ABSTRACT
In the previous chapters it was assumed that informal finance played no role in financing private investment: loans consisted only of formal finance. However, the formal banking sector in some developing countries, especially in Sub-Saharan Africa, is relatively unimportant for the financing of investment projects. In many developing countries a flourishing informal financial sector exists which is sometimes much more important for financing needs. Although precise estimates of the size of the informal financial sector are rare, the share of informal finance in total finance seems to range from about one-third to about three-quarters (Montiel et al., 1993, p. 17). For instance, for Malawi the informal financial sector, measured by the amount of lending to the private sector, is estimated to be three times as large as the formal financial sector, and in Ghana more than 60 percent of all rural savings are in the informal sector (Aryeetey and Hyuha, 1991). Miracle et al. state that
the great bulk of the African population makes little or no use of formal savings and lending institutions. There are few banks in most areas, and those that are found are either not available to, or if available not used by, the majority of the population for a variety of reasons.
