MEASURING THE EFFECTIVENESS OF FINANCIAL

INSTITUTIONS IN THE ECONOMIC DEVELOPMENT OF

SIERRAS LEONE.” THE CASE STUDY IS THE SIERRA
LEONE COMMERCIAL BANK (SLCB).

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 CHAPTER ONE
1.0 INTRODUCTION
1.1 Background to the Study

1.1.1 Historical Background

Sierra Leone is a small country in the west coast of Africa with an area of
approximately 72,000 square kilometers endowed with substantial agricultural,
minerals and marine resources. The current total population is estimated at 6.5
million. The country has been classified by the United Nation as one of the Least
Developed Countries (LDCs) with a large proportion of the people living in abject
poverty. The country’s economic development has always been hampered by
overdependence in mineral. As a result, large scale agriculture of commodity
products, industrial development and sustainable investments have been neglected by
governments. Agriculture is the largest employer with 80 percent of the population
working in the sector. The sector accounted for 58 percent of the national GDP in
2007 in which Two-thirds of the population of Sierra Leone are directly involved in
substance agriculture. However, there is a large income difference between the
employed and the unemployed. The financial sector and its roles in the process of
economic development have attracted notable attention in the country. Financial
sector development began deteriorating in the 1970s and 1980s but gradually
improved in subsequent periods. Therefore, like many other countries in Sub-
Saharan Africa, financial sector reforms have been adopted by the government of
Sierra Leone since the 1990s. The civil war that started in 1991, however, adversely
affected the implementation of reform measures and contributed in deteriorating the
financial sector performance and growth in the economy. Growth in real GDP
dropped significantly to an average of -4.5 percent per annum between 1990 and
2000 (Sierra Leone Poverty Reduction and Strategy Paper, 2005). Several strategies
and economic development plans have been formulated and implemented to combat
the problem. These include the Vision 2015 and the Millennium Development Goals
(MDGs), the Agenda for Change and the Second Poverty Reduction and Strategy
Paper (PRSP II).

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These reforms covered a broad category of issues including interest rate
liberalisation, elimination of direct credit, and adoption of indirect methods of
monetary control, abolition of price controls and exchange restrictions,
institutional strengthening and review of legislations. One of the selected
preconditions for achieving the priorities of PRSP II is ‘growing the private
sector’, especially improving access to finance by building and sustaining a
responsive financial sector. An efficient and effective financial system will be
important for financing private sector activities.
Despite the reforms, the financial system is still characterised and dominated by a
retail banking system. Financial sector development is constrained by physical
barriers imposed by weak infrastructure; worsen by institutional, administrative and
legislative obstacles involved in conducting banking and financial transactions
(PRSP II, 2008). Besides, the legal system does not provide the enabling
environment to strengthen creditors’ rights and enforce commercial contracts and
consequently hinders bankers’ ability to recover their loans. This undermines the
efforts by these institutions to effectively allocate credit to the private sector to
stimulate investment and growth. It also undermines the potential of the financial
sector to effectively support private sector development initiatives.
Currently, a Financial Sector Development Plan (FSDP) is been developed to ensure
an efficient and effective financial system that will play a pivotal role in financing
private sector activities. The over-riding priorities of the plan are to strengthen the
commercial banking system and improve its competitiveness, enhance rural financial
access through microfinance institutions and community banks, and strengthen the
enabling environment through the legislative, regulatory, and policy infrastructure.
The reforms are expected to impact positively on the financial growth and economic
development in the country (PRSP II, 2008).
The financial sector comprised of the Bank of Sierra Leone (BSL) as the regulatory
bank, several commercial banks, microfinance institutions, community
banks, Credit Unions and other financial institutions.
Commercial banks include: Sierra Leone Commercial Bank (SLCB), Standard
Chartered Bank, Rokel Commercial Bank, Guarantee Trust Bank, Union Trust Bank,

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First International Bank, First Bank of Nigeria (formerly International Commercial
Bank and of Bank of British West Africa), Access Bank Group, Ecobank, Skye
Bank, United Bank for Africa and Zenith Bank.
List of Microfinance Institutions include: Bangladesh Rural Advancement
Committee (BRAC) Sierra Leone and Finance S alone (formerly the American
Refugee Committee – ARC).
Lists of community banks include: Kabala Community Bank, Marampa Masimera
Community Bank, Matru Community Bank, Segbwema Community Bank, Yoni
Community Bank, and Zimi Community Bank.

1.1.2 Background to the Case Study

The Sierra Leone Commercial Bank (SLCB) is the first fully indigenous bank. It was
established in 1973 and named in memory of the bank’s first Managing Director, Dr.
Christian J. Smith. SLCB is well known for its wide range of world-class services. It
was founded to provide an alternative to the country’s two foreign banks operating at
the time and to serve mainly locals, but it has expanded to offer a full range of
services to both local and international customers and has positioned itself as the
ideal partner for foreign investors in Sierra Leone. Managing Director, Chrispin
Deigh, explain, “SLCB is comparable with any other high quality banking institution
around the world. We abide by international best standards. The total assets of the
bank is around SLL 450 million (€74.6 million), up 20% over 2009. 2010 was also a
very positive period for the bank in terms of balance sheet growth, income
generation and profits”. The bank is the country’s only 100 percent state owned bank
but it is operated like a private enterprise and is completely free from government
control. It is very active in providing loan support to a wide range of businesses,
particularly in the oil, construction, mining and Information Communication
Technology (ICT) sectors. It also provides loans to Small and Medium Size
Enterprises (SMEs) and individual. This bank plays a vital role in the economic
development of Sierra Leone through its linkages between its borrowers and lenders
and the ability to render other financial services to the public. Among the diversity of

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 operations, it specialized in operating current accounts of which overdraft facilities
can be arranged.
Like most other financial institutions, Sierra Leone Commercial Bank (SLCB) is
involved in operating the “payment system”. The payment system is the procedures
used to settle financial transactions with the bank and other entities by transmission
of money through cheques, standing order and direct debit. It has the capacity to
channel funds to areas that might hold the highest returns. For instance it provides
credit to the private sector in numerous ways, such as Agricultural credit,
Commercial and industrial loans, Customers’ loan and all this help to increase and
enhance efficiency in the Sierra Leone economy. Currently, the bank maintained it
headquarters in Freetown, the capital, and has branches in Freetown, Bo, Kenema,
Makeni, Koidu, Cline Town, Mobimbi, Njala, Port Loko, Waterloo and other areas
in the country.
The Sierra Leone Commercial bank has various sources of finance that is used to
undertake activities which include the following:
 Maintaining customers in saving and current accounts;
 Charges commission on Turnover (C.T.O.);
 Handling interest on deposit and loans;
 Commissions on exchange rate transactions in foreign currency, and
 Investment returns by the treasury bills and treasury bearer bonds.
To understand more about financial institutions and economic growth and
development, it is necessary to have an understanding of the critical roles/functions
the institutions provide in the economy. Knowing these roles/functions is a key
factor in measuring the effectiveness of these institutions. Commercial banks, for
instance, provides an intermediation service that brings savers and investors together,
theoretically channeling investment funds that yield the highest rate of return.
Measuring the effectiveness of financial institutions involves an
analysis/examination of the functions of financial institutions with regards to the
following:
 The sectors that are being supported;
 The different accounts operated;

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 Interest rate charged/paid on each account;
 The loans being issued and range;
 Loans issuing procedures;
 Loans repayment period;
 The interest rate that is offered and range;
 The target groups;
 Number of businesses funded;
 Jobs: number created and number sustained;
 Urban/rural split, and
 Ratio of cost of running the institution to amount lent.
This study focused in providing analyses three key research questions: who benefits
largely from the services of the Sierra Leone Commercial Bank (SLCB)? What are
the loan granting procedures of the SLCB? How effective is the SLCB in granting
loans?

It is in line with this background that the study examines the effectiveness of the
SLCB with regards to the above areas, and others in the economic development of
the Sierra Leone economy with reference to the Sierra Leone Commercial Bank
(SLCB).

1.2 Statement of the Problem

Sierra Leone has seen many years of staggering economic growth and development
since attaining her independence on 27th April, 1961.
Several efforts have been made by past governments and present to combat the
situation through the formulation and implementation of economic policies and
strategies. These include the Vision 2015 and the Millennium Development Goals
(MDGs) to reduce poverty by half in the year 2015, the Poverty Reduction and
Strategy Paper 2005, the Poverty Reduction and Strategy Paper II (2008).
The financial sector has been identified to be the major player in the economic
development of any nation. Currently, a Financial Sector Development Plan (FSDP)

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has been formulated and awaits implementation. The FSDP strategy for banking
system includes strengthening capacity; supervision and regulation; short-term
financial system stability; and central bank infrastructure. The capacity building
strategy include: increasing efficiency in government controlled banks, and
privatisation; adopting a credit reporting system; allowing moveable properties as
security for bank loans; introducing commercial disputes resolution facilities;
building a deposit insurance scheme; and improving commercial bank coordination
by strengthening the Association of Commercial Banks. The continuing
establishment of microfinance institutions such as Finance Salone (formerly the
American Refugee Committee – ARC), the Bangladesh Rural Advancement
Committee (BRAC) Sierra Leone, and LAPO Microfinance Company Limited Sierra
Leone and Community Banks (CBs) are mere attempt by the government to solve the
problem.

Many studies have been conducted in Sierra Leone revolving the financial
sector/financial institutions. However, none of the studies provide direct information
on measuring the effectiveness of these institutions and the services provided by
them, especially the Sierra Leone Commercial Bank (SLCB). This study therefore
focused on providing both quantitative and structural measures and how they
effectively contributing to the economic development of Sierra Leone, with more
emphasis on the Sierra Leone Commercial Bank. Quantitative measures are
indicators based on monetary and credit aggregate. They are the traditional measures
of financial development. They are immediate measures of savings and credit in an
economy and are expected to increase in response to improved price changes,
represented primarily by the establishment of positive real interest rates.
Structural measures on the other hand are design to analyse the structure of the
financial system and determine the importance of its different elements.

Although this is a great milestone for further studies in the field of effectiveness of
financial institutions, it is narrow down to the SLCB. The setting is also urban,
ignoring the provincial districts due to time constraints. It therefore lacks enough

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 evidence to ascertain the effectiveness of the financial institutions in the economic
development of Sierra Leone.

Therefore, we remained unable to judge the validity of this tentative explanation.

That is, there remains insufficient evidence to access this claim at this moment.
Several questions remain unanswered: who benefits largely from the services of
financial institutions? What are the impacts of financial institutions in the economic
development of Sierra Leone? What are the strategies employed by financial
institutions for effective service delivery? What policy questions will these findings
raise for financial institutions and for national government?

This study therefore, analyse the data collected from Sierra Leone and its customers,
suggesting areas of purposeful focus for policy attention.

1.3Research Objectives and Research Questions

1.3.1 Research Objective
The objective of the study is to find out whether financial institutions are effectively
contributing to the economic development of Sierra Leone – a case study of the
Sierra Leone Commercial Bank (SLCB).

1.3.2Research Questions
The study investigates the following questions.
1. Who benefit largely from the services of the SLCB?
2. How effective is the SLCB in granting loans?
3. How satisfied are customers with the services of the SLCB?

1.4Research Hypothesis
The study hypothesised that credit terms or loans procedures in the SLCB are
ineffective and that customer services are poor.
With the above hypothesis, the study examines the research questions above.

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1.5Rationale/Significance of the Study
The significance of the study include:
First, it serves as a basis for resources mobilisation for sustainable economic growth
and development.
Second, provide recommendations to government and management of the SLCB on
areas that need attention.
Finally, to provide financial consultancy services to the financial sector.

1.6Delimitations of the Study

The delimitations of the study include the following:
First, Participation in this study is voluntarily.
Second, the population is limited to services and customers of the SLCB in
Freetown.
Finally, respondents that are involve in the study are from the same large urban area

1.7 Definitions of Terms

Measuring – assessing
Effectiveness – successful in producing a result or getting the right things done
Financial Institutions – are establishments that conduct financial transactions such
as investments, loans, and deposits.
Economic Development – is an upward movement of the entire social system in
terms of income, savings, and investment along with progressive changes in socio-
economic structure of a country (institutional and technological changes)

1.8Organisation of the Study

The study consists of five chapters as follow:
Chapter one: Introduction – this covers the background to the study, statement of
the problem, research hypothesis, research questions, rationale/significance of the
study, delimitation of the study, limitation of the study and definitions of key terms;
Chapter two:Literature Review – this includes the review of both theoretical and
empirical literature;

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Chapter three:Research Methodology - this discusses the design and
methodologies of the study;
Chapter four:Research findings and discussion – this discusses the findings of the
research.
Chapter five: summary and recommendation – this summarises the entire study
and provides recommendations

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 CHAPTER SUMMARY
In this chapter, we discussed about the background of the study, the statement of the
problem, research objectives, research questions, research hypothesis,
rationale/significance of the study, delimitations of the study, limitations of the
study, organisation of the study and definitions of key terms.
In the background of the study, we discussed about the background of the Sierra
Leone’s economy and the background of the SLCB. The background of the Sierra
Leone’s economy includes the geographical area of Sierra Leone, the Human
Development Index (HDI) of Sierra Leone, the Sierra Leone natural resources, the
economic development plans and poverty reduction strategies, the PRSP 2005 and
2008, and the composition of the financial sector of Sierra Leone.
In the background of the case study, we discussed on brief history of the SLCB, its
functions and operations.
The statement of the problem discussed the reasons for carrying out the research,
further review on economic reforms and the importance of the financial sector in
Sierra Leone.
The research hypothesis states the assumptions of the study. The research hypothesis
is that financial institutions are not effective and that customer services of the SLCB
are poor.
The research questions are set in order to find out about information that will be
needed to proof our hypothesis.
In the rationale or significance of the study, we discussed the importance of the study
to the government, financial institutions and general users of financial information.
The delimitations of the study are the factors that narrow the scope of the study and
the limitations of the study are the potential weaknesses of the study. These include
the study site, the population sample and sample frame, the number of respondents,
time constraints and inadequate funding.
The organisation of the study states the breakdown of each chapter.
Finally, in the definitions of key terms, we define the key words in the research
topic.

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 CHAPTER TWO

THEORETICAL FRAMEWORK AND EMPIRICAL LITERATURE

REVIEW

2.1 Introduction
Modern day finance has greatly changed the business of the banking operations in
Sierra Leone. Instead of just accepting and making loans available to their
customers, which was referred to as the old fashioned way of banking operations;
banks are also shifting from interest based revenue towards fee-based activity,
including line of credit and many types of credit guarantees. While it is difficult to
predict how the financial services sectors in general, and the banking industry in
particular will evolve over time, financial regulators and policy makers are
interested in the course of modern day finance. As we look in the future of
financial services industry, it may be useful to revisit the root of banking. Banking
theories provides us with insight into why banks exist in the economy. If these
theories are correct, then it is because they perform certain special functions that
no other financial services firms can replicate.
The problems of economic development, which are complex and
multidimensional,have resulted in the development of a number of theories,
explanations, argumentsand assertions (World Bank 2000). The purpose of this
chapter is to review some ofthe most prominent theories and empirical literatures
on economic growth and development .Thesetheories describe toolsand strategies
for making development goals achievable. The chapter starts with earlyviews
about the nature of economic prosperity. It then reviews classicaltheories with
four main clusters: linear stages of growth models; structural changemodels;
international dependence models; and neoclassical counter-revolutionmodels.
Subsequently, contemporary theories of economic development, includingnew
growth theory and theory of coordination failure, are reviewed.
Finally,implications of the changes in the development thoughts and their
importance instudying development problems in the developing countries

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conclude the chapter. However, before reviewing these theoretical framework and
empirical literatures, it would be important to briefly analyse the goals of
economic development. These include: growth of Gross National Product, Quality
of Life, Development, and the Millennium Development Goals

2.1.2 Growth of Gross National Product

The goal of economic development in its simplest form is to create the wealth of
anation. Prior to the 1970s,rapid economic growth has been considered a
goodproxy for other attributes of development (Todaro and Smith 2009).
Economicperformance is measured by an annual increase in gross national
product (GNP). An alternative measure is gross domestic product (GDP).The
World Bank now replaces GNP per capita with gross nationalincome (GNI) per
capita to compare wealth among countries. The World Bankdefines GNI as the
sum of value added by all resident producers plus any producttaxes (less
subsidies) not included in the valuation of output plus net receipts ofprimary
income (compensation of employees and property income) from
abroad.Meanwhile, the World Bank still uses GDP in many other featured
economicindicators (World Bank 2011).However, the indicator is a measure of
well-being and development exclusivelybased on material wealth. Improvements
in welfare such as better health care,education and more housing for large parts of
the poor population have not beencaptured. The experience of the 1950s and
1960s has shown that GNP growthwould not necessarily result in a better life for
a nation’s population. The narrowgoal of development (economic growth)
induced nations to focus their energiesnarrowly on the rapid growth of national
incomes (Todaro and Smith 2003). “Tomaximize income growth, environmental
considerations were left to languish on thesidelines; the standard of living was
often allowed to slide; large inequalitiesbetween classes, regions, and genders
were ignored; and poverty was toleratedmore than it should have been in the rush
to generate maximum growth” (Basu,2000, p. 64). It was then scholars and
policy-makers in most developing countrieswho realized that income growth was

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only one dimension of development; a neweconomic view of development has
arrived.

2.1.3 Quality of Life

During the 1970s, the concern of millions of people living subsistence lives
inpoverty turned the attention of development economists to people’s lives rather
than their incomes. Many developing countries have experienced high growth
rates of GNP.GNP is gross domestic product (GDP) plus incomes received by
residents from abroad minusincomes claimed by non-residents. GDP is calculated
as the value of the total final output of allgoods and services produced in a single
year within a country’s boundaries (Soubbotina 2004).The goal of development
during the period was thus not limited to economic growth but toconcentrate on
the reduction of poverty, inequality and unemployment (Seers 1979).In the 1990s,
economists increasingly recognised that it is the quality of life thatdetermines
whether people are from developing countries or not. Diseases,
malnourishmentand death that happen in the everyday lives of those from the
developingcountries changed the view of development goals dramatically. By
then, likemany scholars around the world, Stiglitz (1998) contributed to shift the
developmentgoals set by governments in developing countries to wider
objectives, includingimprovements in income distribution, environment, health
and education. A broaderperspective of development goals is hence necessary as
reflected in the World Bank’sDevelopment Report (1991, p. 4) as “to improve the
quality of life. Especially, in theworld’s poor countries, a better quality of life
generally calls for higher incomes—but it involves much more. It encompasses as
ends in themselves better education,higher standards of health and nutrition, less
poverty, a cleaner environment, moreequality of opportunity, greater individual
freedom, and a richer cultural life.”Sen’s (1985, 1992,1999) work perhaps has
brought about the broadest perspectiveof development goals. According to Sen
(1985), the ultimate goal ofdevelopment is to enhance human capabilities, which
is defined as “the freedomthat a person has in terms of the choice of functionings,
given his personal features(conversion of characteristics into functionings) and his

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command over commodities.”(Sen,1985, p. 13).Higher income is necessary but
not sufficient in terms ofquality of life. Under his approach, goals of economic
development change frompromotion of growth to promotion of well-being.These
changes in the definition of development goals posed the need to
constructalternative composite indices to reflect quality of life. These indices
should take intoaccount not only money indicators, but also non-monetary
indicators to reflect thedevelopment levels achieved. There have been attempts to
build indicators thatmeasure the standard of living and quality of life, which focus
on the quantitativeand qualitative aspects: health, education, environment and
material well-being (Berenger and VerdierChouchane2007). Using Sen’s (1985)
approach, the HumanDevelopment Index (HDI) has been published annually
since 1990 by the UnitedNations Development Programme as an attempt to
provide an aggregate measure oflife expectancy, education and income (Elkan
1995).Increasingly, academics and societies realised the effects of human actions
on theenvironment. On the way to achieve rapid economic growth, countries
around theworld have been exploiting their natural resource reserves at alarming
rates.Although early economists included the natural environment in their
economic analysis, environmentalists only drew international attention in the
1960s (Pearceand Turner 1990). The relationship between development and
environment hasgiven birth to the sustainable development concept. The central
idea of sustainabledevelopment is that global ecosystems and humanity itself can
be threatened byneglecting the environment.Environmental economists are
concerned that the long-term neglect of theenvironmental assets is likely to
jeopardize the durability of economic growth(Thampapillai 2002). Sustainable
development therefore “involves maximising thenet benefits of economic
development, subject to maintaining the services andquality of natural resources
over time” (Pearce and Turner 1990, p. 24). Its concernis about balancing the
objectives of economic growth and attending to environmentalconsiderations.In a
broader sense, sustainable development is defined by the BrundtlandCommission,
formally the World Commission on Environment and Development,as “progress
that meets the needs of the present without compromising the ability offuture

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generations to meet their own needs” (World Commission on Environmentand
Development 1987, p. 8). Although this standard definition brings the
term“sustainable development” into common use, it has created ambiguity in
application(Redclift1992; Daly 1996; Payne and Raiborn2001). Much of the
debate aroundthe definition seeks to answer the two questions “What should be
sustained” and“What should be developed” (Kates et al. 2008).Today, sustainable
development aims to improve the quality of life in a comprehensivemanner,
including economic prosperity, social equity and environmentalprotection.
Economic, social, environmental and cultural aspects must be integratedin a
harmonious manner to enhance the intergenerational well-being (World
Bank2003).

2.2.4 The Millennium Development Goals

Eight Millennium Development Goals (MDGs) were adopted by member
countries ofthe United Nations in September 2000. The MDGs were developed to
address themost pressing problems in developing countries, including poverty and
hunger, primaryuniversal education, gender equality, child health, maternal
health, HIV/AIDS,environmental sustainability and global partnership. Member
countries of the UnitedNations have committed themselves to end poverty and
achieve other developmentgoals by 2015. Quantitative targets of these goals were
then assigned based on the pastrates of international development achievements
(United Nations 2011).However, the MDGs were criticized for failing to include
other critical objectivesof development, such as improving legal and human rights
of the poor,slowing global warming and leveraging the contributions of the
private sector.Critics also argued that the MDG targets were not ambitious enough
and were notprioritized (Todaro and Smith 2009).The latest 2012 report showed a
remarkable progress made by countries,including those in sub-Saharan Africa.
The review maintained that the MDGs arestill achievable. Increased supports
from national governments, the internationalcommunity, civil society and the
private sector are considered necessary to meet theMDGs (United Nations 2012).

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2.2 Theoretical Framework and Literature Review
For almost a century, economists have been debating on the role of financial
sector in the process of economic development. Schumpeter (1911) put forward
argument pointing at the productivity- on growth- enhancing effects of the
services provided by a developed financial sector; a considerable amount of
theoretical literature has emerged.
Initially, this literature focused on the question whether financial sector plays a
casual role in economic development or if financial intermediaries merely
originate from rapid industrialisation. Joan Robinson (1952), point of view played
a dominant role until the mid 1960s.
Gerschenkron (1962), Patrick (1966), and Goldsmith (1969) stressed the
proportionate role financial sector can play in the process of economic
development. Even though this pioneering work broke ground to change the
direction of thinking, the causality question has remained an important issue in
the theoretical debate over time.

In essence, therefore, it is also important to make a quick analysis of the most

fundamental economic development theories in existence since development
economics became established as a discipline in the 1950s.

2.2.1 Early Views on the Nature of Economic Societyand Prosperity

Although development economics became established as a discipline within
economicsonly in the 1950s, several early economists had written extensively
about thenature of economic society and prosperity. Among them, Adam Smith
and Karl Marxare the two most famous thinkers for their two opposite views on
the nation’s systemof economic arrangements: one called capitalism and the other
called socialism.On the one hand, Adam Smith’s (1976) (original work published
in 1776) “TheWealth of Nations” focuses on the market. Adam Smith saw that
division of labourcould create processes that are more productive. The mechanism

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for enhancing the nation’s wealth therefore, is through specialization and
exchange. Adam Smith argued that under competition, private investors while
pursuing their own interests guided bythe “invisible hand” would maximize
national output and thus promote publicinterests. The “invisible hand” doctrine
has become the foundation for the workingof the market economy or capitalism
(Skousen2007). In this system, governmentinterference is seen as inefficient in
looking after economic activities. Meanwhile,free trade, private property and
competition are seen as the foundations that would
Bring about economic development, reduce poverty and improve on social and
moralimprovements of humankind. However, freewheeling capitalism is often
criticisedfor bringing wealth only to the rich, whereas the poor get poorer.On the
other hand, Karl Marx in “Capital” (Marx 1933) (original work publishedin 1867)
argued that the feasible system should be based on social or publicownership of
property. Karl Marx emphasized that the wealth of the capitalistscomes from the
exploitation of the surplus value created by the workers. Hence,private property
and free market were seen as causes of poverty for the manymillions of workers.
Therefore, private property should be abolished completely. Anation’s economy
should be planned and managed by the state to serve the interestsof the masses.
Marx believed that a revolution would be inevitable to break downthe increasing
concentration of the capitalists, and to establish socialism (Roemer1988;
Skousen2007). But the socialism philosophy was not viable either. Thehistorical
experience of socialist economies showed little or even no improvementin the
living conditions of the poor. The collapse of the Soviet Union in 1991 andthe
central planning paradigm appeared to demonstrate that the model would
notprovide the solution to poverty and inequality seen in human society (Meier
2000).

2.2.2 Classical Theories of Economic Development

The classical theories of economic development include the following:

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2.2.2.1 The Linear Stages of Growth Models
The first generation of economic development models was formulated in the
earlyyears after the World War II. These early models focused on the utility of
massive injections of capital to achieve rapid GDP growth rates. The two famous
models areRostow’s stages growth model and the Harrod–Domar model (Todaro
and Smith2009).Theorists of the 1950s and early 1960s viewed the process of
development as asequence of historical stages. This view was popularised by
Rostow (Ingham1995). Building on the historical pattern of the then developed
countries, Rostow(1960) claimed that the transition from underdevelopment to
development would
pass through five stages: the traditional society, the preconditions for take-off,
thetake-off, the drive to maturity and the age of high mass consumption. The
decisivestage is the take-off, through which developing countries are expected to
transitfrom an underdeveloped to a developed state. Increasing rate of investments
isconsidered to be necessary to induce per-capita growth. Like Rostow’s
stagesgrowth model, the Harrod–Domar model emphasised that the prime mover
of theeconomy is investments (Ghatak2003). Every country therefore needs
capital togenerate investments. The principal strategies of development from the
take-off stage approach were commonly used by developing countries in the early
post-war years.With a target growth rate, the required saving rate can then be
known. If domesticsavings were not sufficient, foreign savings would be
mobilised.Although Rostow (1960), Harrod (1948) and Domar (1947) were right
about theimportant role of investments that is most closely correlated with the
economicgrowth rate, this is not the only condition for a country to develop. The
key weaknessof these models lies in their simplifying assumptions. A single
production function issimply assumed for all countries (Adelman 2000). Every
economy is assumed tohave the same necessary conditions and would pass
through the same phasing, stageby stage. But that economic growth path, which
historically had been followed by themore developed countries, is not the only

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one pathway. The development process isactually highly nonlinear (Chenery1960;
Chenery and Syrquin1975). Countriesmay pursue distinct development paths
(Morris and Adelman 1988). Economies maymiss stages, or become locked in
one particular stage, or even regress depending onmany other complementary
factors such as managerial capacities, and the availabilityof skilled labour for a
wide range of development projects (Todaro and Smith 2009).

2.2.2.2 Structural Change Models

During most of the 1960s and early 1970s, the discussion concentrated on the
phenomenon of financial repression, a policy conducted by many governments to
generate growth and revenue through artificially low interest rates and
inflationary monetary policies. It was based on the theoretical work of Keynes
(1936) and Tobin (1965), who advocated government interference in the credit
market. Structural change models economists generally described thedevelopment
process as structural change by which the reallocation of labour from
theagricultural sector to the industrial sector is considered the key source for
economicgrowth. Two well-known representatives of this approach are the two-
sectormodel (Lewis 1954), and the structural change and patterns of development
(Chenery1960).In Lewis’ (1954) two-sector model or theory of surplus labour,
labour increasinglymoves away from the agricultural sector to the industrial
sector. However, withunlimited supply of labour from the traditional sector, these
transferred workerscontinually received only subsistence wages. The excess of
modern sector profitsover wages and hence investments in the modern sector
continued to expand andgenerate further economic growth on the assumption that
all profits would bereinvested. Both labour transfer and modern sector
employment growth were in turnbrought about by output expansion in that sector.
This process of modern sector self-sustaininggrowth and employment expansion
facilitated the structural transformationfrom a traditional subsistence economy to
a more modern developed economyto take place. Like the Harrod–Domar model,
the Lewis model considered savingsand investments to be the driving forces of
economic development but in the contextof the less developed countries.

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However, several of Lewis’ assumptions are not valid,such as those relating to
rural surplus labour, and the proportional rate of expansionin capital accumulation
in the modern sector (Todaro and Smith, 2009).Although promoting the roles of
savings and investments, the structural changeand patterns of development
analysis extended in comparison with the Lewis model.The analysis identified
that the steady accumulation of physical and human capital isamong conditions
necessary for economic growth, apart from savings and investments.
Moreover, the structural changes occurred not only in the two sectors but alsoin
all economic functionings, including the change in consumer demand from
anemphasis on food and basic necessities to desires for diverse manufactured
goods andservices, international trade and resource use as well as changes in
socioeconomicfactors such as urbanization and the growth and distribution of a
country’s population.The most significant explanation of this approach was
provided by Chenery (1960),Chenery and Taylor (1968), Kuznets (1971) and
Chenery and Syrquin (1975).By focusing on the pattern of development rather
than theory, the structural changemodels may mislead policy-makers. Since the
reallocation of labour from the agriculturalsector to the industrial sector is
considered the engine of economic growth,many developing countries
implemented policies that often promote the industry andneglect agriculture. But
the negative effects of policies that turned against that vitalsector have come to be
widely recognised (World Bank 2000). Criticisms of thesemodels were reinforced
by the fact that in many developing countries, poverty wasprevalent. Following
the pattern recommended by structural change economists, inthe late 1960s, the
attention of policy-makers began to shift towards an emphasis onhuman capital,
i.e. education and health (Meier 2000). Then again, investments inhealth and
education alone do not guarantee development. “In Sub-Saharan Africa,for
example, life expectancy and school enrolment rates have increased
dramaticallyin recent decades, but as a group the economies in the region have
had slow and evennegative growth since the early 1970s” (World Bank 2000, p.
16).The structural change models focused on the pattern of development
andhypothesised that the pattern was similar in all countries and was

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identifiable.However, empirical works, such as Chenery (1960), Chenery and
Taylor (1968),and Chenery and Syrquin (1975), on the process of structural
change does recognizethat pattern of development can be different among
countries, which isdependent on the countries’ particular set of factors including
“a country’s resourceendowment and size, its government’s policies and
objectives, the availability ofexternal capital and technology, and the international
trade environment” (Todaroand Smith 2009, p. 120).

2.2.2.3 The International Dependence Theory

The international dependence theory was very popular in the 1970s and early
1980s. The dependence theorists argued that underdevelopment exists because of
thedominance of developed countries and multinational corporations over
developing countries. The theory is considered an extension of Marxist theory
(Hein 1992).The poor countries are said to be dependent on the developed
countries formarket and capital. However, developing countries received a very
small portion ofthe benefits that the dependent relationship brought about. The
unequal exchange,in terms of trade against poor countries, made free trade a
convenient vehicle of“exploitation” for the developed countries. Developed
countries can exploitnational resources of developing countries through getting
cheap supply of food andraw materials. Meanwhile, poor countries are unable to
control the distribution ofthe value added to the products traded between
themselves and the developedcountries (Cohen 1973; Dos Santos 1973). The
growth of international capitalismand multinational corporations caused poor
countries to be further exploited andmore dependent on the developed countries.
Poor countries therefore could notexpect sustained growth from that dependence.
Following the internationaldependence theory, developing countries should
therefore end the dependence bybreaking up their relationships with the
developed world, as well as by closing theirdoors on the developed countries
(Elkan1995;Ghatak 2003; Ferraro 2008).The models gained increasing support
among the developing countries because ofthe limited results of the stages and
structural change models. However, the failures ofthe model were clearly

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reflected in the developing countries that followed the autarkypolicy. These
countries often experienced stagnant growth and finally decided to opentheir
economies once again such as China, Tanzania and India (Ferraro 2008;
Todaroand Smith 2009). Meanwhile, the experience of the newly industrialized
economiesof East Asia, namely Hong Kong, Singapore, Taiwan and South Korea,
during the1970s and 1980s showed that their success had been the result of
emphasizingtrade with the advanced industrial countries. The negative impacts of
the policy ofautarky rendered the theory out of favour in the 1980s (Hein 1992;
Ferraro 2008).

2.2.2.4 Neoclassical Counter-Revolution Models

In the early 1980s the neoclassical counter-revolution economists, also called the
neostructuralists, criticised the Mckinnon-Shaw school and predicted that
financial liberalisation would slow down economic growth. Mckinnon (1973) and
Shaw (1973) coincidentally raised arguments against policies of financial
repression. They emphasised the role of financial sector in increasing the volume
of savings by creating appropriate incentives. In order to reach higher savings and
investments rates, they recommended governments to abolish interest rate
ceilings. As a result, real interest rates should rise to market clearing values, thus
raising increased savings. An important feature of the Mckinnon-Shaw models is
that they explain only temporarily higher growth rates. Many governments in
developing countries followed their policy advice and achieved significant
improvement in growth rates, but sometimes also excessively high volatile real
interest rates. The neoclassical economists or neostructuralists arguments are in
line with the point put forward by Keynes and Tobin. Joseph Stiglitz
(1989)criticised financial liberalisation on the theoretical grounds of market
failures in the financial markets. Neoclassical economists used three approaches:
the free market approach in financial markets, the new political economy
approach and market-friendly approach to counter the international dependence
model. In contrastwith the international dependence model, these approaches
mainly argued thatunderdevelopment is not the result of the predatory activities of

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the developedcountries and the international agencies but was rather caused by
the domesticissues arising from heavy state intervention such as poor resource
allocation, government induced price distortions and corruption (Meier 2000). As
a response to public sector inefficiency, economists of the counter-revolution
thinking, forexample Bauer (1984), Lal (1983), Johnson (1971), and Little (1982),
focused onpromoting free markets, eliminating government-imposed distortions
associatedwith protectionism, subsidies and public ownership.Another strand of
neoclassical free market thoughts called the traditional neoclassicalgrowth theory
actually originated from the Harrod–Domar and Solowmodels. Expanding the
Harrod–Domar formulation, Solow neoclassical growthmodel stresses the
importance of three factors of output growth: increases in labourquantity and
quality (through population growth and education), increases in capital(through
savings and investments) and improvements in technology (Solow,
1956).Technological change in Solow’s model is provided exogenously. Thus,
with thesame provided rate of technological progress, the growth rate would be
expected toconverge across countries. By opening up national markets,
developing countriescan draw additional domestic and foreign investments, thus
increasing the rate ofcapital accumulation and returns on investments.
Consequently, developing countriestend to converge to higher per-capita income
levels (World Bank 2000).Neoclassical economists focused on the market to find
a way out for thedeveloping countries. Policies of liberalization, stabilization and
privatizationtherefore become the central elements of the national development
agenda. Foreigntrade, private international investments and foreign aid flowing
into the developingcountries are expected to accelerate economic efficiency and
economic growth ofthese countries. Empirically, the models, however, did not
bring about the expectedresults. The growth rates per capita have diverged among
countries (Azariadis andDrazen 1990). Several African countries focusing on
these issues achieved anaverage growth rate of only 0.5 % per year. With weak
and inadequate legal andregulatory framework, not to mention the different
institutional, cultural and historicalcontext of the developing countries, free

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market in these countries fails tostimulate economic development (World Bank
2000).

2.2.2.5. The New Growth Theory

A different strand of the theory that positively links finance and growth emerged
in the early 1990s, as a branch of the Endogenous Growth Theory to explain
thepoor performance of many less developed countries, which have
implementedpolicies as prescribed in neoclassical theories. Unlike the Solow
model that considerstechnological change as an exogenous factor, the new growth
model notesthat technological change has not been equal nor has it been
exogenously transmittedin most developing countries (World Bank 2000).New
growth theorists (Romer 1986; Lucas 1988; Aghion and Howitt 1992)linked the
technological change to the production of knowledge. The new growththeory
emphasises that economic growth results from increasing returns to the useof
knowledge rather than labour and capital. The theory argues that the higher rateof
returns as expected in the Solow model is greatly eroded by lower levels
ofcomplementary investments in human capital (education), infrastructure,
orresearch and development (R&D). Meanwhile, knowledge is different from
othereconomic goods because of its possibility to grow boundlessly. King and
Levine (1993 b), followed Schumpeter’s line of reasoning by emphasising the role
of innovation. Financial systems channel savings to their most productive uses
and diversify the risks associated with these activities. Filling these tasks, they
increase the probability of successful innovation and the speed of technological
progress. The most important result of the endogenous growth literature is that the
increase in growth rates can be sustained. In contrast to the school of thought
based on physical capital accumulation (Mckinnon-Shaw, 1973), the rate of
technological progress is endogenously determined. This keeps the marginal
productivity of capital from declining. Knowledge orinnovation can be reused at
zero additional cost. Investments in knowledge creation therefore, can bring about
sustained growth. Moreover, the knowledge could createthe spillover benefits to
other firms once they obtained the knowledge. However,markets failed to produce

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enough knowledge because individuals cannot capture allof the gains associated
with creating new knowledge by their own investments.Policy intervention is thus
considered necessary to influence growth in the longterm. The new growth
models therefore promote the role of government and publicpolicies in
complementary investments in human capital formation and theencouragement of
foreign private investments in knowledge-intensive industriessuch as computer
software and telecommunications (Meier 2000).Although the new growth theory
helps to explain the divergence in growth ratesacross economies, it was criticised
for overlooking the importance of social andinstitutional structures (Skott and
Auerbach1995). Its limited applicability lies in itsassumptions. For example, it
treats the economy as a single firm that does notpermit the crucial growth-
generating re-allocationof labour and capital within theeconomy during the
process of structural change. Moreover, there are many otherfactors which
provide the incentives for economic growth that developing countrieslack such as
poor infrastructure, inadequate institutional structures and imperfectcapital and
goods markets (Cornwall and Cornwall 1994). Policy-makers willtherefore need
to pay careful attention to all of the factors that determine thechanges and their
impacts on the aggregate growth rate.

2.2.2.6 Theory of Coordination Failure

The foundation of the theory of coordination failure is the idea that the market
mayfail to achieve coordination among complementary activities. When
complementary exist (when returns of one investment depend on the presence or
extent ofother investments), there exist two scenarios. On the one hand, optimally,
all investorsas a whole are better off with all investments to be achieved at the
same time. On theother hand, it would not make sense for an investor to take
similar actions when hebelieves that others may not do the same as well. The
market is said to have failed tocoordinate investors’ actions in this way.
Coordination failure therefore leads themarket to an (equilibrium) outcome
inferior to a potential situation in whichresources would be optimally allocated
and all agents would be better off. As a result,underdevelopment equilibrium is

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possible (Hoff and Stiglitz2000).The theory of coordination failure became
influential in the 1990s. However, ithas a history of more than half a century.
Coordination issues among complementaryindustries were first raised by
Rosenstein-Rodan(1943). Like Rosenstein-Rodan (1943), early coordination
failures economists Nurkse (1953) and Hirschman(1957) emphasized the role of
the government to solve the problem. In order toreach an optimal level of
coordination, the policy they recommended was a “bigpush”—a public-led
massive investment program—which can cause complementaritiesto take place in
the rest of the economy.Like other early development models, “big push”
strategies ran out of favourwhen the world witnessed the collapse of centrally
planned economies and the slowgrowth, stagnation or worst results of state-led
industrialisation in the underdevelopedcountries (Meier 2000). However,
development economists have recentlyreturned to emphasize the problem of
complementarities between several conditionsnecessary for successful
development to take place (Glăvan2008). Hoff (2000), andBowles Durlauf and
Hoff (2006) described the economy as an ecosystem where thebehaviour of one
can affect the others’. The coordination failures among many different individuals
lead the economy to multiple equilibria, but not all of them aregood for every
member of the economy, and some in fact are very undesirable. As aresult, the
market fails to coordinate everyone to achieve the optimal equilibrium. Inother
words, “A firm’s productivity depends not only on its own efforts, andabilities,
and on general economic conditions (for example, the
macroeconomicenvironment and the legal system), but also on the actions of other
firms, infrastructure,regulation and other public goods” (Rodriguez-Clare 2005, p.
3). In asimilar vein, Rodrick(2004) also indicated that success or failure of an
action coulddepend on its milieu.In a market mechanism, there are uncertainties
that a good equilibrium can beobtained. A bad equilibrium can exist when firms
have pessimistic expectations andthus show their reluctance to invest, and
consequently fail to coordinate their businesses. “And whereas in the past we
thought the implication was that theeconomy would be slightly distorted, we now
understand that the interaction of theseslightly distorted behaviours may produce

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very large distortions. The consequence isthat, there may be multiple equilibria
that maybe each inefficient” (Hoff andStiglitz2000, p. 390). The existence of
coordination failure cannot therefore bedisputed and has become important. When
the market mechanism does not work, theactive roles of the government need to
be highlighted. According to coordinationfailure economists, in the multiple
equilibria circumstances described above, thegovernment can coordinate firms to
move them into the domain of good equilibrium.The theory of coordination
failures offers some important overall lessons for policy-makers. The theory often
highlights the problems of market failure thatrequire selective government
intervention to ensure that several things work welltogether at the same time.
However, to get sustainable development underway isobviously not an easy task.
The “big push” strategy is recommended recently byUnited Nations Development
Programme (2005). The programme suggests that fordeveloping countries to
break out of the poverty trap, a big push of basic investments between 2005 and
2015 in public administration, human capital and keyinfrastructure is necessary
(United Nations Development Programme 2005).However, the theory of
coordination failure has been criticised for its overemphasison the roles of
government. Critics have asserted that the government isineffective and could
choose a bad policy (Killick1976; Hoff and Stiglitz2000). Ifa bad policy is
implemented, it can push an economy into a bad equilibrium foryears to come and
even into a worse equilibrium than the one with which thecountry began (Hoff
and Stiglitz2000). Moreover, the policies recommended bycoordination failure
models lacked details of how the government can coordinatethe economy. Policy-
makers therefore need to be more cautious of these strategiesto address
coordination failure issues.

2.3 Empirical Literature Review

Many studies have focused on the financial sector of the Sierra Leone economy in
general, and the Sierra Leone Commercial Bank to be specific. However, none of
these studies provided direct information on measuring the effectiveness of
financial institutions in the economic development of the country. The role of

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financial institutions in promoting economic growth and development in the
country is widely discussed in this part of the literature.
Early economists, such as Schumpeter, identified the importance of banks in
facilitating technological innovation through their intermediary role. He believed
that efficient allocation of savings through identification and funding of
entrepreneur with the best chances of successfully implementing innovation
product and production processes
Finance affects economic growth, stagnation or even decline in any economic
system. Financial resources are mobilized and channeled to economic activities
by many financial institutions from surplus economic units to deficit economic
units. In doing this, they evolve appropriate structures necessary for the
intermediation functions which they perform. Various studies have shown that
there is a strong positive relationship between the financial sector and economic
growth (Nzotta and Okereke, 2009).
Financial sector have long been recognized to play an important role in economic
development. Several finance literature have provide support for the argument
that countries with better or efficient financial systems grow faster while
inefficient financial systems bear the risk of bank failure (Kasekende, 2008). In a
further review of the finance literature, the findings were that better functioning
financial systems ease the external financing constraints that prevent firms and
industrial expansion. Banks accept deposit from individuals and institutions
thereby transferring funds from surplus sector to the deficit sector of the economy
(Mishkin, 2007). The financial system serves as a catalyst to economic
development through various institutional structures. The system strongly seeks
out and attracts savings and idle funds and allocates some to entrepreneurs,
businesses, households and government for investments projects and other
purposes with a view of getting returns. In essence, one of the activities of
financial institutions involves intermediating between the surplus and the deficit
sector of the economy. The availability of credit function positively allows the
fruition of this role and is also important for the growth and development of the
economy. When causal relationship runs from financial development to growth, it

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is termed “supply – leading” because it is believed that the activities of the
financial institutions increase the supply of financial services which creates
economic growth (Oluitan, 2010).

Demiguc – Kunt and Levine (2008) in a review of the various analytical methods
used in finance literature, found strong evidence that financial development is
important for economic growth and development. To them, it is important to
motivate policymakers to prioritise financial sector policies and devote attention
to policy determinants of financial development as a mechanism for promoting
growth.
In assessing the relationship between financial development and economic
growth, a large number of recent empirical studies have relied on measures of the
size or structure of financial institutions to provide a link between financial
system development and economic growth/development. They used macro or
sector level data such as the size of financial intermediation or of external finance
relative to gross domestic product (GDP) and found out that financial
development has a significant positive impacts on the economic growth of a
country (Oluitan, 2010).

Despite countervailing views, there is a lot of evidence that a developed financial

system positively influences real economic growth activity. Sierra Leone’s
financial system, like those of other developing countries, sub-Saharan Africa, in
particular, has over the time remained weak and a cause for concern to
policymakers.
The comprehensive financial reforms of the early 2005 however, brought about
fundamental changes as the capital market, along with the banking sector, is
growing fast and now positioned to play its traditional roles of providing
resources for long –term investment and growth of the economy.
Ibi – Ajayi (2007) argued that while the financial reforms have been a vital tool
for growth in the banking industry in Nigeria, they have not actually triggered

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 development to the extent that there is “inflexibility inherent in the banking
system. Loans and advances are not easily given when the strict collateral is met.

In conclusion therefore, theoretical and empirical literature on the measuring the

effectiveness of financial institutions in the economic development are hard to
come by in Sierra Leone.

Chapter summary
In this chapter, we reviewed the theoretical and empirical literature on the link
between financial development and economic growth and development. The
causality issue has been crucial in this study. Early pioneers of the 1950s, like
Goldsmith, did not provide a strong enough theoretical fundament to give a
satisfactory answer.

In the early 1970s, Mckinnon and Shaw developed a theoretical framework that
helped to explain growth – inducing effects of financial liberalisation in contrast
to financial repression. They argued that the financial sector could raise the
volume of savings as well as the quantity and quality of investment. This
approach however, also found mixed empirical support and could not explain
sustained increases in the growth rate of an economy either. Macro and Micro
economic concerns added to these empirical findings.
The answer economic theory gave to these questions was incorporated in the
endogenous growth literature of the 1990s. It emphasises the role of financial
development in generating sustained economic growth and development through
an external effect on aggregate investment efficiency. Some authors also
developed a framework for reciprocal problems between the financial and real
sector. Much empirical evidences have been found on “finance promotes growth”
view.

A majority of the studies, however, comes to the conclusion that financial

institutions induce economic growth in the early stages of economic development.

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 A specific role has been attributed to stock markets, but here in particular, the
evidences are also mixed. It seems therefore, that individual countries have to be
studied separately and that general conclusions have to be treated with caution.
The role of international finance in inducing economic development not
considered here at all remains an even more controversial issue.

Overall, both the theoretical and empirical literature in this study point out that
financial institution induces economic growth and development, if they are
effectively and efficiently operated.

CHAPTER THREE
RESEARCH DESIGNAND METHODOLOGY
3.0 Introduction
This chapter deals with the different methods used to collect relevant and reliable
data. It deals with the period this study covers and the organisation in which the
research is conducted. It also looks at the various ways and techniques used to
collect, analyse and interpret the data for this study, and includes: the research
design and methodology, sample size and sample frame, sampling process and
sampling procedure, population, data collection (including response rate) and data
analysis.

3.1 Research Design

The research design shows the plan of the research to meet the expected results of
the study. The information is collected through personal interviews, self

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administered questionnaire, and the financialstatements of the SLCB for the
period 2006 and 2007.
A research design is defined as a blueprint for conducting a study with maximum
control over factors that may interfere with the validity of the findings. A research
design can also be described as a plan that describes how, when and where data
are collected and analysed. It could also be defined as the researcher’s overall
plan for answering the research questions or testing the research hypothesis.

3.1.1 Research Methodology

This study focuses on measuring the effectiveness of financial institutions in the
economic development of Sierra Leone.
The research approach/method is mixed (qualitative, explorative, and
quantitative). These are further explained below.

3.1.2 Qualitative Research Approach

A qualitative approach is a systematic subjective approach used to describe life
experiences and situations to give them meaning. Qualitative research focuses on
the experiences of people as well as stressing the uniqueness of the individual. It
is a form of social enquiry that focuses on the way people interpret and make
sense of their experiences and the world in which they live. Researchers who use
this approach adopt a person-centered holistic and humanistic perspective to
understand human lived experiences without focusing on a specific concept.
The rationale for using a qualitative research approach in this study, therefore, is
to explore and analyse the opinions/perspectives of customers of the SLCB with
regards to the services provided by the SLCB. This approach is appropriate to
capture the opinions/perspectives of SLCB customers regarding the effectiveness
of the services of the SLCB.

3.1.3Explorative Research Approach

Explorative studies are undertaken when a new area is being investigated or when
little is known about an area of interest. It is used to investigate the full nature of

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the phenomenon and other factors related to it. Although research has been
conducted on the role of SLCB and/or financial institutions in the economic
growth and development of Sierra Leone, little is known about the effectiveness
of these institutions.
In this study, therefore, the opinions/perspectives of SLCB customers on the
effectiveness of the role of SLCB in the economic growth and development of
Sierra Leone economy were explored using a focus-group interview approach and
self-administered questionnaire.

3.1.4 Quantitative Research Approach

Quantitative research approach measures are indicators based on monetary and
credit aggregate. They are the traditional measures of financial development, and
are expected to increase in response to improved price of positive real interest
rates.
The rationale for using a quantitative research approach is that the study involves
the use of the financial statements of the SLCB and the Gross Domestic Product
(GDP) of Sierra Leone for period 2006 and 2007 respectively.
3.2 Research Population and Research Sample

3.2.1 Research Population

Research population is defined as the total number of units from which data can
be collected, such as individuals, artifacts, events or organisations. It is also used
to refer to all the elements that meet the eligibility criteria for inclusion for the
study. Eligibility criteria are characteristics that are required for membership in
the target population.
The criteria for inclusion in this study are:
 Respondents must be registered customers of the SLCB
 Respondents must also be employees of the SLCB
 Respondents must be at least 3 years as a customer of the SLCB

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The population of this study includes the customers of the SLCB and staff of the
Account and Finance and Internal Audit Departments of the SLCB upon which
information was collected for its evaluation.
As an empirical evidence, the emergence of any entity will resulted to the
establishment of an organisational structure by its authorities, to reflect the
Governance of that Organisation and the desire to achieve good management
performance and efficiency within the organization. It is from this rationale that
the Sierra Leone Commercial Bank (SLCB) Organizational chart has been
established.
From 2003 to 2007, SLCB has 10 main departments and four (4) Units, including
the Internal Audit Unit that implements the policies of the Bank. The population
of the Sierra Leone commercial Bank is categorized into these 10 departments. It
is upon these departments that the sample of this research is based.
Thesedepartments include:

 The Account and Finance Department

 The Banking Supervision department
 The Banking department
 Research department
 Financial Market department
 The General Service department
 The Human Resource department
 The Information and Technology Department
 The Internal Audit department
 The banking and Operation Department

3.2.2 Research Sample

3.2.2.1 Research Sample Frame
A research sample frame is the total population from the different research
location. In this study, the total number of different categories of customers
selected from the different research locations was 15,895. This sample frame
consists of 6,405 customers from the Central Business District One (CBD 1),

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3,360 customers from the Central Business District Two (CBD 2), 1,780 from the
Non-Central Business District One (NCBD 1) and 4,350 from the Non-Central
Business District Two (NCBD 2). See sub-section 3.2.4 for detail information on
selection procedures.

3.2.2.2 Research Sample Size

The research sample size shows the total population required for the study. The
research sample size influences the importance or quality of the study if it does
not show a true representative of the research population. Qualitative researchers
do not normally know the number of people in the research beforehand;the
sample may change in size and type during the research. Sampling goes on until
saturationachieved, namely, no new generation of new information. The sample
size for this study is 250 respondents. This consists of 154 respondents in the
Western Area 1 and 96 respondents in the Western Area 2. See sub-section 3.2.4
for detail information on selection criteria.

3.2.2.3 Research Sampling Process

A research sampling is the act of selecting a group of people, events, organisation,
countries or behaviour to conduct a study. In sampling process, a proportion that
represents the whole population is selected. This proportion is known as the
sample size. Sampling is closely related to generalising the findings. In this study
the sampling of respondents was non-probable, purposive, random, and stratified
sample selection.

3.2.3.1 Non-Probability Sampling

In non-probability sampling, researchers use their judgment to select the
respondents to be included in the study based on their knowledge of the study.
There are many registered customers of the SLCB in the country. However, only
respondents with at least a minimum of 3 years as a customer of the SLCB were
chosen from the different study areas (see sub-section 3.3). The rationale for using
this sampling method was that giving opinions on the effectiveness of the services

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of an organisation is highly dependable on the experience (number of years you
have been with the organisation). Thus, the minimum eligibility criterion of 3
years for inclusion in this study is an ideal one.

3.2.3.2 Purposive Sampling

Purposive sampling was also used in this study. Purposive sampling is described
as a method of sampling where the researcher deliberately chooses who to include
in the study based on their ability to provide necessary information. The rationale
for choosing this approach was that we were seeking knowledge on the
employees’ and customers’ opinion of the effectiveness of SLCB in the economic
growth and development of Sierra Leone, which respondents would provide by
virtue of their experiences. In this study, only customers who met the minimum
eligibility criterion for inclusion in the study were purposively chosen to
participate in this study.

3.2.3.3 Random Sampling

In order to avoid bias in selecting respondents from the different study locations
(strata), a random probability sampling procedure was used. Using the random
probability sapling procedure, each name of eligible customers that form the
sample size of the same stratum was written on a piece of paper, folded and
thrown on the floor. The number of respondents required from each stratum was
then randomly selected. The reason for using this sampling approach was that
each member of a stratum has an equal chance of being selected and included in
the study.
Therefore, respondents were randomly selected as follows:
Western Area 1 consists of two sub-strata (CBD1 and CBD2) with a total
population of 9,765. CBD1 has a total population of 6,405, from which 101
respondents were selected and CBD2 has a total population of 3,360, from which
53 respondents were selected. This summed up to a total of 154 respondents in the
Western Area 1.

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Western Area 2 also consists of two sub-strata (NCBD1 and NCBD2) with a total
population of 6,130. NCBD1 has a total population of 1,780, from which 28
respondents were selected and NCBD2 has a total population of 4,350, from
which 68 respondents were selected. This summed up to a total of 96 respondents
in the Western Area 2.
In aggregate, a total sample frame of 15,895 respondents and a total sample size
of 250 respondents were selected for the study from the two main strata (Western
Area 1 and Western Area 2). See sub-section 3.3.4 below for detailed explanation.

3.2.3.4 Research Sampling Procedure

Sampling of respondents was carried out as follows:
First, we sought the assistance of the finance department to identify potential
participants;
Second, possible participants were selected after we have pre-selected participants
according to the criteria in section 3.2 using the stratified and random probability
sampling methods.
Third, the research aims/objectives were explained to the selected customers who
were on the short-list and they were asked personally if they want to help in the
research;
Fourth, we request for an individual interview or a focus group interview from the
potential participants;
Finally, in the events of a problem in contacting customers who met the criteria
for inclusion in the study, we ask each eligible customer to refer colleagues with
similar experience who we could contact for participation in the study.
Using the stratified sampling method, we divide the sample frame of 15, 895 and
sample size of 250 into two (2) main strata: Western Area 1 and Western Area 2.
The Western Area 1 has a total population of 9, 765 and was further divided into
two (2) sub-strata: Central Business District One (CBD1) and Central Business
District Two (CBD 2). The Western Area 2 has a total population of 6, 130 and
was also further divided into two sub-strata: Non-Central Business District One
(NCBD1) and Non-Central Business District Two (NCBD2). These sub-strata

Page 38 of 70
added upto four (4) strata: CBD1, CBD2, NCBD1 and NCBD2. The composition
of each stratum was analysed as follows:

CBD1 includes Abacha Street, Ecowas Street, PZ/Wilberforce Street, Regent

Street, Charlotte Street, Siaka Steven Street, Liverpool Street, Waterloo Street,
Kroo Town Road, George Street, Pademba Road, Goderich Street and Sackville
Street. This makes up the largest stratum out of the four sub-strata.
CBD2 also includes Guards Street, Magazine Cut, Kissy Road, Bombay Street,
Dan Street and Cline Town, UP Gun, Ferry Junction, and Black Hall Road.
NCBD1 includes Allen Town, Calaba Town, PMB, Peacock Farm, Congo Water,
Haja Fatmata, Rokupa Community, Portee Community, and Brima Lane
Community.
Finally, NCBD2 includes Grass Field Community, Low-cost Community, Kissy
Community and Shell Community.
From these strata, we determine the number of respondents to be involved in the
study. The respondents were proportion of the sample size of 250 respondents.
Thus, we apportioned the number of respondents per stratum by dividing the
population from each stratum by the total sample frame, multiplied by the sample
size of the study (250).
That is, number of respondents per stratum
= STRATUM POPULATION X TOTAL SAMPLE SIZE
TOTAL SAMPLE FRAME
Therefore, we were able to apportion the total sample size of 250 respondents as
follows:
CBD1: 101 respondents
CBD2: 53 respondents
NCBD1: 28 respondents
NCBD2: 68 respondents.

The table below gives a summary of the division of the sample size across all the
different strata of the different study locations.

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 TABLE 3.1APPORTIONMENTS OF RESPONDENTS IN THE STUDY
LOCATIONS
Main Strata Sub-strata Stratum Total Respondents Total
population stratum per Respondents
population Stratum

CBD1
6, 405 101
Western Area 9, 765 154
1 CBD2 3, 360 53

NCBD1
1, 780 28
Western AreaNCBD2 6, 130 96
2 4, 350 68

TOTAL 15, 895 15, 895 250 250

SOURCE: RESEARCH SAMPLING
FIG. 3.1

APPORTIONMENT OF RESPONDENTS IN THE STUDY LOCATIONS

27.20% CBD1
40.40% CBD2
NCBD1
4th Qtr
11.20%
21.20%

3.3 Instrumentation

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For visual presentation and analyses of the data collected from both primary and
secondary data sources, we use tables, pie chart, bar chart, and histogram to
perform the analyses of the data collected.
In order for this process to be accurate and simple, therefore, information was
obtained from personal interviews and focus group interview, desk research, and
internet. These are further explained below:

3.3.1 Personal Interview

Information was obtained from workers of the Sierra Leone Commercial Bank
(SLCB) especially those from the Accounting and Finance department. Personal
interview has the advantage that data collected are likely to be accurate and
complete because the investigator knows exactly what he or she wants and how to
get it.

3.3.2Focus Group Interview

A focus group interview is an interaction between one or more researchers and
more than one respondent for collecting data. In a focus group interview,
researchers interview participants with common characteristics or experiences for
the purpose of electing ideas, thoughts and perceptions about specific topics or
certain issues linked to an area of interest. In this study, we interviewed customers
as well as employees of the SLCB to elicit their opinion of the effectiveness of the
SLCB in the economic development of Sierra Leone.
A focus group interview has the following advantages:
First, it is a cheaper and quicker way of obtaining valuable data.
Second, colleagues and friends are comfortable in voicing opinions in each
other’s company than on their own with the researcher.

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Finally, participants were given an opportunity to reflect or react to the opinion of
others with which they may disagree or which they are unaware.
A focus group interview has the following strengths:
First, the dynamic interaction among participants stimulates their thoughts and
reminds them of their own feelings about the research topic.
Second, all participants including the researcher(s) has/have an opportunity to ask
questions, and these will produce more information than individual interview.
Finally, the researcher(s) can clarify/clarifies conflicts between participants and
ask about these different views.
The rationale for choosing this method, therefore, was:
First, to obtain different perspectives on the effectiveness of the SLCB in the
economic growth and development of Sierra Leone.
Second, to clarify unclear opinions from respondents through dialogue.
Finally, to prevent bias and approach the study without preconceived ideas.

3.3.3 Desk Research

This method was used by visiting libraries such as the, Institute of Public
Administration and Management (IPAM) Library, Sierra Leone Library Board,
British Council Library, and searches on text books, journals and magazines.
3.3.4 Internet
We also use the internet as a source of collecting information about the Sierra
Leone Commercial Bank. Most of the information collected about this research
work was from the following search engine:www.wikipedia.com and
www.google.com
3.4 Data Collection
Data collection involves the use of research instruments. A research instrument is
a tool use to collect data. An instrument is a tool designed to measure knowledge,
attitude, and skills. We collected data during the individual interview and focus
group interview. Obtaining data from respondents with different experience
prevent information bias and thus increasing credibility regarding the information.

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This was possible with the designed questionnaire in the appendix section at the
end of this book.
In order for this study to be accurate and reliable, we collected information from
personal interviews, desk research, and internet. Using personal interview, we
also obtained information from employees of the SLCB especially those in the
finance and accounting department and traders in the Abacha Street, Ecowas
street, Siaka Steven Street, Kroo Town Road, Liverpool Street, George Street,
PZ/Wilberforce Street and Lumley Street, Charlotte Street, Magazine Cut, Guards
Street, Bombay Street, Up Gun, Ferry Junction, Black Hall Road, Calaba Town
Community, Allen Town Community, Rokupa community, Portee Community,
Brima Lane Community, Low Cost Community, Grass Field Community, Kissy,
and Shell Community who are customers of the SLCB. Desk research information
was collected from the financial statements of the SLCB, and published data of
the IMF and World Bank GDP country reports. The decision to use structured
questionnaire interview was that it provides a desirable combination of output
objectivity and in-depth and often permits the gathering of valuable data which
could not be successfully obtained by any one approach. Apart from its
objectivity, the use of structured questionnaire interview permits a more thorough
understanding of the perceptions of the respondents’ opinion and the reason
behind them.
CHAPTER SUMMARY
A key consideration in writing a research is the design methodology of the
research. The research design is very important to the successful completion of
the research study. The design of the study shows the manner, structure, time and
place of the study.
In this study, the research design includes the use of personal interviews, focus
group interviews, self -administered questionnaire, and the internet.
The chapter further deals with the different methods used to collect all relevant
information needed for the study. It also deals with the period the study covers
and the organisation in which the study was conducted.

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In order to provide clear answers to the research questions, we use a mixed
research approach. This means that the research approach is qualitative,
explorative, and quantitative. The qualitative approach focused on the experiences
of respondents on the effectiveness of the SLCB. Using this approach, we were
able to explore and analyse the opinions or perspectives of customers on the
effectiveness of the SLCB in the economic development of Sierra Leone.
From an explorative point of view, the perspectives or opinions of SLCB
customers on the effectiveness of the SLCB was elicited through a focus group
interview of respondents.

The rationale for using a quantitative research approach was that the numerical
values have to be presented in the form of tables and charts for easy analysis.

We also defined the research population along with the eligibility criteria for
inclusion of respondents in the study.
The research sample frame was 15, 895, divided into the different research
locations (CBD1, CBD2, NCBD1, and NCBD2) from which a research sample
size of 250 respondents was established.

We also used a stratified sample selection, thereby dividing the different study
locations into four sub-strata. In order to avoid bias in sample selection from the
different study locations, we adopted a random probability sample selection. With
such an approach, each member of a stratum has an equal chance of been selected
for inclusion in the study.

Page 44 of 70
 CHAPTER FOUR

RESULTS AND DISCUSSION

4.0 Introduction
This chapter discussed the results and findings of the study. It lays emphasis on
results from the theoretical literature review, results from the empirical literature,
discussion of the results, and a summary of the chapter.

4.1 Results
The results of the study are mixed. While some writers support that finance causes
economic growth and development, others do not fully support this point of view.
To the later, finance is only a necessary condition but not a sufficient condition
for economic growth and development. They believed that there are other factors
that cause economic growth and development. To make conclusions and analysis
of these views, we employed different data collection methods. The results of the
study are further discussed below.

Page 45 of 70
4.1.1Results from the Theoretical Literature Review
There have been different theories on the role of financial institutions in the
economic growth and development of a country. For almost a century economists
have been debating on the role the financial sector in the process of economic
development.
Although development economics became established only in the 1950s, several
early economists had written extensively about the nature of economic society
and prosperity. Among them, Adam Smith and Karl Marx are the two most
famous thinkers for their two opposite views on the nation’s system of economic
arrangements: one called capitalism and the other called socialism.

Adam Smith (original work published in 1776, “The Wealth of Nations”) focused
on the market economy. He saw that division of labour could create more
productive processes. According to Adam Smith, the mechanism for enhancing
the nation’s wealth is through specialization and exchange. He argued that under
competition, private investors while pursing their own interests (high returns on
capital invested) would maximize national output and thus promote public
interests.

On the contrary, Karl Marx in “Capital Economy” (original work published in

1867) argued that the feasible system should be based on social or public
ownership of property. He emphasised that the wealth of the capitalist comes
from the exploitation of the surplus value created by the workers. Thus private
property and free market were seen as causes of poverty for the many millions of
workers. Many economic views have been put forward ever since.

Schumpeter (1911), for example, put forward argument pointing at the

productivity-on-growth-enhancing effects of the services provided by a developed
financial sector. He pointed out that a sound and efficient financial sector has a
positive relationship with the economic growth and development of a country. A
considerable amount of theoretical literature has emerged since Schumpeter’s
proposition. Initially, these literatures focused on the question whether financial
sectors play a casual role in economic development or if financial intermediaries
merely originate from rapid industrialisation.

Gerschenkron (1962), Patrick (1966), and Gold Smith (1969) stressed on the
proportionate role financial sector can play in the process of economic
development. Even though this pioneering work broke grounds to changing the
direction of thinking on finance growth relationship, the causality question of

Page 46 of 70
whether finance promote economic growth and development has remained an
important issue in the theoretical debate over time.

Theorists of the 1950s and 1960s viewed the process of economic development as
a sequence of historical stages. This view was popularised by Rostow Ingham
(1995). Building on the historical pattern of the then developed countries, Rostow
(1960) claimed that the transition underdevelopment to development would pass
through five (5) stages: the traditional society, the preconditions for take-off, the
take-off, the thrive-to-maturity, and the stage of high mass consumption.
From the Rostow’s model, we found out that the take-off stage is the decisive
stage in the process of economic growth and development. During this stage,
countries are expected to transit from an underdeveloped to a developed state.
Increasing rate of investments is considered to be a necessary condition to induce
per capita growth.
Furthermore, like the Rostow’s stages growth model, the Harrod-Domar Model
also emphasised that the primary mover of the economy is “investment”. Every
country therefore, needs capital to generate investments.

The principal strategies of development from the take-off stage approach were
commonly needed by developing countries in the early post-war years. With a
target growth rate, the required savings rate can be known. If domestic savings are
not sufficient, foreign savings can be mobilised
Although Rostow (1960), Harrod (1948), and Domar (1947) were right about the
important role of investment that is most closely correlated with the economic
growth rate, this is not the only condition for a country to grow and develop.

Also, from an international dependence point of view, underdevelopment exists

because of the dominance of the developed countries and multinational
corporations over developing countries. According to this theory, developing
countries received a very small portion of the benefits that the dependent
relationship brought about with developed countries. The growth of international
capitalism and multinational corporations caused poor countries to be further
exploited and more dependent on the developed countries.
In the early 1980s, the neoclassical counter-revolution economists (also called the
neostructuralists) criticised the Mckinnon-Shaw school and predicted that
financial liberalisation would slow down economic growth. The stressed on the
role of the financial sector in increasing the volume of savings by creating
appropriate incentives. In order to achieve higher savings and investments rates,
they recommended government to abolish interest rate ceilings. Real interest rates
should rise to market clearing values, thus raising increased savings.

Page 47 of 70
Finally, another strand of the theory that positively links finance and economic
growth emerged in the early 1990s as a branch of the endogenous growth model.
This theory explains the poor performance of many developing countries which
have implemented policies as prescribed in neoclassical theories.

4.1.2 Results from Empirical Literature Review

Although many studies have focused on the financial sector of Sierra Leone in
general, and the SLCB in particular, the results from the empirical investigation
show that none of these studies have provided direct information on measuring
the effectiveness of financial institutions (SLCB) in the economic development of
the country.

From an empirical stand point, therefore, the results were also mixed. Schumpeter
identified the importance of banks in facilitating technological innovation through
their intermediary role. He believed that efficient allocation of savings through
identification and funding of entrepreneur with the best chances successfully
implementing innovation product and production processes.
Results also reveal that finance affects economic growth, stagnation, or even
decline in any economic system. Financial resources are therefore mobilised and
channeled to economic activities by many financial institutions from surplus
economic units to deficits economic units. In doing this, they evolve appropriate
structures necessary for the intermediation role which they perform.

In conclusion therefore, various studies have shown that there is a strong positive
relationship between the financial sector and economic growth.

4.2 Discussion of Results

Reliable and relevant data for this study was collected through self-administered
questionnaire, individual (personal) interviews, focus group interview, and from
the internet and library.

Even though there are different economic theories, results from the theoretical
literature revealed that despite financial development being only a necessary
condition for economic growth and development, a sound and efficient financial
system boost economic prosperity.

Results from the empirical investigation also show that financial development is
an important condition for economic growth and development of a country.

Results from data collection (personal interviews, self-administered questionnaire,

and focus group interview) are also discussed below.
Page 48 of 70
TABLE 4.1: LEVEL OF SERVICE IMPROVEMENT OF THE SLCB
Response Western Western Area 2Total Response
Type Area 1 Respondents Rate

CBD1 CBD2 NCBD1 NCBD2

Much Better 16 19 4 11 50 20.0%

Slightly Better 83 23 17 49 172 68.8%

Almost the 2 11 7 8 28 11.2%

Same
Slightly Worse 0 0 0 0 0 0.0%

Much Worse 0 0 0 0 0 0.0%

TOTAL 101 53 28 68 250 100.0%

SOURCE: RESPONSE FROM QUESTIONNAIRE

FIG. 4.1

RESPONDENTS BY LEVEL OF SERVICE IMPROVEMENT OF

SLCB

200 172
150
100 50
50 28
0 0 0
Much Bet- Slightly
ter Almost the Slightly
better same Much
worse worse

The perceptions on the level of service improvements of the SLCB vary among
respondents. While some hold to the view that SLCB services improve over the
years, others perceived that there has only been slight improvement in the services
so far. However, some customers hold to the view that there has not been any
improvement in the services of the SLCB. Fifty (50) respondents from Western

Page 49 of 70
Area 1 and Western Area 2 hold to the perception that there has much better
improvement in the services of the SLCB. These accounted for 20% of the total
respondents. In addition, 172 respondents hold to the view that the services of the
SLCB has slightly improved over the years, making up of 68.8% of total
respondents. A small portion of 28 respondents also believed that SLCB services
remain unchanged over the years. They accounted for 11.2% of total respondents.
None of the respondents perceived that SLCB services have slightly worsened or
much worsened over the years.

Our findings from these responses thus shows that SLCB services have continue
to improve over the years.

TABLE 4.2 RESPONDENTS BY EMPLOYMENT CATEGORY

Employment WesternArea 1 Western Area 2 Total Response
Category Respondents Rate
CBD1 CBD2 NCBD1 NCBD2
Farming 0 0 0 0 0 0.0%

Retail Trade 101 53 28 68 250 100.0%

Artisan Works 0 0 0 0 0 0.0%

Others 0 0 0 0 0 0.0%

Total 101 53 28 68 250 100.0%

Source: Responses from Questionnaire

FIG. 4.2

Page 50 of 70
 RESPONDENTS BY EMPLOYMENT CATEGORY
150
101
100
53 68
50 00 0 28 CBD1
0 0 0 00 0 0 00 CBD12
Farming Retail NCBD1
Artisan Others
trade works NCBD2

One of the key questions in this study is “who benefit largely from the services of
the SLCB?” the table above shows the category of people that benefit largely
from the services of the SLCB. Even though the study is only limited within some
areas in the Freetown municipality, it can be seen from the responses of the
respondents, that retail traders (mostly large scale retail traders) form the largest
group of people that benefited a lot from SLCB services across the study
locations. The 250 respondents interviewed were retail traders in all the study
locations (making up of 100%) of the total respondents.

TABLE 4.2RESPONDENTS BY LOAN GRANTING PROCEDURES OF

SLCB
Response Western Area 1 Western Area 2 Total Response
Type Respondents Rate
CBD1 CBD2 NCBD1 NCBD2
Very Satisfied 18 14 6 16 54 21.6%

Satisfied 67 33 13 41 154 61.6%

Neutral 10 2 9 4 25 10.0%

Dissatisfied 6 4 0 7 17 6.8%

Very 0 0 0 0 0 0.0%
Dissatisfied
Total 101 53 28 68 250 100.0%

Page 51 of 70
Source: Responses from Questionnaire
FIG. 4.3

RESPONDENTS BY LOAN GRANTING PROCEDURES OF SLCB

Very satisfied Satisfied Neutral

Dissatisfied Very dissatisfied
67

33 41
18
10 14
6 13
0 2 4 9 16
6
0
0 0 4 7
CBD1 0
CBD2
NCBD1
NCBD2

The table and the chart above show respondents’ perceptions on the loan granting
procedures of the SLCB. It can be seen from the response table that 54
respondents (21.6% of total respondents) are very satisfied with the loan granting
procedures, 154 respondents (61.6% of total respondents are satisfied with the
loan granting procedures, 25 respondents (10.0%) of total respondents) are neither
satisfied nor dissatisfied with the loan granting procedures, and only 17
respondents (6.8% of total respondents) are dissatisfied with the loan granting
procedures of the SLCB. Our finding from these responses is that, overall,
respondents are satisfied with the loan granting procedures of the SLCB.

TABLE 4.4 RESPONDENTS BY LOAN REPAYMENT PROCEDURES OF

SLCB
Response Western Area 1 Western Area 2 Total Response
Type Respondents Rate
CBD1 CBD2 NCBD1 NCBD2
Very 27 11 9 13 60 24.0%
Satisfied
Satisfied 53 37 14 39 143 57.2%

Neutral 17 4 3 11 35 14.0%

Dissatisfied 4 1 2 5 12 4.8%

Page 52 of 70
Very 0 0 0 0 0 0.0%
Dissatisfied
Total 101 53 28 68 250 100.0%

Source: Responses from Questionnaire

FIG. 4.4

RESPONDENTS BY LOAN REPAYMENT PROCEDURES OF SLCB

60
53

50

39
40 37 Very satisfied
Satisfied
30 27 Neutral
Dissatisfied
20 17 Very dissatisfied
14 13
11 11
9
10 4 4 5
3 2
0 1 0 0 0
0
CBD1 CB2 NCBD1 NCBD2

The perceptions of respondents concerning the loan repayment procedures of the

SLCB were also mixed. While some respondents hold to the perception of been
very satisfied, the majority of respondents (57.2%) are satisfied, 14.0% are neither
satisfied nor dissatisfied, and only a minute group of respondents (4.8%) are
dissatisfied with the loan repayment procedures of the SLCB.

Overall, 103 respondents (81.2%) are satisfied with the loan repayment
procedures of the SLCB.

TABLE 3.5 RESPONDENTS BY OVERALL SERVICE SATISFACTION

OF SLCB
Response Western Area 1 Western Area 2 TotalResponse
Type Respondents Rate
CBD1 CBD2 NCBD1 NCBD2

Page 53 of 70
Very 37 13 11 18 79 31.6%
Satisfied
Satisfied 53 37 15 43 148 59.2%

Neutral 7 2 2 1 12 4.8%

Dissatisfied 4 1 0 6 11 4.4%

Very 0 0 0 0 0 0.0%
Dissatisfied
Total 101 53 28 68 250 100.0%

Source: Responses from Questionnaire

FIG. 4.5

RESPONDENTS BY OVERALL SERVICE SATISFACTION

60
53

50
43

40 37 37 Very satisfied
Satisfied
Neutral
30
Dissatisfied
Very Dissatisfied
18
20 15
13
11
10 7
2 2 1 0
0 0 0
0
CBD1 CBD2 NCBD1 NCBD2

Page 54 of 70
Determining the overall level of service satisfaction of SLCB customers was also
not easy. This was because the perceptions were mixed. Different respondents
hold different perceptions. However, the following findings can be made from the
response table above:

Firstly, 79 respondents (31.6%) are very satisfied with the overall services of the
SLCB.

Secondly, 148 respondents (59.2%) are satisfied with overall services of the
SLCB.

Thirdly, 12 respondents (4.8%) are neither satisfied nor dissatisfied with the
overall services of the SLCB.

Overall, 11 respondents (4.4%) are dissatisfied with the overall services of the
SLCB.
It can be concluded from these responses that the SLCB maintained a good
customer relationship across the different study locations.

CHAPTER SUMMARY

This chapter discussed the results and findings of the study. It lays emphasis on
results from the theoretical literature review, results from the empirical literature,
and discussion of the results.

Results from the theoretical literature were mixed. Some theorists hold to the
perception that financial development is a prerequisite and necessary condition for
economic growth and development, while others also hold to the perception that
financial development fosters economic growth and development. Overall, it is
the general perception that a sound and efficient financial system promotes
economic growth and development in a country.

Results from the empirical investigation also revealed that financial development
has a positive relationship to economic growth and development.

Page 55 of 70
The results from the data collection were also mixed. While some respondents are
very satisfied with the services of the SLCB, others are just satisfied and some are
neither satisfied nor dissatisfied with the services of the SLCB.

The overall conclusion from the different responses was that the services of the
SLCB are effective.

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.0 Introduction
This chapter summarised the findings of the research, the limitations of the study,
make conclusion and recommendations and suggestions for further study.

5.1 Summary of Findings

The findings of the study are mixed. While we support that finance causes
economic growth and development, others do not fully support this point of view.
To the later, finance is only a necessary condition but not a sufficient condition
for economic growth and development. We believedthere are other factors that
cause economic growth and development other than finance.
5.1.1Findings from the Case Study

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Many studies have been carried out on the SLCB and its role in the process of
economic development in Sierra Leone. The findings from the case study are
summarised below.

Firstly, in providing answers as to the level of service improvement of the SLCB,

fifty (50) respondents (50%) from the Western Area 1 and Western Area 2 hold to
the perception that the services of the SLCB are much better. In addition, 172
respondents (68.8%) believed that the services of the SLCB have improved
slightly. A minority of twenty-eight (28) respondents (11.2%) believed that there
has not been any improvement in the level of service improvement of the SLCB.

Secondly, another important question as to the effectiveness of the SLCB in the

economic development of Sierra Leone was, “who benefits largely from the
services the SLCB?” In response to this, we categorised respondents into
employment category. Here, hundred percent (100%) of respondents interviewed
were retail traders, who are mostly large - scale retailers.

Thirdly, the findings to the question in the level of satisfaction of SLCB

customers concerning the loan granting procedures were mixed. Fifty-four (54)
respondents (21.6%) are very satisfied with the loan granting procedures. One
hundred and fifty-four (154) respondents (61.6%) are satisfied with the loan
granting procedures. Twenty-five (25) respondents (10.0%) are neither satisfied
nor dissatisfied and seventeen (17) respondents (6.8%) expressed their
dissatisfaction.

Fourthly, respondents hold different perceptions on the level of satisfaction of

customers in the loan repayment procedures. Twenty-four percent (24%) of
respondents are very satisfied, fifty-seven percent (57%) are satisfied, fourteen
percent (14%) are neither satisfied nor dissatisfied and four point eight percent
(4.8%) dissatisfied with the loan repayment procedures.

Finally, by overall service satisfaction, thirty-one point six percent ( 31.6%) of

total respondents are very satisfied. Fifty-nine point two percent (59.2%) are
expressed their satisfaction and four point eight percent (4.8%) are dissatisfied
with the loan repayment conditions.

5.1.2 Findings from Empirical Studies

From an empirical stand point, therefore, the results were also mixed. Schumpeter
identified the importance of banks in facilitating technological innovation through
their intermediary role. He believed that efficient allocation of savings through

Page 57 of 70
identification and funding of entrepreneur with the best chances successfully
implementing innovation product and production processes.
Results also reveal that finance affects economic growth, stagnation, or even
decline in any economic system. Financial resources are therefore mobilised and
channeled to economic activities by many financial institutions from surplus
economic units to deficits economic units. In doing this, they evolve appropriate
structures necessary for the intermediation role which they perform.
During our visits to illicit information from the SLCB, the following findings
were made:
First, there is always a long queue of customers waiting for services, either to
deposit money or to withdraw money.
Second, some customers would not join the queue but would rather talk to the
casher and sit quietly. This sometimes caused other customers to vent out their
anger.
Thirdly, customers raised concerns that microfinance facilities of the SLCB are
not well communicated to them.
Most importantly, there is no ATM service in the bank. This would have reduced
the long queue of customers.
In conclusion therefore, various studies have shown that there is a strong positive
relationship between the financial sector and economic growth.

5.2Limitations of the Study

The limitations of the study include the following:
First, the study involves the perceptions of customers and employees of the SLCB
on the level of effectiveness of financial institutions.
Second, Perceptions of respondents may not be factual and may be biased based
on their own experience and attitudes.
Third, there was financial and time constraints – doing a research requires
adequate capital and time. In this research, funding was personal and the time
frame for the study was only a three (3) months period, from August to October
2016.
The readiness of respondents to provide information of the SLCB was also very
hectic. Most respondents were expecting a financial reward after the interview

Page 58 of 70
apart from the refreshment and meal given to them. This was a problem
encountered in the focus group interview.

Finally, another limitation of the study is the geographical area of the study is
large. Although the study was for the entire Sierra Leonean territory, it was only
limited to just a small part of the Freetown capital (Central Business District and
Non Central Business District), ignoring the larger part of the capital and the
provincial areas due to capital and time constraints.

5.3 Conclusions
Results from the theoretical literature revealed that despite financial development
being only a necessary condition for economic growth and development, a sound
and efficient financial system boost economic prosperity.

Results from the empirical investigation also show that financial development is
an important condition for economic growth and development of a country.

The results from the data collection were also mixed. While some respondents are
very satisfied with the services of the SLCB, others are just satisfied and some are
neither satisfied nor dissatisfied with the services of the SLCB. The overall
conclusion from the different responses was that the services of the SLCB are to
some extent effective.
5.4 Recommendations and Suggestions for Further Study

5.4.1 Recommendations to Management of the SLCB

The findings from the data collection were mixed. While some customers a happy
with the services of the bank, others are not satisfied at all and yet others did not
make any comment due to lack of understanding of the operations of the bank.
However, the following areas are worth taken into consideration:

First, the services at the counter need to be strengthened. Customers mostly raised
concern on the long period of time taken to deposit or withdraw money from the
bank. This was because bank tellers normally give special preference to some
customers, while at some point in time may stop attending to them and busy
talking on mobile phones or even leave the counter without any excuse or
communicating to them. Therefore, management of SLCB needs to provide

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extensive service trainings to customers or make the services known through
radios and television or through the internet.

Second, the loan category was also a concern. Respondents reported that the
bank’s Microfinance facilities are not well communicated to them.

Another important area that needed attention is the publication of the bank’s
financial statements. Most financial statements of other commercial banks are
published in the internet, where as there was no published financial statements of
the SLCB on the internet.

5.4.2 Recommendations to Government

An important finding from this was that the SLCB as a hundred percent (100%)
indigenes and government owned financial institution mostly concentrates on
buying and selling treasury bonds, financing large scale businesses, and providing
loans to government officials rather than focusing on funding small and medium
sized enterprises and the agricultural sector. Therefore, government needs to pay
more attention to small scale and medium sized enterprises and small scale retail
traders.

5.4.3 Suggestions for Further Study

The major finding and results from empirical investigation was that many studies
have been conducted in Sierra Leone revolving the SLCB and its role in the
economic growth and development of the country, however, none of these studies
have provided direct information or focusing on the effectiveness of the SLCB in
the country’s economic development. This study focused on the effectiveness of
the SLCB in the economic development of Sierra Leone. However, there are other
important research questions (areas) that still remained unanswered and
unattended about the SLCB’s contribution in the economic development of the
country (Sierra Leone). These research areas included among others, the
following research questions:

1. What is the ratio of SLCB profits to the Gross Domestic Product (GDP) of
Sierra Leone?
2. What is the ratio of Loan interest rates to customers’ income?

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 REFERENCES

1. Adeyemi, K.S (1998), “Option for Effective Development of Nigerian Capital

Market”, A Paper presented at one day seminarOrganised by Nigeria Economic
Society at the Institute of International Affairs, Lagos, 21st January.
2. Arestis, P.D and Luintel, K (2004), “Financial Development and Economic
Growth: The Role of Stock Market”, Journal of Money , Credit and Banking, Vol.
33, No. 1, PP 16 – 41.
3. Cameron, R (1967), “Banking in the Eearly Stages of Industrialisation: A Study in
Comparative Economic History, Newyork: Oxford University Press.
4. Gibson, H and Tsakalotos, E (1994), “The Scope and Limits of Financial
Liberalisation in Developing Countries: A critical Survey”. The Journal of
Development Studies , Vol. 30, No. 3, pp. 578 – 628.
5. Gross, M.D (2001), “Financial Intermediation: A Contribution Factor to
Economic Growth and Employment”, Journal of Economic Development and
Cultural Change, Vol. 15, No. 3, PP. 257 – 268.
6. Groves R, Flowler F, Singer E (2009) “Survey Methodology” 2nd Edition. United
States of America; Wiley Series
7. Ibi – Ajayi, S. (2007), “Growth in Banking Industry of Nigeria,” Domestic and
International Banking Services, vol. 1 no.1.
8. McCaughan, Eilis, Prue, Gillian, Mcsorley, Oonagh, Northouse, Laurel,
Schafenacker, Ann and Parahoo, Kader (2013), “A Randomised Controlled Trial
of A Self-Management Psychosocial Intervention for Men with Prostste Cancer
and their Partners: A Study Protocol, Journalof Advanced Nursing, Vol. 69, No.
11, pp 2572 – 2583.
9. Miller R (2003) A – Z of Social Research “A Dictionary of Key Social Science
Concepts’. Queen’s University Belfast, Sage Publishing
10. Mishkin, F.S (2007), The Economics of Money and Financial Markets,
Pearson/Addison Wesley

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11. Nzotta, S.M and Okereke, E.J (2009), “Financial Deepening and Economic
Development of Nigeria: An Empirical Investigation”, African Journal of
Accounting, Economics, Finance and Banking Research vol. 5 no. 5
12. Olofin S. and Afangindeh, U.J (2008), “Financial Structure and Economic Growth
in Nigeria,” Nigerian Journal of Securities and Finance Vol. 13 no. 1, pp. 47-68.
13. Patrick, Hugh T. (1996), “Financial Development and Economic Growth in
Underdeveloped Countries”. Journal of Economic Development and Cultural
Change ; Vol. 14, pp 174-189.
14. Robinson, Joan (1952), “The Generalisation of the General Theory in the Rate of
Interest and Other Essay”. London; Macmillan.
15. Salzborn S, Davidov E (2012),“Methods, Theories and Empirical Applications in
Social Research”. United States of America; Springer publishing
16. Schumpeter, Joseph A (1911), “The Theory of Economic Development”.
Cambridge, M. A: Harvard University Press.
17. Shaw, Edward S. (1973), “Financial Deepening In Economic Development”, New
York: Oxford University Press.
18. Stigliz and Joseph, E(1981),“Credit Rationing in Market with Imperfect
Information”. American Economic Review: Vol. 71, PP 395

OTHER SOURCES

1. CIA World Factbook: “GDP Per Capita of Sierra Leone”. 2012

2. Sierra Leone Poverty Reduction and Strategy Paper (PRSP), IMF Country Report
2005, pp 58
3. The CIA World Factbook: GDP Growth Rate of Sierra Leone , 2012
4. The Republic of Sierra Leone: Financial Sector Development Plan (FSDP) 31
October,2009
5. The Republic Of Sierra Leone: Poverty Reduction and Strategy Paper II, 200

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 APPENDICES

APPENDIX I
QUESTIONNAIRE

We are students of the Institute of Public Administration and Management

(IPAM) University of Sierra Leone. We are writing our dissertation in partial
fulfillment of the requirement for the award of a Bachelor of Science degree in
Applied Accounting. Our research topic is “MEASURING THE
EFFECTIVENESS OF FINANCIAL INSTITUTIONS IN THE ECONOMIC
DEVELOPMENT OF SIERRAS LEONE.” THE CASE STUDY IS THE
SIERRA LEONE COMMERCIAL BANK (SLCB).

The purpose of this questionnaire is to obtain information about the effectiveness

of the roles of the SLCB (to which you are a customer) in the economic
development of Sierra Leone. The information you provide will be used to make
an assessment and evaluation of the effectiveness of the roles thereof. It will also
help us to make recommendations to the management of the SLCB and the
government of Sierra Leone in areas that needed improvement.

We encourage you to answer this questionnaire openly (with honesty) and

carefully because your responses are very important to our study. Any biased
response will make our conclusion and judgment misleading. We guarantee you
that the information you provide would be kept confidential. No one will know
that you answered these questions.

Thank you for your cooperation.

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 SECTION A: GENERAL QUESTIONS

Q1. What is your gender? A. Male □ B. □

Q2. What is your employment?

A. Farming □
B. Retail Trading □
C. Artisan works □
D. Others (please specify)______________________________________________.

SECTION B: EFFECTIVENESS OF THE SLCB

I. LEVEL OF AWARENESS

Q3. Have you ever applied for a loan (borrowed capital) to finance your business?

A. Yes □ B. No □

Q4. If yes (A) where?

A. Bank □ (please specify)

______________________________________________.
B. Microfinance □ (please specify) _______________________________________.
C. Others (please specify) ______________________________________________.

Q5. How long have you been a customer of the SLCB?

A. 1-5 years now

B. 6-10 years now
C. 11- 15 years now
D. 16-20 years now
E. 21-25 years now
II. OVERALL SERVICE SATISFACTION

Q6. How satisfied are you with the services provided by the SLCB?

A. Very satisfied □
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B. Satisfied □
C. Neutral (neither satisfied nor dissatisfied) □
D. Dissatisfied □
E. Very dissatisfied □

Q7. Has there been improvement in the services provided by the SLCB over the
years? (Level of Service Improvement of the SLCB)

A. Yes, much better □

B. Yes, slightly better □
C. No, almost the same □
D. No, slightly worse □
E. No, much worse □

Q8. How satisfied are you with the loan granting procedures of the SLCB?

A. Very satisfied □
B. Satisfied □
C. Neutral □
D. Dissatisfied □
E. Very dissatisfied □

Q9. How satisfied are you with the loan payment procedures?

A. Very satisfied □
B. Satisfied □
C. Dissatisfied □
D. Very dissatisfied □

Q10. How satisfied are you with the interest charged on the loan?

A. Very satisfied □
B. Satisfied □
C. Dissatisfied □
D. Very dissatisfied □

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 SECTION C: IMPACTS OF THE SLCB

Q11. How would you rate the following statements on loan application? Where 1
= strongly disagree, 2 = disagree, 3 = neutral, 4 = agree and 5 = strongly agree.

a. It was easy to be given a loan □

b. The criteria used by the bank in granting the loan are fair □
c. The criteria used by the bank are easy to be met □
d. I would conclude that the bank has helped me in developing my business □
e. I would like to obtain loan if the need be from this bank □
f. Interest rate offered was fair □
g. The bank conducts analysis of the viability of the business before granting the
loan □

Page 66 of 70
 SECTION D: OVERALL IMPACTS OF THE SLCB ON
INCOME LEVEL OF ITS CUSTOMERS.

Q12. What was your main source of finance before been a customer of the SLCB?

a. Families and friends □

b. Monthly salary/wage □
c. Rather not tell □
d. Others (please specify) ___________________________________________

Q13. What was your estimated daily savings before joining the SLCB?

A. Below Le 50,000
B. Le 50,000 – Le 100,000
C. Le 100,000 – Le 500,000
D. Above Le 500,000

Q14. Has your savings improved after joining the SLCB?

A. Yes □ B. No □

Q15. If yes (A) how significant is the change?

A. Highly significant □
B. Significant □
C. not that significant □

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Please help provide any other information that may be relevant to this study

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 APPENDIX II
LIST OF ACRONYMS

ARC American Refugee Committee

BRAC Bangladesh Rural Advancement Committee

CBD Central Business District

CBs Community Banks

FSDP Financial Sector Development Plan

GDP Gross National Product

GNP Gross National Product

HDI Human Development Index

ICT Information Communication Technology

IMF International Monetary Fund

MDGs Millennium Development Goals

NCBD Non-Central Business District

PRSP Poverty Reduction Strategy Paper

SLCB Sierra Leone Commercial Bank

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 APPENDIX III
LIST OF COMMERCIAL BANKS

Commercial banks include:

1. Sierra Leone Commercial Bank (SLCB),
2. Standard Chartered Bank
3. Rokel Commercial Bank
4. Guarantee Trust Bank (GTBank)
5. Union Trust Bank (UTB)
6. First International Bank (FIBank)
7. First Bank of Nigeria (formerly International Commercial Bank and of Bank of
British West Africa),
8. Access Bank Group,
9. Ecobank,
10. Skye Bank,
11. United Bank for Africa
12. Zenith Bank.

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