Why isn't there more Financial Intermediation in Developing Countries?

No 214, Economics Working Paper Archive at Hunter College from Hunter College Department of Economics

Abstract: This paper proposes to organize thinking about the opportunities for improving and extending financial markets and safety nets for the poor, by focusing on factors that may explain why the linkage of local financial networks and safety nets with the larger economy often fails or is incomplete. Understanding the nature of these impediments is the first step in proposing policies to help promote more effective linkage and intermediation. We propose four explanations for the slowness of adoption of intermediation (high costs of delegated monitoring aggravated by limited intermediary capital; lock-in and crowding out effects from local insurance arrangements, social norms against cooperation with intermediaries; and political resistance to new institutions that shift the balance of power in local polities). Of course, financial repression and weak legal systems remains important as cause of lack of intermediation. We conclude with a review of public policy for more effective intermediation.

Keywords: financial intermediation; mutual insurance; safety nets; microfinance; microcredit (search for similar items in EconPapers)
Pages: 50 pages
Date: 2003-06-25
New Economics Papers: this item is included in nep-dev, nep-fin and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: Why Isn't There More Financial Intermediation in Developing Countries? (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:htr:hcecon:214

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