ABSTRACT

This chapter examines contending approaches to the role of banking in the financial systems of developing countries, with a particular focus on sub-Saharan Africa (SSA). The chapter begins by discussing the role that finance should play in the process of development, and continues with a discussion of the debates pertaining to the relationship of finance and development. The discussion shows that mainstream economics has focused on demonstrating a long-term correlation between finance and growth and the need for financial liberalization. Both mainstream and heterodox schools agree that financial liberalization failed to provide the perceived benefits of revenue mobilization, although they disagree on the reasons for this failure. Post-liberalization, mainstream studies have focused on understanding the level of competition within African banking sectors whereas heterodox economists have focused on the micro-finance sector with little attention to the commercial banking sector in SSA.