NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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, Patricio Valenzuela

Chapter in NBER book African Successes, Volume III: Modernization and Development (2016), Sebastian Edwards, Simon Johnson, and David N. Weil, editors (p. 13 - 62)
Published in September 2016 by University of Chicago Press
© 2016 by the National Bureau of Economic Research
in African Successes Project

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.

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This chapter first appeared as NBER working paper w18013, 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, Patricio Valenzuela
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