Introduction and Background: A Historical Perspective of the Role of Financial Institutions in Africa’s Development

This chapter presents the evolution of monetary regimes and financial institutions in Africa from the colonial era and changes after independence that were spurred by the quest for sovereignty and a new path for development financing. Nevertheless, such changes are less common in the CFA franc countries. The chapter further discusses the components of the monetary and financial systems and shows how they are indispensable in changing the economy’s structure and enhancing economic performance. They facilitate economic activities and growth by reducing transaction, information, and enforcement costs. The digital revolution is also transforming financial institutions. The chapter uses lessons from an Indian case study to demonstrate the role of the monetary institution in poverty reduction and development. The chapter stresses Africa’s excellent manufacturing potential, which so far is not adequately exploited. The chapter emphasizes the importance of African policymakers focusing on Africa’s industrialization because of its potential to bring about continental prosperity. The chapter concludes with an overview of monetary regimes or arrangements in Africa and assesses the effectiveness of the different monetary systems on the development of African economies.