A study of both informal and formal financial markets in Ghana, Malawi, Nigeria and Tanzania, Financial Market Fragmentation and Reform in Sub-Saharan Africa, shows that informal institutions use specialized methods to serve broad segments of the population that lack access to banks. Although they have responded positively in a liberalized environment, fragmentation into isolated market segments persists. Greater efforts are needed to integrate informal institutions into financial development strategies. The study investigated structural problems such as imperfect information and costly contract enforcement and institutional weaknesses in banking systems and the legal framework that cause wide differences across lenders in the costs of screening, monitoring and enforcing loans. Poor information systems in low-income countries raise the cost to formal institutions of acquiring information on any but the largest clients. In contrast, informal agents utilize personal relationships, social sanctions and various collateral substitutes to serve market segments that remain beyond the reach of formal banks.