TABLE 2:
CHANGING PERCEPTIONS OF THE ROLE OF FINANCE IN DEVELOPMENT AND THEIR IMPLICATIONS

View	Time	What is relevant about "finance"?	Central assumption why finance matters	Finance has an impact on …	Policy implications and recommendations	Standards for evaluating financial systems	Empirical evidence for success of policy
1	‘50s/’60s	Capital accumulation	Macro-economic production function	GNP growth	Transfer capital (and technology)	Capital stock; savings and investment rates	Yes, but mixed
2	‘60s/’70s	Capital accumulation and allocation to target groups	Very imperfect goods and capital markets	Sectoral growth, income and production	Design "targeted" and subsidised credit programmes	Outreach of credit supply to many segments of society, i.e. "optimal access"	Partially yes, but with negative side effects on finance institutions and markets
3	‘70s/’80s	Mobilisation, transformation and allocation of capital	Perfect markets and efficient institutions (only) if liberalised	a.) Quantity and quality capital b.) Supply and cost of financial services	Set up viable non-subsidising financial institutions in a liberalised and stable environment	Low-cost/complex array of financial services from efficient and stable institutions	Yes, but only in a stable economy
4	‘80s/’90s	As above plus co-ordination of expectations and incentives	Pervasive information and incentive problems	Functioning of markets and institutions	Analyse and rationalise the incentive structure	As above plus efficient incentive structures within institutions and vis-à-vis clients	Multiple financial institutions exist and are viable

Source: Krahnen & Schmidt (1994: 27)

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