Does Bank Competition Affect Credit Access in Sub-Saharan Africa? Evidence from World Bank Informal Firms Surveys

Abstract

ABSTRACT This paper investigates the impact of bank competition on access to credit by informal firms in 14 Sub Saharan African countries using World Bank enterprise survey data. Access to credit is one of the main factors identified as hindering the growth of these opaque borrowers with poor financial transparency. This study uses a binary choice probit model to estimate the probability or likelihood of accessing finance conditional on the level of bank competition and other firm-level characteristics. Results show that the impact of competition measured using the recent and empirically robust Boone indicator is negative and significant in line with the market power hypothesis. These results suggest that improving the competitiveness of the banking sector by encouraging entrance of more players and curbing anti-competitive conducts should be promoted without compromising the soundness of the sector. Reducing or minimizing information asymmetry using public credit registries is good for enhancing financial access and governments should invest resources on maintaining, updating and increasing the coverage of these registries.