The financial sector of emerging economies in Africa is characterized by a noncompetitive
banking sector that dominates any direct participation of agents in asset markets. We formally identify
“market inexperience” as an explanation for agents’ willingness to pay high banking fees rather than to
participate in asset markets. Whereas experienced agents choose ex ante investments that result, through
trading on the future asset market, in the optimal (second-best) allocation, inexperienced agents are
ignorant about the possibility that future market equilibria can improve welfare upon an autarkic investment.
As a consequence, a monopolistic banking sector can exploit these agents because their only
outside option is an autarkic investment project.