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Why isn't there more Financial Intermediation in Developing Countries?

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  • Conning, Jonathan
  • Kevane, Michael

Abstract

This paper proposes to organize thinking about the opportunities for improving and extending financial markets and safety nets for the poor, by focusing on factors that may explain why the linkage of local financial networks and safety nets with the larger economy often fails or is incomplete. Understanding the nature of these impediments is the first step in proposing policies to help promote more effective linkage and intermediation. We propose four explanations for the slowness of adoption of intermediation (high costs of delegated monitoring aggravated by limited intermediary capital; lock-in and crowding out effects from local insurance arrangements, social norms against cooperation with intermediaries; and political resistance to new institutions that shift the balance of power in local polities). Of course, financial repression and weak legal systems remains important as cause of lack of intermediation. We conclude with a review of public policy for more effective intermediation.

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File URL: http://www.wider.unu.edu/stc/repec/pdfs/rp2002/dp2002-28.pdf
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Bibliographic Info

Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number UNU-WIDER Research Paper DP2002/28.

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Length: 28 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:unu:wpaper:dp2002-28

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Keywords: Financial intermediation; Mutual insurance ; Safety nets ; Microfinance ; Microcredit;

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References

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Citations

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Cited by:
  1. Shannon Mudd, 2013. "Bank Structure, Relationship Lending and Small Firm Access to Finance: A Cross-Country Investigation," Journal of Financial Services Research, Springer, vol. 44(2), pages 149-174, October.
  2. Jonathan Conning, 2005. "Monitoring by Peers or by Delegates? Joint Liability Loans and Moral Hazard," Economics Working Paper Archive at Hunter College 407, Hunter College Department of Economics.
  3. Stefan Dercon & Tessa Bold, 2004. "Group-based Funeral Insurance in Ethiopia and Tanzania," Economics Series Working Papers WPS/2004-27, University of Oxford, Department of Economics.
  4. Marcoul, Philippe & Veyssiere, Luc, 2008. "Impact of Supermarket Procurement System on Farmers' Credit Access," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 43862, European Association of Agricultural Economists.

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