Does credit information sharing affect funding cost of banks? Evidence from African banks

• DOI: http://doi.org/10.1002/ijfe.1599
• Date: 01 January 2018
• Author: Baah Aye Kusi,Mary Opoku‐Mensah
• Published date: 01 January 2018

RESEARCH ARTICLE

Does credit information sharing affect funding cost of

banks? Evidence from African banks

Baah Aye Kusi | Mary Opoku‐Mensah

Department of Finance, University of

Ghana Business School, Accra, Ghana

Correspondence

Baah Aye Kusi, Department of Finance,

University of Ghana Business School,

Accra, Ghana.

Email: baahkusi@gmail.com

Abstract

This study takes advantage of the lack of empirical studies on the effect of credit

information sharing and funding cost of banks and investigates credit informa-

tion sharing and bank funding cost in Africa between 2006 and 2012. Employing

a two‐step generalized method of moments regression of 233 banks in 17 African

countries, the study provides new revelations. The study shows that the quality of

credit information shared is key and persistent in reducing funding cost of banks.

Again, the study confirms that the coverage of private credit bureaus signifi-

cantly reduced bank funding cost whereas no such evidence was found for

coverage of public credit registries. Further, although the study found evidence

to support that the presence of credit information reduces bank funding cost,

no evidence was found to support that countries that use both private credit

bureaus and public credit registries are able to reduce funding cost of banks in

Africa. From these results, it is evident that credit information sharing presence,

coverage, and quality reduces funding cost in Africa. For policy recommenda-

tions, policymakers and bank boards must team up and set up credit information

sharing institutions to help reduce information asymmetry and funding cost in

countries that do not share credit information. Also, the introduction and estab-

lishment of credit information sharing must be geared towards private bureaus

as they are more effective in reducing funding cost of banks. Again, policymakers

must enact laws and policies that deepen the coverage, depth, and quality of

credit information shared so that the financial sector of Africa countries can

realize the full potential of credit information sharing.

KEYWORDS

Africa, banks, funding cost, information sharing, private bureaus,public registries

1|INTRODUCTION

The important roles banks play in the economic develop-

ment and growth of economies cannot be underestimated.

A stable, sound, and well‐functioning financial system is a

prerequisite for proper financial mediation leading to

sustainable private investment and the promotion of

entrepreneurial ventures. Bank and other financial

institutions form an integral part of our world today and

propel economic growth and development through the

functions and activities they perform (Beck & Levine,

2004; Kargbo & Adamu, 2009). For example, Mishkin

(1999) and Bain and Howells (2009) state that banks and

financial institutions promote development and growth

by undertaking activities of mobilizing savings for produc-

tive use, evaluating projects and allocating scarce

Received: 22 September 2017 Accepted: 16 November 2017

DOI: 10.1002/ijfe.1599

Int J Fin Econ. 2018;23:19–28. Copyright © 2017 John Wiley & Sons, Ltd.wileyonlinelibrary.com/journal/ijfe 19