What can be done to make informal finance and microfinance suitable for financing growing small to medium size enterprises (SMEs) in Sub-Saharan Africa? First, I present the characteristics of informal finance, focusing on size, structure, and scope of activities. Informal finance has not been very attractive for the private sector. Indeed, the informal sector has considerable experience and knowledge about dealing with small borrowers, but there are significant limitations to what it can lend to growing microbusinesses. Second, I discuss some recent trends in microfinance. While externally driven microfinance projects have surfaced in Africa, their performance relative to small business finance has not been as positive as in Asia and Latin America. Third, I introduce some possible steps toward a new reform agenda that will make informal and microfinance relevant to private sector development, including focusing on links among formal, semi-formal and informal finance and how these links can be developed.
Professor Ernest Aryeetey is Director of the Institute of Statistical, Social, and Economic Research (ISSER) at the University of Ghana, Legon, Ghana.
Journal of Microfinance
Issue and Volume
BYU ScholarsArchive Citation
"Informal Finance for Private Sector Development in Sub-Saharan Africa,"
Journal of Microfinance / ESR Review: Vol. 7
, Article 3.
Available at: http://scholarsarchive.byu.edu/esr/vol7/iss1/3