Informal financial markets under liberalization in four African countries

Abstract This paper presents survey evidence from four countries on how informal financial agents serve market niches that banks cannot readily reach. Their methodologies are effective in keeping down transaction costs and default risk relative to banks, although informal agents exercise monopoly power in dualistic markets. Liberalization of repressive financial policies has had little effect on formal financial deepening, while informal finance has continued to grow. The paper concludes that informal financial institutions are an important vehicle for mobilizing household savings and financing small businesses, and it recommends that informal finance be better integrated into financial development strategies.