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Why Is The Financial Sector In Burundi Not Development-Oriented?

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  • Janvier D. Nkurunziza

Abstract

The financial sector in Burundi has had a very limited effect on the country's development. High political and economic risks have prevented banks from engaging in long-term lending, constraining long-term investment. Moreover, the industrial organisation of the financial sector is not conducive for development lending because the sector is used more as a source of rents than development finance. As a result, the financial sector has been unable to address the needs of the core drivers of growth in Burundi, namely, agriculture and industry. Therefore, increasing the financial sector's participation in Burundi's economic development will require an improvement in political and macro-economic stability, as well as an increase of financial institutions' long-term re-sources. Most particularly, development banking should play its role of fostering the development of agriculture and the rural economy. In addition, more competition in the financial sector should be encouraged with the aim of diversifying financial services and pushing the sector's boundaries beyond the traditional urban market to embrace the rural economy where most economic activities take place.

Suggested Citation

  • Janvier D. Nkurunziza, 2010. "Why Is The Financial Sector In Burundi Not Development-Oriented?," RSCAS Working Papers 2010/29, European University Institute.
  • Handle: RePEc:rsc:rsceui:2010/29
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    References listed on IDEAS

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    3. Ndikumana, Leonce, 2005. "Financial development, financial structure, and domestic investment: International evidence," Journal of International Money and Finance, Elsevier, vol. 24(4), pages 651-673, June.
    4. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    5. R. Glenn Hubbard & Anil K. Kashyap & Toni M. Whited, 1993. "Internal Finance and Firm Investment," NBER Working Papers 4392, National Bureau of Economic Research, Inc.
    6. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
    7. Breisinger, Clemens & Diao, Xinshen, 2008. "Economic transformation in theory and practice: What are the messages for Africa?," IFPRI discussion papers 797, International Food Policy Research Institute (IFPRI).
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    Keywords

    financial sector; Burundi; development;

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