Displaying items by tag: Credit Growth
The Role of the Financial Cycle1 in Macroprudential Policy Decision Making
THE CREDIT-TO-GDP gap is used as a tool for macroprudential policy making. However, in Lesotho GDP data is only available on an annual basis. Therefore, the purpose of this study is to find an appropriate proxy for the credit-to-GDP gap. The study follows Karfakis (2013) and utilizes three methods to reach its aim, namely; cross-correlations, in-sample Granger causality, and the VAR model. The study uses annual bank credit to private sector, M2 and trade-deficit as a percentage of GDP data covering the period from 1973 to 2013. The study examines the relationship between the credit cycle and credit-to-GDP gap and discovers that the credit cycle is synchronous with the credit-to-GDP gap in Lesotho. In addition, the relationship between the M2 cycle and credit-to-GDP gap is explored and it is established that the M2 cycle leads the credit-to-GDP gap by one (1) year and can suitably be used as a proxy for the credit-to-GDP gap. In addition, there is a bi-directional causality between M2 cycle and credit-to-GDP gap. The study recommends the use of the credit cycle as a proxy for creditto-GDP gap in line with empirical evidence found, and also recommends the use of M2 cycle on the basis of empirical evidence found in this study.
The Financial Inclusion Conundrum in Lesotho Is Mobile Money the Missing Piece in the Puzzle
THE PROLIFIC USE of mobile telephones in developing countries has given birth to financial innovations such as mobile money. As a result, the use of mobile money has expanded the grid of financial services to include previously unbanked populations in Africa. This development is a harbinger for increased financial intermediation and positive spill-overs in terms of credit growth to entrepreneurs and faster economic growth. Based on monthly data for the period 2013m7 – 2015m12, this study employs time series techniques to unpack the proliferation of mobile money and its attendant impact on financial inclusion in Lesotho. The findings reveal existence of long-run steady state relationship between financial inclusion and mobile money in Lesotho and that mobile money Granger causes financial inclusion both in the short-run and long-run in Lesotho. Therefore, financial inclusion policies should be directed towards leveling the playing ground for mobile money to flourish to create a more financially inclusive society in Lesotho.