Institutional Factors and Financial Sector Development: Evidence from Sub-Saharan Africa
IMF Working Papers, November 1, 2009
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Bibliographic details
- Authors: Hovhannes Toroyan, George C. Anayiotos
- Published: November 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451874044.001
Summary and main findings
- The paper assesses the effects of certain institutional factors on financial sector development in Sub- Saharan Africa (SSA).
- Data Envelopment Analysis (DEA) is applied to determine the extent to which these institutions affect the financial sector, and to suggest which institutions play a more critical role in each country.
- Results suggest that institutional factors affect financial depth and access to financial services more than asset quality and profitability (measured by nonperforming loans (NPL) and return on equity (ROE)).
- The results also suggest that depth of credit information has the strongest influence on the NPL ratio, and political stability affects access the most.
- Based on model findings, policy implications on prioritizing institutional reforms to enhance financial sector development are suggested for individual countries and for country groups.
Methodology
- Analytical approach: Data Envelopment Analysis (DEA) to evaluate the influence of institutional factors on different dimensions of financial sector development.
Policy implications and recommendations
- Prioritize institutional reforms identified by the model to enhance financial sector development.
- Tailor reform priorities to individual countries and to country groups based on which institutions play a more critical role in each case.