Financial sector development - Sida

this tradition of financial contracts. Savings channelled through pension funds constitute
a very substantial part of national savings in many East Asian countries. Such funds also
form a stable backbone of the capital markets in these countries. In contrast, long-term
contractual savings in the form of pensions and life insurances play only a marginal role
in the African economies.
Although the financial systems in most East Asian economies are more advanced than
those in Africa, the development of legal and regulatory frameworks of financial
transactions is of rather recent origin in most East Asian countries. African countries, with
only a brief financial history, have been even slower in creating legal and regulatory
frameworks for the financial markets; this process has only begun in the last few years.
In summary, the most notable differences in the financial field between Africa and East
Asian relate to macroeconomic stability and thus to the trust and confidence in formal
financial institutions. This has implications for the degrees of monetisation and financial
depth, for the provision of risk capital for the private sector, as well as for the division of
credit between the public and private sectors. In other areas of policy, such as public
ownership of banks and regulatory rules, the differences between the two groups are less
marked.
The differences in financial developments between the two groups of countries is
captured clearly in the measurement of financial depth, i.e. the ratio between money
supply (broadly defined) and GDP, as illustrated in Table 4 below.
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