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

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Conclusion
There is strong empirical evidence that access to finance for private
investment is essential for enterprise development and economic growth.
Financial systems in Sub-Saharan Africa have remained highly exclusive,
however. This exclusivity is primarily the result of market failures that
make the provision of financial services to lower-income groups and
SMEs prohibitively costly or, because of an uncompetitive market environment,
unattractive. While market failures provide an argument for
activism (defined as deliberate government interventions to promote
access to finance), experience with activism has been mixed at best.
However, even though activism does not guarantee an increase in broadbased
productive private investment, past experience—both in the developing
and the developed world—suggests that achieving this goal without
deliberate government interventions is difficult, if not impossible. 22 For
this reason there is a renewed interest among development practitioners
in determining the conditions under which activist government interventions
in financial markets could serve as a tool to increase access to
finance for productive investments.
It is now commonly acknowledged that the effectiveness of activism
depends on politics, and there is a consensus that good governance is a
precondition for government interventions to be successful. This chapter
argues that although the current consensus on the potential of activism
is a promising way forward, its policy implications are not quite clear.
There is no fully developed positive approach of government activism
and thus no framework that helps evaluating, ex ante, whether a government
entity is likely to successfully assume an activist role. Without such
ex ante predictors, development practitioners will find it difficult to prioritize
reform policies and define the adequate role for government in a
particular country; this could range from a modernist to a pro-market
activist role. Moreover, without such a framework there is the risk of
spending resources on policies that seek to increase financial access but
are not likely to succeed and are unsustainable. This outcome could
spread disenchantment with aid and leave African countries without the
financial services they urgently need.
This chapter shows that political economy can provide a framework
that helps to assess whether government interventions in a particular
country have a chance to succeed. By focusing on endogenous policy
choices, political economy allows the study of any policy as the outcome
of a political decision-making process. Therefore political economy not
only helps to predict the chances of success of an activist approach, but