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.

Developing financial institutions for the poor and reducing barriers to access for women

Abstract: Poor people, especially poor women, commonly have limited access to financial services. So donors and governments have invested substantially in developing financial services for them. Most of these efforts have been large-scale, formal regulated programs that have emphasized providing subsidized credit to poor farmers. Experience has shown that they have largely failed. The main underlying premise of these programs was that market interest rates were too high and made credit inaccessible to the poor. This paper reviews experience with financial services programs for the poor, especially poor women -- who face more severe (and sometimes different) obstacles to such services than men. It provides background on the types of lending programs designed to reach poor people and it discusses poor people's use of and access to savings facilities and credit. The dismal experience with traditional, subsidized credit programs is analyzed and alternative approaches to expanding financial services to the poor are described. Finally, the report identifies the main characteristics of successful, informal and quasiformal credit and savings programs and presents conclusions.

Corporate risk around the world

Abstract: Weaknesses in the corporate sector have increasingly been cited as important factors in financial crises in both emerging markets and industrial countries. Analysts have pointed to weak corporate performance and risky financing patterns as major causes of the East Asian financial crisis. And some have argued that company balance sheet problems may also have played a role, independent of macroeconomic or other weaknesses, including poor corporate sector performance. But little is known about the empirical importance of firm financing choices in predicting and explaining financial instability. Firm financing patterns have long been studied by the corporate finance literature. Financing patterns have traditionally been analyzed in the Modigliani-Miller framework, expanded to incorporate taxes and bankruptcy costs. More recently, asymmetric information issues have drawn attention to agency costs and their impact on firm financing choices. There is also an important literature relating financing patterns to firm performance and governance. Several recent studies have focused on identifying systematic cross-country differences in firm financing patterns - and the effects of these differences on financial sector development and economic growth. They have also examined the causes of different financing patterns, particularly countries'legal and institutional environments. The literature has devoted little attention to corporate sector risk characteristics, however, aside from leverage and debt maturity considerations. Even these measures have been the subject of few empirical investigations, mainly because of a paucity of data on corporate sectors around the world. Building on data that have recently become available, the authors try to fill this gap in the literature and shed light on the risk characteristics of corporate sectors around the world. They investigate how corporate sectors'financial and operating structures relate to the institutional environment in which they operate, using data for more than 11,000 firms in 46 countries. They show that: 1) the origins of a country's laws, the strength of its equity and creditor rights, and the nature of its financial system can account for the degree of corporate risk-taking. 2) In particular, corporations in common law countries and market-based financial systems have less risky financing patterns. 3) Stronger protection of equity and creditor rights is also associated with less financial risk.

Safe and sound banking in developing countries : we're not in Kansas anymore

Abstract: Drawing on earlier work, the author reviews some of the salient facts about the boom in banking busts in developing countries. He then reviews policy responses taken by authorities in some of the"early"crisis countries, and considers a wider menu of responses -in particular the currently popular suggestion that promulgating an International Banking Standard would significantly improve the safety and soundness of banking systems in developing countries. Such a standard is not without appeal, but other approaches are probably necessary in developing countries where risks are usually greater, financial institutions are less diversified, markets are less transparent, supervision is weak, and other ingredients critical to sound banking are either missing or scarcer than in industrial countries. The author calls for a multi-pillar approach to safe and sound banking, one that would: (1) focus attention on factors that restrict banks'ability and willingness to diversify risk; and (2) Give three key groups -owners (and managers), the market (including uninsured debtholders and other possible co-owners), and supervisors- more incentive and ability to monitor banks and ensure their prudent corporate governance.

Financial sector development and economic growth: evidence from Cameroon

Abstract: For decades, African economies have embarked on financial sector reforms. However, the empirical implications of these reforms have been divergent. This paper investigates the impact of financial development on Economic growth using time series data in Cameroon. This investigation was carried out using three common indicators of financial development (broad money, deposit/GDP and domestic credit to private sector). Using the Auto Regressive Distributive Lag (ARDL) technique of estimation, it was discovered that there exist a short-run positive relationship between monetary mass (M2), government expenditure and economic growth, a short run negative relationship between bank deposits, private investment and economic growth equally exists. However in the long run, all indicators of financial development show a positive and significant impact on economic growth. This paper thus confirms the existence of a positive and long-term impact of all the indicators of financial development on economic growth through bound test. It is therefore proposed that the financial reforms in Cameroon should be pushed forward in order to boost the development of the financial sector thus an increase in its role on economic growth.

Modeling Causality Between Financial Deepening and Poverty Reduction in Egypt

Abstract: This study deals with the linkages between financial development and poverty reduction in Egypt using data for the period of 1975Q1–2011Q4. The stationarity properties of the variables are tested by applying Zivot–Andrews structural break unit root test. The structural break autoregressive distributed lag-bounds testing approach to cointegration is used to examine long run relationship between the variables. Our results show evidence of cointegration which confirms the presence of long run relationship between financial deepening, economic growth and poverty reduction. The results indicate that financial development reduces poverty when domestic credit to the private sector is used as proxy for financial development. The direct channel that financial sector development can lead to enabling the poor to access or broaden their access to financial services, such as credit and insurance-risk services, is therefore confirmed in case of Egypt. Furthermore, the indirect channel where financial sector development contributes to poverty reduction through economic growth is also confirmed for Egypt. This is only found when M2 is used as a proxy for financial development and infant mortality per capita as proxy for poverty. While our results show that the causal relationship between financial development and poverty reduction in Egypt is sensitive to the proxy used to measure these variables, the results show that the poverty-reduction programs are desirable in Egypt, not only because they reduce poverty but also because they possibly lead to further development of financial sector in long run. Furthermore, our results show that appropriate reforms aimed at developing a financial sector in Egypt that is well-organized and spread throughout the country can help reduce poverty by availing more domestic credit to the poor.