africa (SSA): a 10 percentage point reduction in the financial inclusion gap is associated with decreases of more than 4 percentage points in labor force participation gaps in SSA (positive and significant interaction of the regional dummy with the financial inclusion gap). - The finding holds after controlling for: the level of development, the gender gap in education, the fertility rate, the male–female age differential at first marriage (proxy for societal attitudes toward women), and an index of women’s rights. ### Implications for inequality and growth - Policies that improve women’s financial inclusion can help enhance gender equality in labor force participation and reduce income inequality. - More equal labor force participation rates would unlock growth benefits and contribute to reducing income inequality. ### Mobile payments and banking services: penetration and impacts in SSA - In 2014, 11 percent of the population in sub-Saharan Africa held mobile banking accounts, compared with less than 6.5 percent in other regions. - Kenya: almost 60 percent of the population holding mobile accounts (leading the region). - Uganda and Tanzania: mobile money transactions doubled in terms of broad money, reaching about 30 percent in mid-2015. - In several SSA countries (Côte d’Ivoire, Kenya, Niger, Tanzania, Uganda, Zimbabwe) the number of mobile accounts has exceeded traditional bank accounts. - M-Pesa (Kenya): average value of mobile payments US$24; transactions conducted through over 123,700 agents; compared with 1,440 bank branches and 2,700 ATMs (as of end-2014). - Value of mobile money transactions at 62 percent of GDP increased commercial banks’ deposits (which stood at 60 percent of GDP). - Cross-border remittances via mobile phones are estimated to generate up to 20 percent of all cross-border transactions. ### Channel mechanisms and market effects - An account at a financial institution provides women with a safe place to store money and access to borrowing to start businesses—supporting entrepreneurship and self-employment—especially important where women are overrepresented in the informal sector and nonwage employment. - Mobile banking reduces costs and time to access financial services and increases convenience, expanding financial inclusion across diverse economic, demographic, and educational backgrounds. - Mobile money has complemented traditional banking and induced positive spill-backs: expanding demand for traditional bank products, enabling banks to collect small deposits via agent banking, and encouraging micro-savers to deposit more in commercial banks. - Technological innovations and product diversification (e.g., M-Shwari, M-Kesho, M-Kopa) have broadened access to payments, savings, credit, insurance, and asset acquisition for low-income households. ### Microfinance institutions (MFIs): scale, gender reach, and risks - Microfinance in SSA served about 45 million clients in 2014, following an average growth rate of about 20 percent per year in the number of borrowers and depositors since 2005. - The region’s microfinance market is estimated to grow by 15–20 percent in 2015–16. - MFIs can support access to finance for the 350 million unbanked adults in the region. - In 2014, about 60 percent of MFI borrowers were women in SSA—almost twice women’s share of formal bank accounts—though below Asia’s best-performing region; East Africa leads the subregions. - In 2013–14 depositors outnumbered borrowers four to one; total volume of deposits also exceeded the gross loan portfolio in all subregions. - MFIs’ borrowing needs are limited (less than 10 percent in the region), but operational expenses are higher (driven by lack of physical and financial market infrastructure). - Portfolio quality concerns: loan loss rate rose to about 5 percent in 2012–14 (the highest of all regions); share of loans at risk has risen steadily. - MFIs are vulnerable to boom–bust cycles, natural disasters, and abusive schemes; small size limits contingent fiscal risk but shocks can damage confidence and harm the poor. ### Key policy recommendations and regulatory priorities - Promote policies targeted at improving women’s financial inclusion to enhance gender equality in labor force participation and reduce income inequality. - Support mobile payments and banking services as a means to expand financial inclusion, particularly in rural and low-income contexts. - Ensure an enabling and flexible regulatory environment for mobile money that balances innovation with risk mitigation: - Address five key risk areas: legal framework, financial integrity, fund safeguarding, operational risks, and payment risks. - Decide on institutional arrangements for oversight of mobile payments. - Establish a collaboration framework for domestic and international mobile transfers. - Consider capital requirements for nonbanks involved in mobile banking and reporting requirements. - Strengthen financial literacy and financial market infrastructure to improve MFIs’ efficiency, reduce information problems, prevent borrower over-indebtedness, and facilitate transition of microfirms to bank finance. - Leverage technological innovation and product diversification to reduce operational costs and expand reach (including through mobile networks and agent banking). *Source: IMF staff analysis in “Financial Inclusion and Female Labor Force Participation,” IMF* ### 1. Growth of Borrowers ### 1. Growth of Borrowers ### Growth of Borrowers - Visual data presented for periods "2005–08" and "2012–14" by region: SSA, Asia, LAC, with interquartile range and median indicated. - Figures span percentage axes and year ranges as shown in source charts. ### Growth of Depositors - Visual data presented for periods "2005–06" and "2013–14" by region and subregions: Asia, LAC, SSA; and by SADC, WAEMU, EAC, CEMAC. - Gross loan portfolio and deposits shown in Millions of U.S. dollars for "2005–06" and "2013–14". ### Microfinance Loans versus Deposits - Comparative charts present gross loan portfolio and deposits across "2005–06" and "2013–14" for Asia, LAC, SSA. - Axis scales and labels preserved in source figures. ### Financial versus Operational Cost - Financial cost and Operation cost expressed as "Percent of gross loan" across regions Asia, LAC, SSA for periods "2005–06" and "2013–14". - Charts indicate percent scales consistent with source. ### Nominal Interest of MFIs - Charted nominal interest rates across regions Asia, LAC, MENA, SSA for years "2004", "2009", "2014". - Percent scales preserved as in the source. ### Portfolio Quality Indicators - Loan loss rate average and Portfolio at risk 90-day average shown across "2006–08", "2009–11", "2012–14" for Asia, LAC, MENA, SSA. - Percent axes and time bands preserved exactly as in source figures. ### Strengthening supervision and sector governance - "Strengthening supervision is key to addressing consumer protection and financial stability concerns while supporting financial inclusion." - The "test and learn" approach supported rapid sector growth in many countries, but: - Enhancing risk-based supervision and enforcement is critical to weeding out problem MFIs to support stability and efficiency (BIS 2010; CGAP and MIX 2011; Cui, Dieterich, and Maino 2016). - Some countries made progress in regulating MFIs by activities: Democratic Republic of Congo, Kenya, Rwanda, Uganda, WAEMU. - Effective enforcement against small-sized but numerous MFIs requires stronger commitment and commensurate resources of relevant supervisors. - Strengthening professionalism in the microfinance sector is important to mitigating governance risk. - High share of MFIs that take deposits requires effective collaboration between supervisors of nonbank financial institutions and bank supervisors. ### Ensuring Continued Financial Stability - Key summary points: - "Key financial stability indicators—while stronger than in the past—have come under pressure more recently, possible presaging a slower pace of financial development in the future." - Progress in supervisory standards varies substantially across countries; implementation challenges remain. - Pan-African banks bring new opportunities and oversight challenges and may increase systemic risk. - Empirical analysis of episodes of commodity price shocks shows declines in commodity prices are associated with: - Higher financial sector fragility (increased nonperforming loans and bank costs). - Lower bank profitability and liquidity. - Effects especially pronounced in sub-Saharan Africa, where dependency on commodities is high. - Historical and recent trends: - "Banking crises in the region have become rarer, and financial soundness indicators have improved over recent decades—although they have weakened somewhat more recently (Figures 17 and 18)." - The reduced frequency of banking crises evolved in parallel with favorable macroeconomic conditions and improvements in supervisory frameworks from the early 2000s. - Impact of the global financial crisis on financial sector stability has been moderate in most sub-Saharan African countries (Mlachila, Park, and Yabara 2013), possibly reflecting relatively low financial integration. - Main financial soundness indicators have improved compared with a decade ago (Mecagni, Marchettini, and Maino 2015). - "In the past five years, indicators deteriorated somewhat, with capital adequacy ratios staying flat at best and nonperforming loans continuously rising, in line with evidence of overheating in some countries of the region (IMF 2016a)." - "More recently, the decline in commodity prices, tighter external financing conditions, and exchange rate depreciations have exerted further pressures on various dimensions of financial soundness, in particular in commodity-exporting countries (IMF 2016a). This could be a harbinger of a slower pace of financial development in the medium term." ### Progress in supervisory standards and schemes - Transition to international reporting standards: - "Most countries have already moved to international reporting standards or plan to move toward them in the short term, while only six countries still rely on national standards (including Angola, Guinea, South Sudan)." - Deposit insurance implementation as of 2016: - Implemented in: CEMAC, Kenya, Nigeria, Tanzania, Uganda, Zimbabwe. - Basel II implementation: - Implemented in: Malawi, Mauritius, Mozambique, South Africa. ### Key statistics and chart references (preserved labels and ranges from source) - Time bands and labels retained exactly as presented: "2005–08", "2012–14", "2005–06", "2013–14", "2004", "2009", "2014", "2006–08", "2009–11", "2012–14". - Regions and abbreviations preserved: SSA - sub-Saharan Africa; LAC - Latin America and the Caribbean; SADC - Southern African Development Community; WAEMU - West Africa Economic and Monetary Union; EAC- East Africa Community; CEMAC - Central Africa Economic and Monetary Community; MENA- Middle East and North Africa. - Figures referenced: Figure 18 ("Systemic Banking Crises, 1976–2010", Source: Laeven and Valencia 2012) and Figure 19 ("Sub-Saharan Africa: Financial Soundness Indicators, 2006–14", Sources: Country authorities; and IMF staff estimates). *INTERNATIONAL MONETARY FUND* ### 4. Return on Assets ### 4. Return on Assets ### Enforcement of Prudential Standards and Pan-African Banks - Enforcement of prudential standards is quite weak in some cases, and the adoption of stricter financial standards in the future is likely to face implementation hurdles. - Prudential standards are insufficiently enforced in many of the region’s countries. - Example: while the WAEMU Banking Commission has put considerable effort into building operational capacity and enhancing banking supervision in the past few years, the average bank does not comply with the regionally required regulatory (Basel I) capital adequacy ratio of 8 percent (IMF 2015g) in half of the WAEMU member countries. - The rapid expansion of Pan-African banks (PABs) brings new opportunities but also poses more risks: - PABs can enhance financial intermediation, promote greater economic integration, and foster innovation. - Key risks include systemic importance, interconnectedness, and lack of adequate supervisory oversight on a consolidated basis. - Some banks have weak internal governance frameworks. - These problems need to be addressed to mitigate systemic risks that could endanger financial development. ### Commodity Price Shocks and Financial Sector Fragility — Data and Scope - Analysis based on a panel study of 71 commodity exporters among emerging and developing economies over 1997–2013, including 22 sub-Saharan Africa countries. - Sub-Saharan countries in the sample: Angola, Botswana, Burundi, Cameroon, Côte d’Ivoire, Ethiopia, Gabon, Ghana, Guinea, Equatorial Guinea, Mali, Mozambique, Namibia, Niger, Nigeria, South Africa, Sudan, Tanzania, Togo, Uganda, Zambia, and Zimbabwe. - Financial fragility defined via indicators capturing sensitivity of the financial system and likelihood of systemic banking crises. ### Channels through which commodity price shocks affect financial fragility - Reduced export income and fiscal retrenchment → weaker ability of agents (including governments) to meet debt obligations → potential weakening of bank balance sheets. - Bank withdrawals surge after price drops → reduced bank liquidity → potential liquidity crisis. - Failure to curtail public spending → accumulation of payment arrears → suppliers at risk of defaulting on bank loans. - Large commodity price shocks → downward pressure on domestic currency → bank losses from net open foreign exchange positions or unhedged borrowers unable to service foreign-currency loans. ### Empirical approach and indicators - Financial Soundness Indicators (FSIs) used (seven indicators): 1. Share of bank nonperforming loans (NPLs) 2. Provisions to NPLs 3. Return on assets (ROA) 4. Return on equity (ROE) 5. Cost-to-income ratio 6. Liquid assets-to-deposits and short-term funding ratios 7. Ratio of regulatory capital to risk-weighted assets - Also constructed a synthetic index: mean of the seven indicators, each normalized to take a value between 0 and 1 (with higher values corresponding to more stability). - Commodity price shocks measure: residual from regressing log commodity prices on up to three lags and a quadratic time trend; rescaled to be 0 for positive shocks and range from 0 to 1 for negative shocks (variable represents only negative shocks). - Estimation methods: - Equation (1): panel fixed effects estimator for FSIs. - Equation (2): conditional logit fixed-effects estimator for banking crisis probability, with banking crisis dummy from Laeven and Valencia (2013). ### Key empirical findings and magnitudes - Declines in commodity prices are associated with higher financial sector fragility across a wide range of indicators (Table 8). - Directional relationships found: - Price shocks associated with higher nonperforming loans (NPLs) and higher bank costs. - Price shocks associated with lower bank profitability: return on assets (ROA) and return on equity (ROE). - Price shocks associated with lower liquidity and lower provisions to NPLs. - Price shocks increase the likelihood of banking crises. - Sub-Saharan Africa is more affected than the full sample: - A 50 percent decline in commodity prices (similar to the magnitude experienced over July 2014–June 2015, and equivalent to a 3.6 standard deviation) results in: - an increase in nonperforming loans of 3.5 percentage points for the whole sample, and - an increase in nonperforming loans of 4.5 percentage points in sub-Saharan Africa. - Robustness: results hold under (1) alternative measure of commodity price shocks, (2) differentiation between hydrocarbon and other nonrenewable commodities, (3) focus on shocks lasting more than one year, and (4) focus on large shocks. ### Selected coefficients from Table 8 (impact of price shocks) - Price shocks coefficients (with significance): - NPLs: 2.2840*** (standard error 0.52) - Provisions to NPLs: -16.0300*** (standard error 3.69) - ROA: -0.5810*** (standard error 0.13) - ROE: -6.5350*** (standard error 1.58) - Cost: 1.5370* (standard error 0.90) - Reg. Capital: -0.3440 (standard error 0.37) - Liq. Assets: -1.9730** (standard error 0.93) - Index: -0.0083*** (standard error 0.002) - Crisis: 1.8750** (standard error 0.78) - Observations and sample sizes for regressions vary (examples from Table 8): - NPLs regression: Observations 457; Countries 45; R-squared 0.3470 - ROA regression: Observations 691; Countries 58; R-squared 0.0580 - Crisis regression: Observations 191; Countries 15 - Note on significance: *** p <0.01, ** p <0.05, * p <0.10. ### Policy implications to reduce financial fragility and support financial development - The impact of commodity price shocks on the banking system depends on pre-existing economic, financial, and institutional conditions. - Adverse effects are more severe where governance quality is poor, fiscal space is weak, sovereign wealth funds are absent, macroprudential policies are not implemented, and export bases are undiversified. - Stronger public finance management can help prevent domestic arrears after negative commodity price shocks. - Addressing these weaknesses could reduce financial sector fragility and the probability of banking crises. ### Policies for supporting financial development and stability (summary of recommendations) - Build institutions, promote sound legal and regulatory frameworks, and broaden financial inclusion. Specific measures include: - Providing strong legal and institutional frameworks, promoting healthy competition between banks, and improving financial infrastructure: - Strengthen property rights and contract enforcement; enhance duration and objectiveness of legal proceedings; improve credit information systems; reduce costs related to collateral requirements. - Boost banking competition via policies that promote market contestability and allow entry of well-capitalized institutions and timely exit of insolvent ones. - Improve corporate governance, accounting, auditing, and disclosure standards aligned with international best practices. - Ensure governments play an active but nondistortionary role: - Promote sound and stable macroeconomic frameworks and fundamentals. - Support transparency, reduce counterparty risk, expand credit reporting inclusion, and develop government securities markets. - Caution: state-owned banks have a weak track record in credit allocation and can lead to resource misallocation and deterioration of intermediation quality. - Foster financial market development: - Establish long-term yield curve through regular auctions of benchmark instruments; consider primary dealership systems; diversify nonbank financial institutions; upgrade legislation to allow saving vehicles. - Improve information disclosure and financial market infrastructure. - Introduce enabling policies to broaden financial inclusion: - Reduce intermediation costs via stronger bank competition, opening sector to foreign entry, and flexible adoption of innovative financial products (e.g., mobile banking). - Be cautious with direct credit access programs or state-owned bank lending—these often lead to distortions and mixed results. - Explore the potential of Islamic finance: - Steps: public awareness, amend legal/supervisory/accounting frameworks, build supervisory capacity, revise monetary policy operational frameworks. - Trade-offs: in shallow markets, new products may fragment markets. - Additional recommendations for financial inclusion: - Support development of mobile banking: promote inexpensive and flexible technologies; set regulations on consumer protection, “know-your-customer”, branchless banking, e-money; set oversight standards and institutional arrangements for mobile payments; coordinate cross-border frameworks. - Promote microfinance: adopt flexible regulations to balance depositor protection and innovation; strengthen internal controls and record keeping (including loan loss recognition). - Promote financial literacy: implement education programs and information campaigns; foster consumer protections. ### Policies to increase financial sector stability - Strengthen microprudential supervision: - Improve supervisors’ enforcement power and risk monitoring; curtail regulatory forbearance; use stronger and systematic sanctions. - Introduce IFRS and consolidated reporting requirements for off-site supervision. - Enhance banking resolution frameworks to allow orderly exit of insolvent institutions, especially in monetary zones; strengthen cooperation between regional supervisor agencies and member country authorities. - For Pan-African banks: introduce consolidated supervision, broaden regulatory perimeter to include nonbank activities, improve cross-border supervisory cooperation, harmonize regulations and procedures, address crisis management and contingency planning gaps, establish resolution mechanisms and functioning deposit insurance schemes. - Build capability to implement macroprudential policies: - Close data and information gaps (for example, develop housing price indices). - Build capacity in macroprudential tools and analysis, implement stress testing and early-warning indicators. - Establish institutional arrangements and adequate information collection needed for systemic risk assessment. *International Monetary Fund.* ### Annex 1. Financial Development, Growth, ### Annex 1. Financial Development, Growth, and Economic Volatility ### Estimation framework and data - Estimation method: dynamic system generalized method of moments (GMM) following Sahay and others (2015b). - Basic estimation equation: - 푦푖푡 = α + β0퐹퐷푖푡 + β1퐹퐷푖푡2 + β2(퐹퐷푖푡 ∗ 퐼푛푡푒푟푎푐푡푖푡) + β3푋푖푡 + ε - y is real GDP growth, averaged over non-overlapping five-year periods for country i at time t. - Key regressors: financial development indicator (FD or its component index), its squared term, and interaction terms. - X includes controls: per capita GDP, education enrollment, share of government consumption in GDP, and share of agriculture in GDP (added to reflect sub-Saharan Africa context). - Sample and period: global sample and sub-Saharan African countries for 1980-2013; data availability varies by variable. - Quadratic specification chosen to allow non-linear impact (Arcand, Berkes, and Panizza 2012; Sahay and others 2015b). - Interaction terms used to estimate differential impact in sub-Saharan Africa and to leverage global sample to mitigate SSA data constraints. - Empirical decision: given weak coefficient on square terms and that most SSA countries lie at relatively low financial development (below negative-impact threshold), the model is run on the level of the index for parsimony. ### Findings on growth and volatility - Scope: estimated financial development’s impact on real GDP growth and on economic volatility; extensions include investment volatility and components of financial development (institutions and markets assessed by depth, access, efficiency). - Volatility regressions controls (for 1995–2013): five-year lags of GDP per capita, trade and financial openness, energy exports (percent of GDP), volatility of foreign growth, gross capital inflows in the region excluding the country (winsorized), terms-of-trade changes, polity index, growth in GDP per capita, government consumption, and aid to GDP volatility. - Investment volatility results: - Financial development coefficients on investment volatility are large, reflecting substantial volatility of investment across countries and over time. - For the global sample the coefficient is positive. - For sub-Saharan African countries the financial development coefficient (FD + FD ∗ SSA) is statistically significant and negative while the coefficient on the square term is statistically significant and positive. - Similar results obtained using a two-stage least squares estimator. ### Key variables and sources (selected) - Financial development index; Financial institutions index; Financial markets index — Sahay and others (2015b). - Real GDP growth — IMF WEO database. - Growth volatility — Authors’ calculation. Five-year rolling standard deviation of real GDP growth. - Investment volatility — Authors’ calculation. Five-year rolling standard deviation of growth of investment-to-GDP ratio. - GDP per capita — IMF WEO database. - Education enrollment, primary — World Bank (2015), World Development Indicators. - Share of government consumption in GDP — Penn World Tables, version 7. - Agriculture value added (percent of GDP) — World Bank (2015), World Development Indicators. - Trade openness, Financial openness, Volatility of foreign growth weighted by export, Volatility of term of trade changes, Volatility of regional gross inflow/GDP ratios — Sahay and others (2015b). - Real aid to GDP growth — IMF (2015b). - Institutional quality — Polity IV database, Marshall and others (2010). *Source: Annex 1, _afr1605 - Annex 1. Financial Development, Growth,_ (text and tables provided in the source content).* --- ### Annex 2. Drivers and Impediments of Financial Development ### Drivers: model and variables - Estimation method: generalized method of moments (GMM) panel regressions to mitigate endogeneity. - Sample: 1980–2013 for about 90 developing countries (excluding oil exporters); number of observations varies by variable. - Estimation equation: - 퐹퐷푖푡 = Constant + β0퐹퐷푖푡−1 + β1퐶퐴푖푡−1 + β2푇푂푖푡−1 + β3퐺퐷푃푖푡−1 + β4퐼푖푡−1 + β4퐶푅푖푡 + β5(퐶퐴푖𝑡−1 ∗ SSA𝑖𝑡) + β6(푇푂푖𝑡−1 ∗ SSA𝑖𝑡) + β7(퐺퐷푃𝑖𝑡−1 ∗ SSA𝑖𝑡) + β8(퐼𝑖𝑡−1 ∗ SSA𝑖𝑡) + β9(퐶푅𝑖𝑡 ∗ SSA𝑖𝑡) + ε𝑖𝑡 - FD: financial development index. - CA: de facto capital account openness (sum of international assets and liabilities as a share of GDP). - TO: de facto trade openness (ratio of sum of imports and exports to GDP). - GDP: real GDP per capita. - I: inflation. - CR: country risk rating. - SSA: sub-Saharan Africa dummy. - Interpretation: interaction terms with SSA indicate incremental impacts for SSA countries; the overall impact for SSA equals the sum of the main coefficient and the interaction coefficient(s). - Example provided in source: overall impact of capital account openness for SSA countries should become 0.014 (= 0.005 + 0.009). ### Driver variables and data sources (selected) - Financial development index — See Box 1. Sahay and others (2015b). - Capital account openness — IMF WEO database. - Trade openness index — IMF WEO database. - Real GDP per capita — IMF WEO database. - Inflation (annual) — IMF WEO database. - ICRG country risk rating — PRS Group. - SSA dummy — IMF WEO database. ### Impediments: institutional quality and distance to benchmark - Objective: investigate why some countries’ financial development lags the benchmark. - Method: ordinary least squares (OLS) regression of each country’s financial development distance to its benchmark against institutional quality indicators. - Distance to benchmark: average in the period of 2011 and 2013. - Institutional quality measured as of 2013. - Institutional quality index: 21 categories constructed mainly from the WEF’s Executive Opinion Survey (Global Competitiveness Index Pillar 1 by WEF). - Results summary: - Of 21 institutional quality indices, 14 have the expected sign; the remaining 7 have unexpected signs but are statistically insignificant. - Robustness tests with CPIA, World Bank Doing Business indicators, and Polity IV institutional indicators yield qualitatively similar results. *Source: Annex 2, _afr1605 - Annex 1. Financial Development, Growth,_ (text and tables provided in the source content).* --- ### Annex 3. Gender Gaps in Financial Inclusion and Income Inequality ### Purpose and dependent variable - Annex provides data sources for empirical analysis of drivers of income inequality in Chapter 4. - Dependent variable: Income Inequality measured by “net” Gini (Solt 2014); similar results obtained with “market” Gini. ### Key explanatory variables and definitions - Labor Force Participation: ratio of labor force participation rate of females to males. A value of 1 represents perfect equality. Source: World Bank (2015), World Development Indicators. - Financial inclusion gap: - Constructed via principal components analysis (PCA) on five gender-disaggregated Global Findex indicators: (1) has an account at a financial institution, (2) has a credit card, (3) has a debit card, (4) saved at a financial institution, (5) borrowed from a financial institution. - For each component calculated female-to-male inclusion ratios, then PCA performed on these ratios; final variable is the fitted value using the principal component. A value of 1 represents perfect equality. - Source: World Bank (2014b), Global Findex 2014. - GDP per capita: logged GDP per capita (in constant 2011 international dollars). Source: World Bank (2015), World Development Indicators. - Financial development: IMF Staff Discussion Note index taking values between 0 and 1 where 1 represents maximum development. Source: Sahay and others (2015b). - Financial development * advanced economies: interaction of financial development with a dummy for advanced economies. Source: Sahay and others (2015b). - Agriculture share of GDP: value-added share of agriculture as percent of GDP. Source: World Bank (2015), World Development Indicators. - Government consumption expenditure: percent of GDP. Source: World Bank (2015), World Development Indicators. - GDP per capita squared: squared value of GDP per capita variable. Source: World Bank (2015), World Development Indicators. - Education gap: difference between mean years of schooling for females and males; source data UN HDR 2013; constructed using Barro and Lee (2013) methodology and UNESCO Institute for Statistics (2013). - Marriage age differential: difference in Singulate Mean Age at Marriage (SMAM) male minus female. Source: United Nations, World Marriage Data 2012. - Equal rights to get a job (dummy): equals 1 if WBL question “Can a married woman get a job or pursue a trade or profession in the same way as a married man?” is “Yes.” Source: World Bank (2013). - Female legal rights index: sum of 10 binary indicators (0–10) on women’s legal rights (identification, contracts, inheritance, property, marital regime). Source: World Bank (2013), IMF (2015b). - Fertility rate: number of children per woman given current age-specific fertility rates. Source: World Bank (2015), World Development Indicators. - SSA (dummy): equals 1 for sub-Saharan African countries per IMF classification. - SSA * Financial inclusion gap: interaction term of the Financial inclusion gap with SSA dummy. ### Data and methodology notes - Financial inclusion gap constructed from gender-disaggregated Global Findex series and PCA. - The Annex supports empirical analysis of how gender gaps in financial inclusion relate to income inequality, controlling for financial development, macro variables, and gender-specific indicators. *Source: Annex 3, _afr1605 - Annex 1. Financial Development, Growth,_ (tables and descriptions provided in the source content).* ### Chapter 1. Washington, April. ### Chapter 1. Washington, April. ### Key references on mobile money and financial inclusion - Jack, W., and T. Suri. 2011. “Mobile Money: The Economics of M-PESA.” NBER Working Paper 16721. National Bureau of Economic Research, Cambridge, Massachusetts, January 2011. - Mbiti, I., and D. N. Weil. 2011. “Mobile Banking: The Impact of M-Pesa in Kenya.” NBER Working Paper 17129, National Bureau of Economic Research, Cambridge, Massachusetts. - Klein, M., and C. Mayer. 2011. “Mobile Banking and Financial Inclusion: The Regulatory Lessons.” Policy Research Working Paper 5664, World Bank, Washington. - Khiaonarong, Tanai. 2014. “Oversight Issues in Mobile Payments.” IMF Working Paper 14/123, International Monetary Fund, Washington. - Sahay, R., M. Cihak, P. N’Diaye, and A. Barajas. 2015a. “Financial Inclusion: Can It Meet Multiple Macroeconomic Goals?” IMF Staff Discussion Note 15/17, International Monetary Fund, Washington. - ———, R. Bi, D. Ayala, Y. Gao, A. Kyobe, L. Nguyen, C. Saborowski, K. Svirydzenka, and S. R. Yousefi. 2015b. “Rethinking Financial Deepening: Stability and Growth in Emerging Markets.” IMF Staff Discussion Note 15/08, International Monetary Fund, Washington. - ResponsAbility. 2014. Microfinance Market Outlook 2015. November. http://www.responsability.com/funding/data/docs/es/10427/Microfinance-Market-Outlook-2015-DE.pdf. - Roodman, D. 2012. “Due Diligence: An Impertinent Inquiry into Microfinance.” Center for Global Development, Washington, January. http://www.cgdev.org/event/due-diligence-impertinent-inquiry-microfinance. ### References on financial development, banking, and macro-financial stability - King, R., and R. Levine. 1993. “Finance, Entrepreneurship, and Growth: Theory and Evidence.” Journal of Monetary Economics 32, 513–42. - Levine, R. 1997. “Financial Development and Economic Growth: Views and Agenda.” Journal of Economic Literature 35, 688–726. - Levine, R. 2005. “Finance and Growth.” In Handbook of Economic Growth, edited by P. Aghion and S. Durlauf. Amsterdam: Elsevier. - Rajan, R., and L. Zingales. 1998. “Financial Dependence and Growth.” American Economic Review 88, 559–86. - ———. 2003. “The Great Reversals: The Politics of Financial Development in the Twentieth Century.” Journal of Financial Economics 69 (1): 5–90. - Klein, M., and G. Olivei. 2008. “Capital Account Liberalization, Financial Depth, and Economic Growth.” Journal of International Money and Finance 27 (6): 861–75. - Laeven, L., and F. Valencia. 2012. “Systemic Banking Crises Database: An Update.” IMF Working Paper 12/163, International Monetary Fund, Washington. - Tressel, T., and E. Detragiache. 2008. “Do Financial Sector Reforms Lead to Financial Development? Evidence from a New Dataset,” IMF Working Paper 08/265, International Monetary Fund, Washington. - Svirydzenka, K. 2016. “Introducing a New Broad-Based Indicator of Financial Development.” IMF Working Paper 16/05, International Monetary Fund, Washington. - Stijns, J.-P. 2015. “Recent Trends in Banking in Sub-Saharan Africa: From Financing to Investment.” European Investment Bank, Luxembourg, July. - Mecagni, M., D. Marchettini, and R. Maino. 2015. “Banking in Sub-Saharan Africa: Key Features and Challenges.” IMF African Departmental Paper 15/08, International Monetary Fund, Washington. - Mlachila, M., S. G. Park, and M. Yabara. 2013. “Banking in Sub-Saharan Africa: The Macroeconomic Context.” IMF African Departmental Paper 13/03, International Monetary Fund, Washington. - Marchettini, D. 2015. “Namibia: Macro-Financial Risks Associated with Housing Boom—Selected Issues.” IMF Country Report 15/277, International Monetary Fund, Washington. October. - Kinda, T., M. Mlachila, and R. Ouedraogo. 2016. “Commodity Price Shocks and Financial Sector Fragility.” IMF Working Paper 16/12, International Monetary Fund, Washington. ### Regional and country-specific IMF work and related studies - ——— 2016b. “West African Economic and Monetary Union(WAEMU): Staff Report on Common Policies of Member Countries” IMF Country Report 16/96, International Monetary Fund, Washington, March. - Newiak, M., and R. Awad. 2015. “West African Economic and Monetary Union, IMF Selected Issues Paper: Financial Inclusion in the WAEMU.” IMF Country Report 15/101, International Monetary Fund, Washington, April. - World Bank, and International Monetary Fund (IMF). 2008. “Financial Sector Assessment. Botswana.” Financial Sector Assessment Program (FSAP), Washington, August. ### Studies on inequality, labor, and governance relevant to financial sector outcomes - Ostry, J. D., A. Berg, and C. Tsangarides. 2014. “Redistribution, Inequality, and Growth.” IMF Staff Discussion Note 14/02, International Monetary Fund, Washington. - Solt, F. 2014. “The Standardized World Income Inequality Database.” Working Paper. SWIID 5.0. October. - Mishra, V., and R. Smyth. 2010. “Female Labor Force Participation and Total Fertility Rates in the OECD: New Evidence from Panel Cointegration and Granger Causality Testing.” Journal of Economics and Business 62 (1): 48–64. - Steinberg, C., and M. Nakane. 2012. “Can Women Save Japan?” IMF Working Paper 12/248, International Monetary Fund, Washington. - Marshall, M. G. and K. Jaggers. 2010. Polity IV Project: Political Regime Characteristics and Transitions, 1800–2010. University of Maryland. www.systemicpeace.org/inscr/inscr.htm. ### Other relevant theoretical and empirical contributions - Obstfeld, M. 1994. “Risk-Taking, Global Diversification, and Growth.” American Economic Review 84, 1310–29. - Shleifer, A., and R. Vishny. 1997. “A Survey of Corporate Governance.” Journal of Finance 52, 737–83. - Svaleryd, H., and J. Vlachos. 2002. "Markets for Risk and Openness to Trade: How Are They Related?" Journal of International Economics 57 (2): 369–95. - Singh, R. J., K. Kpodar, and D. Ghura. 2009. “Financial Deepening in the CFA Franc Zone: The Role of Institutions.” IMF Working Paper 09/113, International Monetary Fund, Washington. - Kammer, A., M. Norat, M. Piñόn, A. Prasad, C. Towe, Z. Zeidane, and an IMF Staff Team. 2015. “Islamic Finance: Opportunities, Challenges, and Policy Options.” IMF Staff Discussion Note SDN/15/05, International Monetary Fund, Washington. ### Data and global reports cited - World Bank. 2012. Global Financial Development Report 2013: Rethinking the Role of Government in Finance. Washington. - World Bank. 2013. Women, Business and the Law 2014. Removing Restrictions to Enhance Gender Equality. World Bank, Washington. - World Bank. 2014a. Global Financial Development Report: Financial Inclusion. World Bank, Washington. - World Bank, 2015b. Global Financial Inclusion Index (Findex). World Bank, Washington. - World Bank. 2015. World Development Indicators. World Bank, Washington. *Source: Chapter 1. Washington, April.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/dp/2016/_afr1605.pdf_