Access to finance, availability of credit, and cost of service are all key to financial development. Credit finances production, consumption, and capital formation, which in turn lead to economic activity. The availability of credit to households, private companies, and public entities shows the worldwide growth of the banking and financial sector.
In this Q&A blog post, we examine domestic credit data trends as compiled in the World Development Indicators 2014, and what the data reveal about the changing financial landscape in developing countries.
Q: What is "domestic credit provided by the financial sector"?
A: Domestic credit provided by the financial sector is credit that is extended to various sectors. The financial sector includes monetary authorities such as the central bank (the entity which controls the supply of a country's currency), deposit money banks (commercial "main street" banks), and other financial institutions. In a few countries, governments may hold international reserves as deposits in the financial system rather than in the central bank. Since claims on the central government are a net item (claims on the central government minus central government deposits), the figure may be negative, resulting in a negative figure for domestic credit provided by the financial sector.