Financial Sector Policy and Development in the Wake of the Global Crisis: the role of national development banks

Financial sector liberalisation has led to market failure on a massive scale. In industrial countries market failure led to the Great Financial Crisis that erupted in 2007 and continues into its fifth year. In developing countries liberalised financial markets have failed to provide access to financial services for the vast majority of households and firms. Small and medium-sized enterprises (SMEs), which are critical for employment, income creation and economic development, are particularly excluded by liberalised private financial markets. Market failure necessitates government intervention. To enhance SMEs' financial access requires an activist role by governments-not only by ensuring an enabling policy framework and financial infrastructure for SMEs, but also by supporting direct provision of financial services through national development banks and directed credit programmes. More broadly the crisis also provides an opening for a neo-structuralist development paradigm to replace the failed Washington Consensus. In this context activist financial sector policies should be integrated with industrial sector strategies.