Tuesday, 15 February 2011

How Government should intervene in the financial sector

I have just received a briefing paper from the Deutsches Institut für Entwicklungspolitik / German Development Institute concerning "The potential of pro-market activism as a tool for making finance work for Africa: a political economy perspective".

The author argues that:
"This suggests that information on creditworthiness is basically a public good, in the sense that it is non-rival in consumption and it is very costly to exclude anyone from using it. When the market fails to let banks appropriate the returns of information about their costumers, banks will under-invest in the acquisition of such information.
Credit registries give access to clients’ credit history and increase the transparency of borrower quality, which makes it safer for financial institutions to lend to new customers.
The Kenyan Central Bank (CBK) took the initiative and issued a regulation which mandated financial institutions to share information with credit bureaus

They are funded by Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung (BMZ) and Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH. The project this is done under is called "Making Finance Work for Africa (MFW4A)" copyof the paper can be found oline at http://www.die-gdi.de/CMS-Homepage/openwebcms3.nsf/(ynDK_contentByKey)/ANES-8DNAK4/$FILE/DP%202.2011.pdf