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Micro-macro linkages in financial markets: the impact of financial liberalization on access to rural credit in four African countries

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  • Paul Mosley

    (International Development Centre, University of Reading, Reading, UK)

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    Abstract

    Almost every programme of economic reform contains a financial liberalization component; but little work has been done to assess the effects of financial liberalization on access to credit in individual markets. We present a model of this linkage, which predicts that conventional financial de-repression will have no significant effect on the price and availability of credit in the informal sector, but that financial innovation in the informal sector will affect such availability considerably. We test this proposition specifically against data for the period of financial reform in four African countries: Uganda, Kenya, Malawi and Lesotho. Such reforms had significant effects on interest rates, but except in Uganda these effects did not feed through into an increase in savings rates or in access to rural credit. Such access was, however, favourably influenced by institutional innovation on the supply side of the market for small-business and small-farm credit. Likewise, in two of the case-study countries-Malawi and Uganda-financial de-repression had insignificant effects on poverty and privatisation of the bottom end of the credit market on its own had disastrous effects, but expansion of the supply of smallholder credit had a highly positive poverty-reduction effect. Copyright © 1999 John Wiley & Sons, Ltd.

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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

    Volume (Year): 11 (1999)
    Issue (Month): 3 ()
    Pages: 367-384

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    Handle: RePEc:wly:jintdv:v:11:y:1999:i:3:p:367-384

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    Web page: http://www3.interscience.wiley.com/journal/5102/home

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    1. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
    2. Arestis, Philip & Demetriades, Panicos O, 1997. "Financial Development and Economic Growth: Assessing the Evidence," Economic Journal, Royal Economic Society, vol. 107(442), pages 783-99, May.
    3. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
    4. Bolnick, Bruce R., 1988. "Evaluating loan collection performance: An Indonesian example," World Development, Elsevier, vol. 16(4), pages 501-510, April.
    5. Masao Ogaki & Jonathan David Ostry & Carmen Reinhart, 1995. "Saving Behavior in Low and Middle-Income Developing Countries," IMF Working Papers 95/3, International Monetary Fund.
    6. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    7. Demery, Lionel & Squire, Lyn, 1996. "Macroeconomic Adjustment and Poverty in Africa: An Emerging Picture," World Bank Research Observer, World Bank Group, vol. 11(1), pages 39-59, February.
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    Cited by:
    1. Guirkinger, Catherine, 2008. "Understanding the Coexistence of Formal and Informal Credit Markets in Piura, Peru," World Development, Elsevier, vol. 36(8), pages 1436-1452, August.
    2. Sylviane Guillaumont Jeanneney & Kangni Kpodar, 2011. "Financial Development, Financial Instability and Poverty," Working Papers halshs-00564573, HAL.
    3. Shahbaz, Muhammad & Islam, Faridul, 2011. "Financial development and income inequality in Pakistan: An application of ARDL approach," MPRA Paper 28222, University Library of Munich, Germany.
    4. Bigsten , Arne & Levin, Jörgen, 2000. "Growth, Income Distribution, and Poverty: A Review," Working Papers in Economics 32, University of Gothenburg, Department of Economics.
    5. Christopher J. Green & Victor Murinde, 2003. "Flow of funds: implications for research on financial sector development and the real economy," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(8), pages 1015-1036.

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