Savings mobilization and financial market development in Ghana

Date of Award


Degree Type


Degree Name

Doctor of Philosophy (PhD)


Social Sciences


Barbara Grosh


financial markets, developing countries, Finance, Banking, African history

Subject Categories

International Business


As part of the Structural Adjustment Program, Ghana initiated a comprehensive financial sector liberalization program in 1987. The main objective of the program was to improve resource mobilization and increase the efficiency of credit allocation by the banking system. Interest rates have been decontrolled and the prudential and regulatory framework has been strengthened as part of the financial liberalization process. However, the financial system remains uncompetitive and savers' confidence remains low. This research examines financial savings mobilization in Ghana and concludes that financial market liberalization (though necessary) is not a sufficient development strategy by which to increase savings and intermediation. Our research found that there exists a weak link between the different financial segments, making the mobilization of financial savings difficult. Institutional barriers inherent in the structure of formal banks limit the banks' scope of operations. Further, cultural, economic and sociopolitical factors influence the holding of non-financial assets. Strong societal traditions which operate on mutual assistance and reciprocity promote relational transactions and the preference for informal sector financial arrangements. A weakness in the liberalization strategy to mobilize savings has been the fact that policymakers failed to incorporate informal financial practices and procedures in the reforms. The Ghanaian situation shows that an undeveloped financial market cannot act as a leading sector for economic development. This is especially true during the transition from a repressive regime to a liberalized one. A strategy to move existing savings into the financial system requires a multidimensional approach that involves sound macroeconomic environment, adaptations to culture, policy networks, and differentiated regulations for the different financial sectors. There is need for formal financial institutions and the policy makers who set their rules to learn more about informal markets. Formal and informal finance would have to evolve significantly towards the semi-formal financial sector if financial intermediation is to increase. While getting prices right is a necessity, public policy has an important role to play in creating effective institutions that will facilitate the coordination of savings mobilization and financial market development.


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