Resolving the African Financial Development Gap: Cross-Country Comparisons and a Within-Country Study of Kenya
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.
Patricio Valenzuela acknowledges financial support from the Institute for Research in Market Imperfections and Public Policy, ICM IS130002, Ministerio de Economía, Fomento y Turismo.
We are grateful to the Gates Foundation, NBER, and the authors’ respective institutions for financial support. Allen was at the University of Pennsylvania, Carletti was at the European University Institute, Cull was at the World Bank, Jun "QJ" Qian was at Boston College, Senbet was at the University of Maryland and Valenzuela was at the European University Institute.