Prepared by the study authors Andy Mullineux and Victor Murinde
In most African economies, banks remain the major source of external capital for both large businesses as well as small enterprises, and indeed for the private sector and the economy as a whole. However, there remain well-documented impediments to the flow of credit, especially to micro, small and medium sized enterprises (MSMEs). The major market imperfection is 'asymmetric information'. In other words, it is costly to collect and process the information necessary to select the least risky borrowers, or to 'screen' them, and it also costly to 'monitor' their use of the borrowed funds, which explains why banks ration the supply of credit, especially to MSMEs. Read the full article.