| Summary: | Recent studies on the relationship between financial development and poverty have been
inconclusive. Some claim that, by allowing more entrepreneurs to obtain financing, financial
development improves the allocation of capital, which has a particularly large impact on the poor.
Others argue that it is primarily the rich and politically connected who benefit from improvements
in the financial system. This paper looks at a sample of 37 countries in sub-Saharan Africa from
1992 through 2006. Its results suggest that financial deepening could widen income inequality
and increase poverty, if not accompanied by stronger property rights. Similarly, interest rate and
lending liberalization alone could be detrimental to the poor without institutional reforms, in
particular stronger property rights and wider access to credit information.
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