Resolving the African Financial Development Gap: Cross-Country Comparisons and a Within-Country Study of Kenya

62 Pages Posted: 20 Apr 2016

See all articles by Franklin Allen

Franklin Allen

Imperial College London

Elena Carletti

Bocconi University - Department of Finance; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Robert Cull

World Bank - Development Research Group (DECRG)

Lemma W. Senbet

University of Maryland - Robert H. Smith School of Business

Patricio Valenzuela

University of Chile

Multiple version iconThere are 3 versions of this paper

Date Written: September 1, 2013

Abstract

With extensive country and firm-level data sets, this paper first documents that the financial sectors of most Sub-Saharan African countries remain significantly underdeveloped by the standards of other developing countries. The paper also finds 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, the analysis focuses on Kenya, which has made significant strides in financial inclusion and development in recent years. The paper finds a positive and significant impact of Equity Bank, a leading private commercial bank, on financial access, especially for underprivileged 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.

Keywords: Access to Finance, Banks & Banking Reform, Debt Markets, Emerging Markets, Economic Theory & Research

Suggested Citation

Allen, Franklin and Carletti, Elena and Cull, Robert and Senbet, Lemma W. and Valenzuela, Patricio, Resolving the African Financial Development Gap: Cross-Country Comparisons and a Within-Country Study of Kenya (September 1, 2013). World Bank Policy Research Working Paper No. 6592. Available at SSRN: https://ssrn.com/abstract=2321989

Franklin Allen (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Elena Carletti

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Robert Cull

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-473-6365 (Phone)
202-522-1155 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/rcull

Lemma W. Senbet

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States
301-405-2242 (Phone)
301-405-0359 (Fax)

Patricio Valenzuela

University of Chile ( email )

Republica 701 Santiago
Chile

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