Abstract:
The study used annual panel data (1996-2010) for eleven SADC countries to establish the determinants of credit
to private sector; the possibility of a crowding out effect of government debt and the contribution made by
institutional quality. The study used both the fixed effects and dynamic model based on GMM estimations.
There is strong evidence suggesting that financial development, economic growth, trade openness and domestic
credit by banks were important in explaining growth in credit to the private sector. Government debt was
insignificant while institutional factors play a complementary role. Extension of financial resources to the private
sector is enhanced by keeping low levels of corruption, improving government effectiveness as well as the
regulation quality. Reduction in the risk profile for investments allows banks to release more financial resources
to the private sector. Monetary policy initiatives like favorable credit rationing policies play a key role in
developing financial markets.
