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Resolving the African Financial Development Gap

Resolving the African Financial Development Gap

Cross-Country Comparisons and a Within-Country Study of Kenya

Chapter:
(p.13) 1 Resolving the African Financial Development Gap
Source:
African Successes, Volume III
Author(s):
Franklin AllenElena CarlettiRobert CullJun QianLemma SenbetPatricio Valenzuela
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226315867.003.0001

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.

Keywords:   Africa, Kenya, finance and growth, population density, Equity Bank, financial access

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