Informal finance for private sector development

Abstract: What can be done to make informal finance and microfinance suitable for financing growing small to medium size enterprises (SMEs) in Sub-Saharan Africa? First, I present the characteristics of informal finance, focusing on size, structure, and scope of activities. Informal finance has not been very attractive for the private sector. Indeed, the informal sector has considerable experience and knowledge about dealing with small borrowers, but there are significant limitations to what it can lend to growing microbusinesses. Second, I discuss some recent trends in microfinance. While externally driven microfinance projects have sur-faced in Africa, their performance relative to small business finance has not been as positive as in Asia and Latin America. Third, I introduce some possible steps toward a new reform agenda that will make informal and microfinance relevant to private sector development, including focusing on links among formal, semi-for-mal and informal finance and how these links can be developed. In this section I explore the characteristics of informal financethat make it difficult for it to be accessed by Sub-SaharanAfrican enterprises. “Informal finance ” might be defined as embracing all financial transactions taking place beyond various countries ’ regulations on banking and other financial sectors. Thi