Back to Index

Recovery of the financial sector and building financial inclusiveness
Daniel Makina, United Nations Development Program (UNDP)
July 24, 2009

Download this document
- Acrobat PDF version (505KB)
If you do not have the free Acrobat reader on your computer, download it from the Adobe website by clicking here

View this article on the UNDP website [70 page PDF]

This paper is part of the Comprehensive Economic Recovery in Zimbabwe Working Paper Series

Executive Summary

This working paper evaluates the prospects for recovery of the financial sector and achievement of financial inclusion. It starts by giving a historical perspective of the financial sector while tracking performance over critical periods. The paper concludes that the sector's performance has not been responsive to the needs of the wider economy. Another key feature of the development of the sector is that it lacked inclusiveness as it did not adequately cater for the needs of the poor and the marginalized small-scale business sector. A disturbing 70 percent of the population remained unbanked at the end of
2006.

The financial sector faced many challenges arising mainly from disorderly macroeconomic conditions characterized by hyperinflation and policy inconsistencies. In particular, the Reserve Bank presided over quasi-fiscal activities that fuelled hyperinflation. This undermined financial intermediation, resulting in the public losing confidence in the banking sector with a further deterioration in terms of financial inclusiveness.

The paper further observes that from 2002 onwards price distortions emanating from controls became so severe that the analysis of official statistical data produced perverse outcomes. By the end of 2008 the distortions had become so severe that authorities formalized dollarization that had de facto become widespread over the years. Dollarization has, however, presented its own challenges. While it stabilized inflation, it has had a profound effect on the banking sector whose capital levels had been eroded by hyperinflation. Drawing from international experience and best practices, the paper discusses policy options for both recovery of the financial sector and for building financial inclusiveness as the country goes forward.

Download full document

Please credit www.kubatana.net if you make use of material from this website. This work is licensed under a Creative Commons License unless stated otherwise.

TOP