The Role of financial intermediaries in Zimbabwe's economic recovery: a robust analysis

Abstract

Wilbert Chagwiza

There is a question of calibration among financial institutions; that is how much loan and advances are “enough” for the economy to grow. The aim of this paper is to have an overview of the whole banking industry, their functions and roles they play which help in the economic growth and progress in Zimbabwe. The regression models are used to make a comparative analysis between (GDP – Gross Domestic Product) and total advances, and deposits including the flow of credit to agricultural, manufacturing and mining sectors and their sectoral growth rate, respectively. Yearly data on total credit and advances, and total deposits with their corresponding GDP for the period of 1998 to 2005 was used. The credit to different sectors and their corresponding growth data used was from 1998 to 2003. Empirical results show that the variation in GDP can be explained by total credits and advances. However, there is no evidence that total deposits and banking lending rates are significant in determining GDP. The conventional banks can adopt the profit-sharing model in financing firms.

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