A financial system that works for everyone, not just the wealthy, is the goal of this four-year research programme in low-income countries across sub-Saharan Africa. The problem is stark: despite decades of development, many people in countries like Ethiopia, Ghana, and Zambia remain locked out of basic financial services—bank accounts, credit, insurance—while the financial sectors that do exist often fail to channel money toward productive, job-creating investments. The 2007-09 global financial crisis further eroded confidence that finance automatically drives broad-based growth. This project aims to identify concrete policies—such as better institutional frameworks, smarter management of international capital flows, and ways to spread new technologies through the economy—that can close both the financial development gap and the financial inclusion gap. If successful, the research could reshape how governments and international agencies design financial regulations and development programmes. The consortium includes policymakers from DFID and the Brookings Institution, ensuring findings feed directly into real-world decisions. For someone in rural Uganda or urban Ghana, that could mean the difference between accessing a small loan to start a business or remaining outside the formal economy entirely.
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According to Stiglitz (2006), the financial system acts as the 'brain' of an economy. Financial institutions and markets promote the dissemination and co-ordination of information about resource availability at every level throughout the economy, and so they enable an efficient allocation of these resources for supporting economic growth. However, it is not altogether clear how finance can deliver inclusive financial development and growth. Recent empirical research shows that in LICs there are financial development gaps as well as financial inclusion gaps (Allen et al., 2014). In addition, the links between the financial system and economic development have come under increasing scrutiny in recent years, especially following the 2007-09 global financial crisis (Caballero, 2015). The current consensus is that there is urgent need for research on the role of the finance in fostering inclusive financial development and sustainable economic growth. Led by the University of Birmingham, a consortium of UK and international partners will collaborate on this four-year programme of research. Partner institutions include the Institute of Development Studies at the University of Sussex, Loughborough University, the Overseas Development Institute, SOAS at the University of London, and the University of Nottingham in the UK, and the Universities of Groningen in the Netherlands, Laval in Canada, and Columbia in the US. Crucially, the project consortium also includes researchers from institutions in sub-Saharan Africa (SSA), namely the University of Ghana-Legon and the African Economic Research Consortium (AERC) in Kenya, who stand to benefit from the organisational and institutional capacity-building opportunities which underpin the research programme. The aim of this research is to identify workable policies to help make the financial sector an effective instrument in promoting financial inclusion and sustained growth in LICs, and consequently create an enabling environment for transitioning these countries to middle income status. We will provide a set of answers to ALL THREE critical questions posed in the Call for Proposals concerning i) the role of international capital flows in growth and development, ii) the design and provision of institutional frameworks to support financial development, and iii) the ways in which financial systems can help generate and transmit technical change in the economy as a whole. To achieve this ambitious goal, the project will be structured into four clusters on 1) institutional framework for inclusive growth, 2) capital flows, 3) technological diffusion, and 4) a cluster which will run in parallel to the other three to synthesise findings in order to derive meaningful policy recommendations and drive tangible global impact. Component II of the programme is planned to focus on additional policy-oriented issues, and will be developed in tangent with DFID policymakers, the ESRC and other national and international academics and end-user stakeholders, and will be run in partnership with the Africa Growth Initiative at the Brookings Institute, US. The research will cover a wide range of topics within the overall remit of financial sector development, so multiple innovative research methodologies will be employed across eight integrated work-streams. Methods include institutional analysis, i.e. the assessment of how institutional features of financial systems contribute to, or impede, financial sector objectives; field experiments; comparative analysis of the experience of countries with different policies and institutions; rapid appraisal and participatory appraisal methods; quantitative analysis of company and bank balance sheets, and quantitative and qualitative analysis of survey data. The major part of the research programme will entail empirical research based on fieldwork in selected LICs in SSA (Ethiopia, Ghana, Kenya, Rwanda, Uganda, Zambia), with wider application to other LICs globally.
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