An Analysis of the significance of informal financial integration with formal finance for economic development, case of Zimbabwe

Author

Murwira, Pedzisai

Title

An Analysis of the significance of informal financial integration with formal finance for economic development, case of Zimbabwe

Abstract

Informal finance is not unique to Zimbabwe as it has always been. However, during the last several years, the informal financial sector has become popular among local residents. The Zimbabwean government has tried to take steps to shut down the sector, but nothing has been done successfully. The primary objective of this study was to investigate potential methods for government institutions to seamlessly merge the informal sector with the formal one, thereby enhancing cooperation throughout the financial sector. To accomplish this objective, the study initially explored the drivers behind the informal financial sector. Data were gathered through questionnaires, interviews, and secondary research. Additionally, this study acknowledged the presence of the informal financial sector, quantified its actual size, and aimed to devise a method to independently assess its economic impact. Using the GDP gap model as a proxy, the study sought to estimate the informal financial sector’s scale. The primary findings indicate that the informal financial sector contributes to the perpetuation of structuralism and incomplete information flows, although it is primarily a result of fiscally repressive policies. In addition, the sector accounts for approximately 80% to 90% of the Zimbabwean economy in the current period and contributes significantly to the development and continuity of individuals and businesses that are often marginalized in the formal financial system. Finally, given incentives, the study argues that it is also possible to consolidate the informal financial sector

Date

June 2024

Publisher

BUSE

Keywords

Informal finance

Formal finance

Financial integration

Economic development

Financial inclusion

Supervisor

NIL