Resolving the African Financial Development Gap: Cross-Country Comparisons and a Within-Country Study of Kenya
Franklin Allen, Elena Carletti, Robert Cull, Jun Qian, Lemma Senbet and Patricio Valenzuela, April 2012
Forthcoming in NBER Volume on African Economic Successes, edited by S. Edwards, S. Johnson and D. Weil
Abstract: With extensive country- and firm-level data sets we first document that the financial sectors
of most sub-Saharan African countries remain significantly underdeveloped by the standards of
other developing countries. We also find that population density appears to be considerably more
important for banking sector development in Africa than elsewhere. To better understand how
countries can overcome the high costs of developing viable banking sectors outside large
metropolitan areas, we focus on Kenya, which has made significant strides in financial inclusion
and development in recent years. We find a positive and significant impact of Equity Bank, a
leading private commercial bank on financial access, especially for under-privileged households.
Equity Bank’s business model—providing financial services to population segments typically
ignored by traditional commercial banks and generating sustainable profits in the process—can be a
potential solution to the financial access problem that has hindered the development of inclusive
financial sectors in many other African countries.
Keywords: Africa, Kenya, finance and growth, population density, Equity Bank, financial access.
JEL classifications : O5; K0; G0.
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