Colonialism, past and present, has profoundly shaped the contemporary world. Existing inequalities within and between countries, racial hierarchies, forms of state, patterns of international trade and financial flows, and the structure of international institutions have been strongly shaped by colonial practices and enduring legacies. The role of colonialism in shaping world politics has also come in for overdue scrutiny in recent years from scholars in International Relations (IR) and related disciplines.
This may be especially true of research on global finance and financial governance. Recent studies have highlighted the enduring relevance of colonialism in shaping the global financial system, showing, amongst other things, how financial institutions in the US and UK profited from engagements with colonial ventures and the slave trade, and how postcolonial monetary and financial relations between European powers and their former colonies continue to reinforce longstanding patterns of uneven development.
Concentrations of wealth and of poverty on a global scale, then, are intimately linked to the legacies of colonialism.
Perhaps less attention has been given, though, to the finer-grained uneven development of financial systems within and among colonial territories. There is good reason to believe that these patterns of unevenness have mattered a lot in shaping contemporary finance. Former settler territories which housed important commercial centres, notably South Africa and Kenya, continue to have much broader and deeper financial sectors relative to elsewhere in Africa. Urban-rural gaps in access to finance also often date to colonial times. Equally, contemporary diagnoses of financial ‘exclusion’ also tend to echo much older assessments of the availability of financial services in the global south. For instance, colonial officials often worried that colonial banks operating on ‘sound’ financial lines could not lend to peasants with low and unpredictable incomes in the absence of secure titles to land that could be posted as collateral. Concerns which are also reflected in contemporary policy documents.
Supported by a BISA Early-Career Small Research Grant, I’ve started trying to unpick these relationships through archival research on the development of financial systems in colonial Africa, focusing in particular on the history of controversies around credit for small farmers in Gold Coast (now Ghana) between 1930 and 1960. These kinds of controversies, I argue, are particularly revealing of what the financial systems that developed under colonial rule could (and couldn’t) be reformed to do.
So, what does this history show us? As far back as the late 1920s, Cocoa growers’ associations were agitating for access to banking facilities as an alternative to relying on expensive borrowing from traders against future crops. Colonial officials at the same time had started to recognise that exploitative terms on credit from traders and moneylenders were a serious hindrance on cocoa production. Yet, they often struggled to address the problem, in no small part because the existing commercial banking sector was ill-equipped for the task. Financial systems in British-controlled territories were dominated by ‘expatriate’ banks headquartered in London. Commercial banks were typically run and raised capital from London, and opened branches in colonial territories. They were also typically closely entangled with British banks, usually through both share ownership and overlapping directorates. This was especially the case after the 1920s. Banks generally specialised in a few activities – particularly lending to government and making advances to larger merchants, government, and expatriate businesses, as well as remitting funds between London and colonial commercial centres. Colonial banks had few branches, clustered in cities and hence geographically distant from farmers, and made assessments of credit risk often on the basis of a mix of personal relationships – a practice that made sense in the context of relatively small, geographically proximate expatriate business communities - and posted collateral.
In essence, banks were designed to keep the least risky, most profitable activities (providing remittances, lending to government and making advances to large merchants) for themselves while offloading risks associated with crop prices, disease, or bad weather onto smaller traders and ultimately onto African peasant producers. Racial and colonial hierarchies, in short, were embodied in the physical infrastructures and social practices of the banking system.
Colonial officials seeking to expand access to more affordable forms of credit for Africans never seriously considered confronting this basic configuration of the banking system. The result was the reluctant and somewhat ad hoc development of various publicly financed agricultural credit institutions. Colonial officials encouraged the development of cooperatives starting in the late 1920s (although disagreed about whether these should be used for credit or simply to encourage savings). Prompted by widespread rioting in 1947, and under pressure from nationalist politicians in Gold Coast, officials made tentative moves towards the development of a government-owned agricultural bank in the last decade of British rule.
Why does this matter for contemporary development governance? Postcolonial agricultural finance continued in a similar vein in the 1960s and 1970s - with a small, overwhelmingly urban, commercial financial sector dominated by the expatriate banks, and a growing number of public institutions set up to provide credit for agriculture. The latter were closed, privatised, or shifted towards operating on more commercial lines, during the process of structural adjustment.
This is an important piece of context for contemporary efforts to promote ‘financial inclusion’, and the development of new financial markets more generally. Officials at the World Bank, IMF, and elsewhere generally, believed that by removing ‘distortions’ created by government interventions, credit for agriculture would become more widely available, efficient, and affordable. This expectation hasn’t been borne out. The research suggests this is at least partly down to the enduring legacies of colonial infrastructures. The construction of new markets, which remains a key point of emphasis in contemporary global governance, is not only deeply political and often fraught in practice, but also uneven in ways that are strongly conditioned by historically deeply embedded infrastructures. Markets can’t address the enduring legacies of colonial rule, and are in fact significantly inhibited by these legacies. In short, we ought to be paying attention to how neoliberal interventions can founder on their inability to confront deeply embedded colonial legacies.
Nick Bernards received a BISA Early-Career Small Research Grant to conduct this research. Each year we allocate almost £150,000 of funding to members at all stages of their career.