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

The Potential of Pro-Market Activism for Finance in Africa: A Political Economy Perspective 223
7. For a more extensive discussion, see, for instance, Stiglitz and Weiss (1981).
8. An early discussion of this argument is provided by Bhagwati (1971).
9. The approach has been referred to as “modernist” because policies under this
heading aimed at governing financial markets in the same manner as industrialized
countries, focusing, for instance, on improving the macroeconomic
environment and contractual and information frameworks in order to
increase access to large-scale finance for formal enterprises (see, for instance,
Honohan and Beck 2007, 7–12; Beck, Fuchs, and Uy 2009). Although the
terms activism and modernism suggest a polarization into two highly contrasting
and incompatible approaches to financial policy making, in most
countries in the developing and the developed world activist and modernist
approaches to financial reform complement each other today. Moreover, as
Honohan and Beck (2007, 12) point out, “sometimes it is not immediately
clear whether certain policies should best be considered modernist or activist.”
This chapter uses these terms because they have become important reference
points in the debate on financial inclusion, analogue to the terms
structuralist/interventionist and neoliberal/laissez faire in more general
debates on the role of the state in the market.
10. A detailed account of the challenges arising from financial liberalization in
Africa is provided, for instance, in the case study of Nigeria by Lewis and
Stein (1997).
11. De la Torre, Gozzi, and Schmukler (2007) introduced the term pro-market
activism in the access debate; the term has been picked up by others (see, for
instance, Beck, Fuchs, and Uy 2009; De Luna-Martinez 2006; Ize, Pardo, and
Zekri 2008). De la Torre, Gozzi, and Schmukler (2007) describe this new
approach in detail, and many of the characteristics of activism presented in
this chapter are based on their concept. This chapter adopts a broad definition
of pro-market activism because, as outlined at the beginning of the section,
activism is defined more broadly as the deliberate intervention to promote
the outreach of financial services to groups of society which so far have been
underserved. The term pro-market is used to contrast the current view with
the market-replacing approach prevailing in the 1960s and 1970s.
12. Consumer protection has emerged as an important reform area complementary
to the field of financial inclusion: efforts to expand financial inclusion in
developing countries have allowed many new customers to access the formal
banking system. Yet these new customers often have no experience in using
banking services and lack an understanding of financial products, so they are
more likely to pay excessively high interest rates and bank charges, and
become overindebted.
13. One example is the initiative by a public-private alliance for financial inclusion,
Banco de las Opportunidades, in Colombia. In their model, subsidies for