March 2002 Insights Issue
#40
Finance matters
Financial liberalisation: too much too soon?
An efficient and stable financial system is important for economic growth
and poverty reduction. The financial crises that have afflicted many countries
in recent times have been a costly and painful reminder of the disastrous
consequences for development of weak financial markets. More...
Other articles in this issue:
Banking reforms
in Africa: what has been learnt?
One of the major objectives of liberalisation is to boost bank lending
to the private sector, which is regarded as the engine of economic growth.
However, the growth of commercial bank lending to the private sector following
financial liberalisation was disappointing in many countries, especially
bank lending to small scale borrowers and start-up enterprises.
A foreign affair?
How far does Africa need foreign banks?
Free foreign bank entry is essential to financial liberalisation in Africa.
It is also integral to the World Trade Organisation (WTO) protocols on
the General Agreement on Trade in Services (GATS) embraced by most African
governments. What are the pros and cons of free foreign bank entry? What
are the implications for local domestic banks?
Prudence pays?
Regulating the financial sector
A strong banking system is the backbone of a robust financial sector.
Research by the United Nations University's World Institute for Development
Economics Research identified four main obstacles to efficient banking
regulation in LDCs...
Crisis in Jamaica:
has the cost been excessive?
In recent decades, financial crises have threatened the financial and
monetary systems of many developing countries. But have the crisis management
measures alleviated or intensified the accompanying economic, social and
political upheaval?
Bumpy road to Basel
- Banking regulation: precision versus accuracy
Banks play an important role in the economy and need to be regulated.
Safe, sound banks and a stable financial system are essential. Without
this, the banking system would be unable to perform its basic functions
well, such as financing economic development and poverty reduction. Nor
would people have the confidence to use banks.
Blurring the boundaries?
Microfinance vs formal banking
Microfinance practitioners want to see special regulations allowing microfinance
institutions to provide a range of financial services without attracting
formal banking sector regulations - especially minimum capital requirements.
If adopted, this approach will stretch the limited financial resources
and technical capacity of many central banks in developing countries.
It will blur the traditional boundaries of financial sector regulation.
What options would best help regulators faced with a burgeoning microfinance
sector?
Capital flows?
Balance of payments management
The free movement of capital across national boundaries can ensure a more
efficient allocation of savings, channelling resources to countries where
they can be used productively to increase growth and welfare.
Default but no
reform: financial sector issues in Bangladesh
Defaults on loans in 1990 by industrial and nationalised commercial
banks (NCBs) in Bangladesh stood at $ 1.1 billion, when the World Bank
stepped into the banking sector with its Financial Sector Reform Programme.
Nevertheless, by the end of the 1990s, the total of 'bad debt' had grown
to $ 4.3 billion. What measures can the BNP administration, newly elected
in October 2001, take and what may be the developmental costs to the Bangladesh
economy if implementation of financial reforms remains weak?
Sites for sore eyes
Further web resources on finance matters.
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