Financial Dualism in Ghana: The Implications for Monetary Policy on Loan Variations

P. Adjei () and R. K. Ayisi ()
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P. Adjei: University of Ghana
R. K. Ayisi: University of Ghana

Chapter Chapter 8 in Financial Sector Development in Ghana, 2023, pp 183-206 from Palgrave Macmillan

Abstract: Abstract The increasing overlap in the operations of formal and informal banks in most developing economies has raised the issue of whether they complement or compete with each other within the financial space. Though interrelated in activities, differences in their regulatory framework project potential variations in their responses to monetary shocks. Adopting a bank-level data of formal banks (eleven sampled over the period, 2000–2017) and informal bank (five sampled over the period 2013–2019), this study explores how the variations in the credit supply of these two types of banks are affected by policy instrument in Ghana. We setup a panel EGLS with cross-section weights estimator under the assumption of random variations across banks. The study established that variations in loan supply of the traditional banks are significantly influenced by the size of the bank, the capitalisation, and policy rate. While the size and liquidity position positively influence loan variations, the capital structure of the bank and policy rate negatively influence loan variations. The study further revealed that monetary policy is insignificant in determining variations in credits of informal banks. These findings highlight the need for context-specific monetary control that can stimulate the needed growth and innovation in the formal and informal financial space.

Keywords: Ghana; Monetary Policy; Formal Bank; Informal Bank (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-3-031-09345-6_8

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DOI: 10.1007/978-3-031-09345-6_8

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