Financial sector development

About: Financial sector development is a research topic. Over the lifetime, 1674 publications have been published within this topic receiving 90787 citations.

Public Private Partnerships (PPP) in Financial Development in South-East Europe

Abstract: In development aid or cooperation the spheres and the roles of the public and the private sector are no longer neatly separated. Development finance is an area in which this general trend is particularly important and possibly very fruitful. Section I of the paper clarifies the topic and describes the problem to be dealt with. Section II explores the experience which public authorities, notably in the United Kingdom, have had introducing a comprehensive program of public private partnerships (PPPs). In a narrow, technical definition of the concept, a PPP includes having private contractors acquire ownership in the facilities which are required to provide what were formerly public services. This is generally perceived as mitigating certain incentive problems. However, it also raises others. The critical point in designing a PPP is to trade off these kinds of incentive problems. Section III discusses the scope for, and the problems of, public and private sector cooperation (PPC) in general and PPP in particular in financial sector promotion in South-East Europe (SEE). With one important exception, we find that though there is much scope for PPC, there seems to be little for PPP narrowly defined. The exception is the area of micro and small business (MSB) financing and of the specialised institutions providing such financing. Here, the concept of PPP seems readily applicable. The case of MSB banks, moreover, demonstrates not only the opportunities but also the difficulties of a PPP as an institutional arrangement in which the private partner is also an owner. For its functioning, partnership as well as private ownership are essential. A case study of the most complex, most ambitious and so far also most successful PPP in financial sector development in SEE is used to explain why this is so and to illustrate the general propositions.

Free Banking: The Scottish Experience as a Model for Emerging Economies

Abstract: Scotland's nineteenth-century experience with free banking offers lessons to inform contemporary policymakers. A relatively unregulated banking system may be a wise option for emerging markets, if high liability limits can be enforced. The notion of free banking is at least as difficult to define as the notion of central banking. Instead, Kroszner focuses on a relatively unregulated banking system that operated in Scotland in the eighteenth and nineteenth centuries (Sweden adopted a similar system). Kroszner argues that a relatively unregulated system is a wise option for emerging markets today, which exhibit many features of the eighteenth and nineteenth century Scottish economy. In terms of private institutions and monitoring (typically thought to be a central bank responsibility: A private clearing system is feasible. So are private development and enforcement of capital and liquidity standards. Financial institutions have strong private incentives to create their own clearing system, to benefit both banks and the public. In creating such a system, the institutions develop standards for capital, liquidity, and prudential management that will become requirements for membership in the system. Modern examples: The Chicago Board of Trade and Chicago Mercantile Exchange. Competition is generally compatible with prudence and coordination (although the excessive note issue by the Ayr Bank demonstrates that the system did not eliminate all rogues). The Ayr Bank is the only major exception to the smooth operation of Scotland's private clearing and monitoring system in more than a century, and the system helped to contain the problems from this bank's collapse, fulfilling a role typically considered to belong to a central bank. There are private alternatives to deposit insurance or to a central bank to maintain confidence in and foster the stability of the financial system. Sophisticated note and deposit contracts are feasible. Free entry is important to encourage innovation. Branching and portfolio diversification can substitute for deposit insurance, to stabilize the banking system. So can extended liability (beyond simple limited liability of the shareholders), to give depositors and note holders some assurance that a bank could withstand a negative shock. Another alternative to deposit insurance is theoption clause or other contingent or equity-like contracts, which can solve or minimize the problem of bank runs. Is any role left for a central bank as lender of last resort? An explicit central bank may not be needed, but rather mechanisms to provide added liquidity, perhaps through the clearing system, in times of trouble. This paper - a joint product of the Finance and Private Sector Development Division, Policy Research Department, and the Financial Sector Development Department - was presented at a Bank seminar, Financial History: Lessons of the Past for Reformers of the Present, and is a chapter in a forthcoming volume, Reforming Finance: Some Lessons from History, edited by Gerard Caprio, Jr. and Dimitri Vittas.

Effects of financial intermediation of microfinance institutions on financial sector development

Abstract: The objective of this study was to analyze the effects of Microfinance Intermediation on the financial sector development and growth. It will determine and analyze the gaps in financial intermediation; establish the effectiveness of Microfinance Institutions (MFIs) in financial intermediation and how this has helped develop the financial sector. Financial institutions require prospective investors to produce collaterals before they are granted Loan facilities; this has been a major hindrance to low income earners who form the majority of the population in the rural areas. The target population includes people participating in microfinance which in many cases has been found to be women groups, middle and low income earners. A case study of Kenya women finance trust (KWFT) at Mombasa has been undertaken and primary data collected by means of structured questionnaires developed to address the objectives of the study. A Sample of 150 respondents including an interview schedule with the management of KWFT has been undertaken with Quantitative and Qualitative methods used to analyze the data and presented them using inferential statistics methods. Findings of the study revealed a wide access to the financial sector, improved resource allocations, low transactional costs and development of the rural financial markets. The following conclusions were drawn from the study: MFIs have a positive effect on the development and growth of the financial sector; access to loans that has been a major challenge in the SMEs sector has been increased and the saving culture among the low income earners enhanced. Based on the findings, it is recommended that; beyond the Loans provided, it is prudent for KWFT to operate Savings accounts open to all kinds of customers to enhance Capital accumulation.

Efficiency Of The Financial Intermediaries And Economic Growth In Ceec

Abstract: This paper presents an analytical discussion and empirical evidence of the relationship between financial sector development and economic growth among Central and Eastern European countries. Theoretical views allow for the complex relationship between the financial sector development and economic growth. Empirical evidence is presented that depending on the time period and sub-sample the correlation of the financial development with economic growth can be negative or positive. Using monthly data the causality (in Granger sense) of this process is addressed - the causality can run one way or the other, depending on the particular country.

Do Banks Steer Economic Growth in Emerging Markets? Empirical Evidence from Zimbabwe

Abstract: Tests of the finance-growth nexus to date have not been conclusive on the nature & direction of the relationship between economic growth and financial sector development. A number of studies on the role played by banks in economic development have shown considerable variation across countries. In this paper we empirically examine the causal and nature of relationship between financial sector development and economic growth in Zimbabwe for the period 1980 to 2006; using time series analysis namely Granger Causality tests in a Vector Autoregressive (VAR) framework. All variables were tested for stationarity using the Augmented Dickey–Fuller (ADF) Test and became stationary in levels, 1 st difference and 2 nd difference. A general uni-directional relationship was found to exist running from banking sector development to economic growth in Zimbabwe hence the supply-leading hypothesis is supported. The study recommends that policy makers should come up with policies that steer continuous growth of the banking sector. In this regard the government could reduce its borrowings from the domestic money market, promote a savings culture by encouraging banks to increase their deposit rates (through moral suasion) and attract more deposits for onward lending to the private sector and improve the country’s low credit risk rating to lure foreign investors. Keywords: Banks, Economic Growth, Unit root Tests, Granger Causality, VAR