Financial Sector Reforms In Africa

Financial sector reforms in Africa have changed the financial contour of the country for the better. The paragraphs hereunder reveal various constituents of the reforms in the country. It also describes the different spheres, which have undergone reform and what happened in the event of failure of the same.
Majority of the countries in Africa have been subjected to financial sector reforms. Financial sector reforms in Africa encompasses the liberalization of rates of interest as well as exchange rates, withdrawal of ceilings pertaining to credits, privatization of banks, which were owned by the state and restructuring of banks owned by the state.

The African government, as part of the financial sector reforms in Africa, focused on developing the financial markets. The reforms included the development of the banking system in the private sector, stock markets and money markets. Several regulatory programs were also created as part of the financial sector reforms in Africa.

Owing to the reforms, people started taking more interest in stocks. On the establishment of the stock exchanges in the country, this sentiment was further fanned.

Importance of the financial sector reforms in Africa:
It is important to develop the capital markets faster and hasten the process of financial sector reforms in Africa. This would place Africa in a favorable position to appeal to the foreign investors and make its global presence felt. However, it cannot be denied that the country has already attracted a few although the number of investors queuing up may not be astronomical. There are few areas, whose improper implementation and non compliance have made the financial sector reforms in Africa incomplete.

These areas include:
Legal as well as contractual systems
Supervisory mechanisms
Regulatory mechanisms
Accounting norms
Rules pertaining to disclosures

Financial sector reforms in Africa, make up part of the SAP or the Structural Adjustment Program in the country. Earlier the country had also opened its economy to international trade. The country also levied stringency in the assignment of credit. Limitations were also imposed on the external flow of capital.

Loopholes in the financial sector reforms in Africa:

Even though the African government interfered in the reforms to invigorate the financial system in the country, to monitor mobilization of capitals required for the purpose of investment and to assign capital depending on the sector wise priority, it failed to streamline the system. This was the scenario during the 1980s. This period witnessed the country’s “march backwards”. The same period witnessed other nations “marching ahead”. However, the financial sector reforms in Africa, which were introduced lately have been called for to annul the failed effects of the reforms. The degree to which the financial sector reforms in Africa were implemented differed from nation to nation within the continent.

Constituents of financial sector reforms in Africa:

Several constituents have been identified pertaining to the reforms in the country. One acceptable aspect is that due to the reforms, the economy of the country has become more liberal financially. One marked change, which was incorporated in the reforms was that the monetary policies, which determined the deposit as well as lending rates were removed. In addition to the deposit rates and liberalization, interest rates, exchanges rates, credit ceilings, bank recapitalization were some of the identifiable constituents of financial sector reforms in Africa.

The banking sector in Africa:

In majority of the cases, the banking system in the country is characterized by situations of liquidity in excess and non performing loans. The government has also taken steps to control the same by the execution of financial sector reforms in Africa.

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Last Updated on : 26th June 2013

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