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Resolving the African Financial Development Gap: Cross-country comparisons and a within-country study of Kenya

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  • ALLEN, Franklin
  • CARLETTI, Elena
  • CULL, Robert
  • QIAN, Jun
  • SENBET, Lemma
  • VALENZUELA, Patricio

Abstract

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.

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Bibliographic Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2012/15.

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Date of creation: 2012
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Handle: RePEc:eui:euiwps:eco2012/15

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Keywords: Africa; Kenya; Finance and growth; population density; Equity Bank; financial access;

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Cited by:
  1. Franklin Allen & Elena Carletti & Robert Cull & Jun “Qj” Qian & Lemma Senbet & Patricio Valenzuela, 2013. "Improving Access to Banking: Evidence from Kenya," Documentos de Trabajo 298, Centro de Economía Aplicada, Universidad de Chile.
  2. Beck, Thorsten & Cull, Robert, 2013. "Banking in Africa," Policy Research Working Paper Series 6684, The World Bank.
  3. Wamboye, Evelyn & Adekola, Abel, 2013. "Foreign Aid, Legal Origin, Economic Growth and Africa’s Least Developed Countries," MPRA Paper 47846, University Library of Munich, Germany.
  4. Wamboye, Evelyn & Mookerjee, Rajen, 2013. "Financial development and manufactured exports: the african experience," MPRA Paper 46474, University Library of Munich, Germany.
  5. Henderson, Daniel J. & Papageorgiou, Chris & Parmeter, Christopher F., 2013. "Who benefits from financial development? New methods, new evidence," European Economic Review, Elsevier, vol. 63(C), pages 47-67.
  6. Lorenzo Casaburi & Michael Kremer & Sendhil Mullainathan, 2014. "Contract Farming and Agricultural Productivity in Western Kenya," NBER Chapters, in: African Successes: Sustainable Growth National Bureau of Economic Research, Inc.
  7. Franklin ALLEN & Elena CARLETTI & Jun 'QJ' QIAN & Patricio VALENZUELA, 2012. "Financial Intermediation, Markets, and Alternative Financial Sectors," Economics Working Papers ECO2012/11, European University Institute.

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