The role of informal microfinance institutions in saving

• Access for New Firms- The prestige of a market listing offers access to potentially
larger pool of funds for new firms from risk-seeking venture capitalist.
• Stricter Reporting Requirements- The usually stricter reporting requirements of
stock exchanges coupled with market requirements for better information for
evaluating firm prospectus serves as an incentive for better reporting. Thus the
discipline in financial reporting demanded by well functioning stock market can act
as a stimulus for better reporting (Okeahialam 1993).
(iii) Costs of stock markets
Stock markets carry inherent and sometimes unavoidable costs apart from
uncertainties relating to the political, economical, financial, and legal and tax
environments.
These problems include:
• Market cycles- Market cycles significantly impact the generation of funds as markets
react quickly to domestic and international events often with unclear causal
relationships.
• Investor Confidence- African capital markets are faced with low investor confidence
often because of the newness of the system and lack of public awareness of the
benefits of stock markets. Market size often leads to fears of monopolistic controls
and the instability of prices and rates.
• Volatility of Interest/Exchange Rates- The setting of interest rates by governments
affects not only security prices in equity markets but also affect capital flows in the
domestic economy.
• Costs of Intermediation- In most African countries where there is little in the way of
an appropriate institutional framework, regulatory agencies, underwriting, brokerage,
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