the project risk, the guarantees enabled Chilean institutional investors to invest in these issues, which were well-suited for infrastructure projects, with maturity terms typically for 20 years, at fixed-rate terms, and denominated in a local inflation-adjusted unit of account. Chile’s A– credit rating paved the way for the monoline insurers’ participation in these arrangements.

# Ratio of private bank credit to GDP as an indicator of financial depth

A typical indicator for measuring the degree of financial intermediation by the banking sector is the ratio of private credit by banks to GDP (table 2.4).<sup>13</sup> Three countries have high ratios of private credit by banks to GDP: South Africa (77 percent), Cape Verde (64 percent), and Namibia (62 percent). But the level of financial intermediation is low for the majority of the focus countries. Eighteen of the 24 countries have ratios of private credit by banks to GDP below 20 percent; eight are below 10 percent, two of which have ratios below 3 percent. In these countries, official development assistance remains a critical source of external financing (appendix 3).

**Table 2.4 Private credit by banks as a share of GDP**

||West Africa|Central Africa|East Africa|Southern Africa|
|---|---|---|---|---|
|< 10%|Niger|Cameroon, Chad,<br>Congo, Dem. Rep.|Uganda|Lesotho, Malawi,<br>Zambia|
|10–20%|Benin, Burkina Faso,<br>Nigeria, Côte d’Ivoire,<br>Ghana (19.9%)||Rwanda, Sudan,<br>Tanzania|Madagascar,<br>Mozambique|
|20–50%|Senegal||Ethiopia, Kenya||
|50–75%|Cape Verde|||Namibia|
|> 75%||||South Africa|

Bank credit to the private sector in these countries has been constrained by various factors that can include underdeveloped domestic financial markets, poor credit discipline, poor enforcement of creditors’ rights and overall deficiencies in national legal and judicial frameworks, and a shortage of creditworthy borrowers and projects. Other factors include high banking transaction costs, ceilings on bank lending rates that are out of line with market conditions (and that thus impede banks’ ability to price risk, as in CEMAC countries), and an inability of many private-sector borrowers to pledge sufficient collateral, often because the range of assets accepted as collateral is very narrow).<sup>14</sup> In many of these countries, banks continue to lend to a small number of corporate clients and accumulate large holdings of government securities.

In economies where the oil sector is predominant and largely foreign-financed (such as Cameroon, Chad, Côte d’Ivoire, and Nigeria), the ratio of private sector credit to GDP is low, although not lower than

> 13 Private credit by deposit money banks is calculated as claims on the private sector by deposit money banks (sourced from International Monetary Fund International Financial Statistics, June 2007).

> 14 The value of collateral required for a loan can range considerably within countries. In Zambia, the amount required ranged from 50 percent to 200 percent in May 2007. In Namibia, the average value of collateral required for a loan in mid-2006 was 100 percent, but several firms reported that the requirement could be as high as 700 percent (World Bank 2007d).

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