Analyzing the Chadian financial sector and offering strategies for private sector development
This paper diagnoses and analyzes the financial sector in Chad. The author states that like several other emerging countries, Chad has a repressed financial system, which in turn, acts as a key constraint in improving economic performance.
The paper is divided into four sections. The first section describes the financial sector in Chad and highlights:
Shortage of capital, weak policies and institutions that hamper resource mobilization and restrict private sector growth;
Short-term and undiversified credit portfolio in Chadian banks that deter long-term growth;
Gap between the formal and informal financial sector;
Bias of financial system towards major enterprises and financing of public expenditure through low administered interest rates and financial restrictions.
The second section examines four financial constraints:
Financial market regulations that reduce savings deposits and discourage banks from lending to SMEs;
Crowding-out of the private sector from financial markets by excessive borrowing;
Heavy taxation that limits the capacity to generate internal investment funds;
Public investment programs that monopolize the use of foreign loans and grants.
The third section presents recommendations for policy makers and development agencies that wish to address the financial sector reform in Chad; these centre on appropriate legal, institutional and sectoral reforms.
The final section stresses the role that USAID Chad could play in promotion of the private sector and development of an enabling environment.