Why is the Financial Sector in Burundi not development-oriented?

The financial sector in Burundi has had a very limited effect on the country’s development. High political and economic risks have prevented banks from engaging in long-term lending, constraining long-term investment. Moreover, the industrial organisation of the financial sector is not conducive for development lending because the sector is used more as a source of rents than development finance. As a result, the financial sector has been unable to address the needs of the core drivers of growth in Burundi, namely, agriculture and industry. Therefore, increasing the financial sector’s participation in Burundi’s economic development will require an improvement in political and macro-economic stability, as well as an increase of financial institutions’ long-term resources. Most particularly, development banking should play its role of fostering the development of agriculture and the rural economy. In addition, more competition in the financial sector should be encouraged with the aim of diversifying financial services and pushing the sector’s boundaries beyond the traditional urban market to embrace the rural economy where most economic activities take place.

Paper prepared for the Conference on “Financial markets, adverse shocks and policy responses in fragile countries”, organised by the European Report of Development in Accra, Ghana, 21-23 May, 2009.

European Report on Development 2009

This publication is an outcome of the work of the ‘Peace, Security and Development Network’ (PSDN), established in 2008. The Network aims to support and encourage the sharing of expertise and cooperation between the different Dutch sectors and organisations involved in fragile states. The PSD Network is an initiative under the Schokland Agreements of 2007.