Achieving Financial Stability and Growth in Africa

Abstract

This paper analyzes how financial systems and their regulation in African low-income countries (LICs), still in their early stages of development, could be shaped to achieve simultaneously the goals of financial stability and inclusive growth. This draws on understanding the features of financial systems in LICs, their challenges and relative strengths, and on lessons arising from the global financial crisis, as well as previous experiences of crises in emerging economies, which tended to arise from excessively liberalized and little regulated financial systems. The paper draws on literature surveys and in-depth case studies of Kenya, Nigeria, Ghana, and Ethiopia. It concludes that although financial sectors may need to be deepened in African LICs, to improve access to credit by smaller companies and poorer people, the pace of expansion should be fairly slow, to avoid developmentally costly crises. Furthermore, public development banks need to play a bigger role for funding structural transformation.