The study used annual panel data (1996-2010) for 11 SADC countries to establish the determinants of credit to private sector and financial development. The contribution made by institutional quality is investigated using both the fixed effects and dynamic model based on GMM estimations. Financial development was significantly and positively influenced by credit to the public sector, per capita gross domestic product, gross fixed capital formation, financial openness, interest rates and institutional factors while savings and government debt have a negative influence. Financial development is enhanced by keeping corruption at low levels, increasing government accountability, improving regulation quality, maintaining rule of law and low levels of political violence. Thus institutional quality should be enhanced to complement the levels of financial development which in turn boosts economic growth. More private-public sector partnerships are preferable to enhance financial development and monetary policy initiatives like favorable credit rationing policies play a key role in developing financial markets.
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