Discussion Paper

The politics of central banking and implications for regulatory reform in sub-Saharan Africa: the cases of Kenya, Nigeria and Uganda

Dafe, Florence
Discussion Paper (2/2012)

Bonn: German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)

ISBN: 978-3-88985-545-9
Price: 6 €

As regulators, central banks can play a stabilising role, using prudential regulation to ensure financial system stability, and a transformative role, using regulation to promote financial
system development and so encourage financial deepening and inclusion. While there are strong arguments for central banks seeking to strike a balance between their stabilising and transformative roles in financial regulation, African central banks have had difficulties in this respect. This paper presents case studies from Nigeria, Uganda and Kenya that show how central banks have historically tended to emphasise one role rather than the other. Reforms that seek to improve the balance between the stabilising and transformative roles of central banks in financial regulation are difficult because interest groups with the power to shape central bank behaviour tend to prefer the regulatory status quo and may try to capture regulatory reform processes. As facilitators of financial reform processes in many African countries, donors should systematically address the challenges posed by regulatory capture with a view to maximising the effectiveness of their support for regulatory reforms.