No Result
View All Result
Friday, August 12, 2022
Citi Business News
  • Home
  • News
    • All
    • Agriculture
    • Economy
    • General
    • Government
    • Local Economy
    • Top Stories

    Bank of Ghana widens its scope on cryptocurrency

    Importers, Exporters Association calls for sympathy for Labianca following corruption claims

    Our cars to sell for cheaper soon- locally assembled automobile companies

    BoG Deputy Governor chairs advisory board of UG’s College of Humanities

    Ghana’s inflation rate rises again; hits 31.7% in July 2022

    Fitch downgrades Ghana’s credit rating from B- to CCC

    Ghana Mines Workers’ Union threatens industrial action

    Farmerline begins ‘Support a Farmer’ initiative to provide fertilizer to farmers

    Ghana likely to secure US$3 billion from IMF for economic support

  • Business
    • All
    • Agribusiness
    • Banking And Finance
    • Manufacturing
    • Markets
    • Mining
    • Oil And Gas
    • Real Estate
    • Tourism
    • Transport

    Bank of Ghana widens its scope on cryptocurrency

    Importers, Exporters Association calls for sympathy for Labianca following corruption claims

    BoG Deputy Governor chairs advisory board of UG’s College of Humanities

    GEXIM CEO is one of Ghana’s 100 most influential business leaders

    Zenith Bank Ghana wins premium quality West African banking brand of the year 2021

    GIPC and GSE sign MoU to attract more investment into Ghana

    Appolonia City unveils its first commercial building; Adumuah Place

    Dr. Ampabeng advocates consolidation of road taxes into fiscal policy

    WAPCo commits to cleaner and reliable energy

  • TECHNOLOGY

    We’re ready to re-engage gov’t on acquisition of Vodafone shares – Telecel

    New deadline for SIM re-registration too short – MoMo agents association

    Extend SIM card re-registration exercise to January 2023 – MoMo agents

    Vodafone agrees sell stake in Ghana’s business to Telecel

    Telecoms Chamber and IIPGH advocate sustained coding education

    IIPGH to enter coding education partnership with Telecoms Chamber

    PayAngel joins Microsoft for Startups Founders Hub

    Node 8, HTU hold first edition of Node X in Ho

    Financial transactions will be allowed even without Ghana card from 1st July – GAB assures

  • INTERNATIONAL
    • All
    • Africa
    • Asia
    • Europe
    • Middle East
    • US

    Agribusiness entrepreneurs must take advantage of AfCFTA – ADB MD.

    Inflation, debt, and forex crisis is pushing many African economies to the brink – IMF warns

    African countries that could follow Sri Lanka into economic chaos

    Africa’s internet economy to cross $180 billion by 2025: Report

    Regional economic cooperation needed to enhance Africa’s competitiveness – Bawumia

    Ivory Coast is set to receive $26.1 billion worth of development finance from 4 lenders, the EU and France

    Gulf central banks, Bank of England raise policy rates after Fed hike

    US Fed meets inflation surge with 75bp hike

    As Nigeria’s inflation rate accelerates to 17.71%, the World Bank warns millions could face extreme poverty

  • FEATURES
  • Videos
Citi Business News
  • Home
  • News
    • All
    • Agriculture
    • Economy
    • General
    • Government
    • Local Economy
    • Top Stories

    Bank of Ghana widens its scope on cryptocurrency

    Importers, Exporters Association calls for sympathy for Labianca following corruption claims

    Our cars to sell for cheaper soon- locally assembled automobile companies

    BoG Deputy Governor chairs advisory board of UG’s College of Humanities

    Ghana’s inflation rate rises again; hits 31.7% in July 2022

    Fitch downgrades Ghana’s credit rating from B- to CCC

    Ghana Mines Workers’ Union threatens industrial action

    Farmerline begins ‘Support a Farmer’ initiative to provide fertilizer to farmers

    Ghana likely to secure US$3 billion from IMF for economic support

  • Business
    • All
    • Agribusiness
    • Banking And Finance
    • Manufacturing
    • Markets
    • Mining
    • Oil And Gas
    • Real Estate
    • Tourism
    • Transport

    Bank of Ghana widens its scope on cryptocurrency

    Importers, Exporters Association calls for sympathy for Labianca following corruption claims

    BoG Deputy Governor chairs advisory board of UG’s College of Humanities

    GEXIM CEO is one of Ghana’s 100 most influential business leaders

    Zenith Bank Ghana wins premium quality West African banking brand of the year 2021

    GIPC and GSE sign MoU to attract more investment into Ghana

    Appolonia City unveils its first commercial building; Adumuah Place

    Dr. Ampabeng advocates consolidation of road taxes into fiscal policy

    WAPCo commits to cleaner and reliable energy

  • TECHNOLOGY

    We’re ready to re-engage gov’t on acquisition of Vodafone shares – Telecel

    New deadline for SIM re-registration too short – MoMo agents association

    Extend SIM card re-registration exercise to January 2023 – MoMo agents

    Vodafone agrees sell stake in Ghana’s business to Telecel

    Telecoms Chamber and IIPGH advocate sustained coding education

    IIPGH to enter coding education partnership with Telecoms Chamber

    PayAngel joins Microsoft for Startups Founders Hub

    Node 8, HTU hold first edition of Node X in Ho

    Financial transactions will be allowed even without Ghana card from 1st July – GAB assures

  • INTERNATIONAL
    • All
    • Africa
    • Asia
    • Europe
    • Middle East
    • US

    Agribusiness entrepreneurs must take advantage of AfCFTA – ADB MD.

    Inflation, debt, and forex crisis is pushing many African economies to the brink – IMF warns

    African countries that could follow Sri Lanka into economic chaos

    Africa’s internet economy to cross $180 billion by 2025: Report

    Regional economic cooperation needed to enhance Africa’s competitiveness – Bawumia

    Ivory Coast is set to receive $26.1 billion worth of development finance from 4 lenders, the EU and France

    Gulf central banks, Bank of England raise policy rates after Fed hike

    US Fed meets inflation surge with 75bp hike

    As Nigeria’s inflation rate accelerates to 17.71%, the World Bank warns millions could face extreme poverty

  • FEATURES
  • Videos
No Result
View All Result
Citi Business News
No Result
View All Result

East Africa: Why informal financial markets are here to stay

bycitibusinessnews
May 23, 2017
in Africa, East Africa
Share on FacebookShare on TwitterShare on Whatsapp

It is argued that African financial markets are highly fragmented, creating both formal and informal structures.

While formal financial markets are largely controlled by the Capital Markets Authority (CMA), informal financial markets (IFMs) are outside the CMA’s regulatory and supervisory control.

IFMs include Shylocks, merry-go- rounds (chamas), pawn brokers, credit societies, and traders. IFM lenders are also outside the radar of the Central Bank of Kenya.

Formal and informal financial markets serve different clientele with no linkages between the clientele served. It is therefore unclear whether the existence of informal financial markets presents a problem or a solution to the fragmentation of African financial markets.

Historically, money lenders were regarded as parasites who exploited impoverished peasants due to the high interest they charged. For instance, some charged over 30 per cent per month which translates to more than 360 per cent per annum.

From the formal sector perspective where banks charge about 14 per cent per year, the interest charged by money lenders is a rip-off.

But how many can access funding from banks? Today, informal lenders provide efficient financial services to a large clientele ignored by the formal sector. In many developing countries, the informal sector account for over 60 per cent of total lending.

In spite of the role played by IFMs, some studies argue that liberalising restrictive policies can expand the formal sector leading to the elimination of informal lending. This argument is not in touch with grassroots reality.

Financial transactions involve the exchange of money in the present for a promise to pay in future. However, most lenders lack the ability to establish whether a borrower will actually pay.

This problem is due to information asymmetry, adverse selection and moral hazards in credit markets.

Information asymmetry occurs where one of the parties to a financial transaction has more information than the other. In most cases the borrower has information about his financial position and the purpose of the credit he is taking while the lender is in the dark.

Adverse selection occurs when there’s a lack of symmetric information prior to a deal between a borrower and a lender.

On the other hand, moral hazard occurs when there is asymmetric information between the two parties and change in behaviour of one party (in most cases, the borrower) after the lending transaction has been concluded.

Imperfect information may lead to market failures that hinder risk management causing wide differences across lenders in relation to the cost of screening, monitoring and enforcing loans.

As demand for loans exceeds supply, adverse selection and moral hazard increase causing lenders to resort to non-price rationing rather than raise interest rates.

Information asymmetry is prevalent in low-income economies where information flow is limited and financial information is lacking or costly to obtain.

Information gathering costs for large financial institutions keep rising causing lenders to shun the market. This creates opportunities for informal financiers who can easily gather information at low cost using local networks.

Social sanctions

In addition, legal system weaknesses such as lack of title deeds and the land ownership transfer problem can affect the cost of loans.

This forces formal lenders to shun loaning and decline some securities due to absence of markets for confiscated assets in the case of default.

Informal financial markets address this problem by use of personal relationships, social sanctions and various collateral substitutes such as reputation, group responsibility and interlinked transactions (loan linked to purchase of a tangible commodity like water tank).

IFMs effectively operate on one side of the market, specialising in some specific target clients, use limited legal documentation and are largely relationship based.

Parliament recently introduced a law which caps banks’ lending rates at four per cent plus the Central Bank Rate (currently at 10 per cent). This was informed by banks’ perennial failure to lower lending rates even when the CBK lowered Treasury bill rates.

However, excessive government intervention leads to inefficient and underdeveloped financial markets. Interest rate ceilings or caps tend to increase demand but reduce supply of funds, forcing lenders to ration credit by other means.

Kenya should have a supportive legal and regulatory framework by passing laws which promote the growth of informal financial markets.

–

Credit: CNBC Africa

ADVERTISEMENT

Related Posts

Agribusiness

Agribusiness entrepreneurs must take advantage of AfCFTA – ADB MD.

bycitibusinessnews

The Managing Director of Agricultural Development Bank Plc, Dr. John Kofi Mensah has disclosed that the African Continental Free Trade...

Read more

Inflation, debt, and forex crisis is pushing many African economies to the brink – IMF warns

Africa’s internet economy to cross $180 billion by 2025: Report

Regional economic cooperation needed to enhance Africa’s competitiveness – Bawumia

As Nigeria’s inflation rate accelerates to 17.71%, the World Bank warns millions could face extreme poverty

Modern airline tickets design with flight time and passenger name. Plane tickets vector pictogram. Airline boarding pass template. Vector illustration. The concept of air transportation

Ticket prices to rise following B.A schedule change on Accra-London-Accra route

Bawumia calls for more AfDB support as African economies battle global challenges

Next Post

Kenya: NSE up Sh289bn in three months on dividend chase

Video on Demand: Business Weekly

ADVERTISEMENT
Citi Business News

© 2019 Citi Business News - CitiBusinessNews.com by CNR Digital.

Navigate Site

  • Home
  • News
  • Business
  • TECHNOLOGY
  • INTERNATIONAL
  • FEATURES
  • Videos

Follow Us

No Result
View All Result
  • Home
  • News
  • Business
  • TECHNOLOGY
  • INTERNATIONAL
  • FEATURES
  • Videos

© 2019 Citi Business News - CitiBusinessNews.com by CNR Digital.