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The relationship between the formal and informal sectors of the financial market in Ghana

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  • Ernest Aryeetey
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    Abstract

    Early in 1989, a group of AERC researchers interested in studies of African financial markets, with a special emphasis on the informal sector, began several country studies that were scheduled to be completed in three phases. For the three phases it was agreed to: 1. characterize the informal sector, thereby analysing the rationale for its existence, estimating its size, and providing a detailed description of its operation on the financial market; 2. analyze the relationship between the formal and informal segments of the financial market, if any; and 3. establish the efficacy of macroeconomic policies, bearing in mind the existence of a strong informal financial sector. A high degree of characterization of the informal sector was achieved in the first phase of the Ghana study (Aryeetey and Gockel (1990)), following a study of 1000 market women in three Ghanaian cities. Repeated observations that in fact there were not two financial markets, but one highly fragmented one encouraged a deeper probe into the relationship between the different segments. This report is the outcome of the second-phase efforts in that direction. We use the activities of moneylenders to represent the lending side of the informal sector, while that of susu collectors represents the savings-mobilization capabilities of the sector. This does not suggest that they are the only forms the informal sector takes, but linkages with the formal sector are best portrayed through them.

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    Bibliographic Info

    Paper provided by African Economic Research Consortium in its series Research Papers with number RP_10.

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    Length: 52 pages
    Date of creation: Oct 1992
    Date of revision:
    Handle: RePEc:aer:rpaper:rp_10

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