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

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  • Ernest Aryeetey

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.

Suggested Citation

  • Ernest Aryeetey, 1992. "The relationship between the formal and informal sectors of the financial market in Ghana," Research Papers RP_10, African Economic Research Consortium.
  • Handle: RePEc:aer:rpaper:rp_10
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