Resolving the African Financial Development Gap: Cross-Country Comparisons and a Within-Country Study of Kenya
University of Pennsylvania - Finance Department; European Corporate Governance Institute (ECGI)
European University Institute
World Bank - Development Research Group (DECRG)
Boston College - Finance Department; University of Pennsylvania - Wharton Financial Institutions Center; China Academy of Financial Research (CAFR)
Lemma W. Senbet
University of Maryland - Robert H. Smith School of Business
University of Chile
April 15, 2012
NBER VOLUME ON AFRICAN ECONOMIC SUCCESSES, S. Edwards, S. Johnson, and D. Weil, eds., University of Chicago Press, 2012
With extensive country- and firm-level data sets we first document that the financial sectors of most sub-Saharan African countries remain significantly underdeveloped by the standards of other developing countries. We also find that population density appears to be considerably more important for banking sector development in Africa than elsewhere. To better understand how countries can overcome the high costs of developing viable banking sectors outside large metropolitan areas, we focus on Kenya, which has made significant strides in financial inclusion and development in recent years. We find a positive and significant impact of Equity Bank, a leading private commercial bank on financial access, especially for under-privileged households.
Equity Bank’s business model — providing financial services to population segments typically ignored by traditional commercial banks and generating sustainable profits in the process — can be a potential solution to the financial access problem that has hindered the development of inclusive financial sectors in many other African countries.
Number of Pages in PDF File: 60
Keywords: Africa, Kenya, finance and growth, population density, Equity Bank, financial access
JEL Classification: K0, G0Accepted Paper Series
Date posted: April 17, 2012
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