Financial Sector Development in Africa: Opportunities ... - World Bank

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activism in the developing world. Political power to influence financial
policy making seems to derive not from the formal institution of electoral
democracy, but rather from the control over economic resources and the
ability of a group to organize itself into a political force.
The dependence of political influence on political organization suggests
that public development strategies in countries where the political
environment is not favorable to effective activist policy making should
have two major goals: (1) To support those with an interest in inclusive
and sustainable financial systems—such as small manufacturers, farmers,
or even banks seeking to reach out to SMEs—to gain economic
weight, and (2) to help them to organize themselves along interest lines.
Middle- and lower-income groups as well as smaller entrepreneurs are
often fragmented because they lack the resources to organize themselves
into a viable political force. Therefore, policies to strengthen
political organization should focus on encouraging what political
economists call “political entrepreneurship.”
A political entrepreneur—which could be an individual, such as a
reform-oriented minister; an organization, such as a manufacturers’ association;
a political party; or, under certain conditions, even a venture capital
fund—helps those who lack resources and have difficulties in forming
a group to organize themselves into a political force. Political entrepreneurs
do so through collecting and disseminating information, subsidizing
the costs of organization and thereby facilitating collective action (Kosack
2009; Noll 1989). In many poor African countries, donors make up the
single most important group of political entrepreneurs. Through financial
and technical assistance, they seek to strengthen the political and technical
capacity of business membership organizations and of financial institutions
targeting the lower end of the spectrum, such as microfinance
banks. This contributes to improving the enabling environment for
government– private sector relations. In the long term, these efforts might
strengthen the consumers of financial services, financial service providers
interested in serving SMEs, and public entities that promote access to
finance, thus making the financial system more diverse and inclusive. As
long as the private sector does not constitute a partner and challenger to
the state, governments are unlikely to be responsive to the needs of those
affected by their policies (Bräutigam, Rakner, and Taylor 2002).
While many examples of political entrepreneurship have had positive
effects, it is less clear how to encourage it on the ground. Further research
is needed to shed more light on this issue. Although democracy is not a