Financial Sector Development and Savings Mobilisation: An Assessment

This paper aims to critically assess the literature associated with the relationship between financial sector development and savings mobilization.

The paper discusses:

• Literature on savings mobilization, namely social security reforms and the way they affect savings;
• Formal and informal institutions that influence savings mobilization in developing countries;
• The nexus between financial sector development and the process of financial liberalization, examining:
  • Financial repression,
  • Early financial sector reforms,
  • The analytical framework for modelling the link between savings and financial sector development,
  • Savings rates and the economic cycle,
  • The role of the financial sector in reducing risk and uncertainty;
• Other determinants of saving, including the causality between savings and growth, and the role of social security reform, looking at:
  • Macroeconomic instability and the terms of trade,
  • Political instability,
  • Foreign capital and savings;
• Institutions for developmental finance and their effectiveness in acting as financial intermediaries, like:
  • Rotating Savings and Credit Associations (ROSCAS),
  • Micro credit institutions,
  • Credit unions,
  • The Grameen Bank in Bangladesh.

The paper concludes that there is a need to empirically test the relationship between financial sector development and savings mobilization, and suggests a model of study to do so.