REDUCING VULNERABILITY AND PROMOTING SELF-EMPLOYMENT OF ROMA IN EASTERN EUROPE THROUGH
FINANCIAL INCLUSION
Joost de Laat Human Development Economics Senior Economist World Bank Barbara Kits Consultant Sandor Karacsony Consultant
Brussels, September 4, 2012.
Roma: Poor and Vulnerable
2
Going to bed hungry at least once last month
40%
22%
33% 26%
45%
81%
71% 71% 74%
87%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Bulgaria Czech Republic
Hungary Romania Slovakia
Non-Roma neighbors Roma
6% 6% 10% 11%
7%
42%
30% 36%
61%
34%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Bulgaria Czech Republic
Hungary Romania Slovakia
Non-Roma neighbors Roma
At risk of poverty
Poor households need access to broad range of financial services
Bank accounts, targeted savings, financial literacy, microcredit
2010 Seoul G20 recognized financial inclusion as main pillar
>60 countries globally have initiated financial inclusion reforms
European Commission increasingly promoting financial inclusion
2007 Financial Education Guidelines
2011 Access to Basic Payments (SBA)
JASMINE, JEREMIE, PROGRESS, and CIP promoting micro-credit
3
GLOBAL DEVELOPMENT AGENDA AND FINANCIAL INCLUSION
Roma integration policies in most countries focus on:
Employment, education, health, housing, anti-discrimination
EC Communication on an EU Framework for National Roma Integration
Strategies (EC, 2011) promotes microcredit
EC Roma Pilot – Kiut Microcredit Project Hungary
Little policy attention to Roma financial inclusion broadly:
Access to bank accounts, promoting savings, financial literacy
4
ROMA INTEGRATION AND FINANCIAL INCLUSION
Report Objectives:
Do Roma face financial exclusion broadly? E.g. lack access to
financial services such as bank accounts and savings accounts?
Do Roma have access to microcredit and can microcredit
boost (self-) employment among Roma?
Policy recommendation for financial inclusion
5
REDUCING ROMA VULNERABILITY AND PROMOTING SELF-EMPLOYMENT THROUGH FINANCIAL INCLUSION
FINDINGS BASED ON ROMA REGIONAL HOUSEHOLD SURVEY (2011)
6
Survey Partnership: DG Regional Policy
United Nations Development Program
World Bank
Sample: approx. 750 Roma and 350 non-Roma households in each country from random sample of communities where Roma are overrepresented
Close coordination with separate survey by: Fundament Rights Agency
DO ROMA FACE FINANCIAL EXCLUSION?
FEW ROMA HOUSEHOLDS ARE ABLE TO COPE WITH UNEXPECTED EXPENSES…
Ability to pay for unexpected expenses without relying on loans or other external forms of financial support
35
60
33
58 59
8 15
6 6 10
0
20
40
60
80
100
Bulgaria Czech Republic Hungary Romania Slovakia
General Population Roma
Source: UNDP / WB Roma Regional Survey (2011) and EU SILC (Eurostat, 2008)
8
MODEL 1
(N=3,466)
MODEL 2
(N=3,466)
MODEL 3
(N=3,464)
Savings Account .27***
(.05)
.28***
(.06)
.26***
(.06)
Current Account .04
(.03)
.05**
(.02)
.02
(.02)
Debit Card .05**
(.02)
.04**
(.02)
.03
(.02)
Credit Card .07**
(.03)
.08**
(.04)
.07*
(.04)
Regional Fixed Effects Yes No No
Enumeration Area Fixed Effects No Yes Yes
Household Controls C, D No No Yes
Adjusted-R2 .06 .19 .22
F-statistic 18.94*** 13.06*** 7.273***
THOSE WITH SAVINGS ACCOUNT, MUCH MORE LIKELY TO FACE UNEXPECTED EXPENSES…
9
Ability of Roma households to face unexpected expenses compared to Roma from the same community with similar socio-economic status
Most important finding: Roma households with a savings account are almost 26 percentage points more likely to be able to cover unexpected expenses than Roma households without savings accounts.
Source: Roma Regional Survey (2011) and EU SILC (Eurostat, 2008). Authors’ own calculations. Cluster-robust standard errors in parentheses.
FEWER ROMA HOUSEHOLDS LIVE CLOSE TO BANK
% of households living less than 3KM from a bank
Source: UNDP / WB Roma Regional Survey (2011) and EU SILC (Eurostat, 2008)
10
91
79
92
85
64
47
69
60
44
35
0
20
40
60
80
100
Bulgaria Czech Republic Hungary Romania Slovakia
General population Roma households
CURRENT ACCOUNT (BASIC BANK ACCOUNT) ACCESS IS LOW AND VARIES
16
79 73
23
77
4
35
47
6
29
0
20
40
60
80
100
Bulgaria Czech Republic Hungary Romania Slovakia
General Population Roma
Source: UNDP / WB Roma Regional Survey (2011) and EU SILC (Eurostat, 2008)
11
And (not shown), no more than 5% has savings account in each country
And, even compared to non-Roma neighbors of similar socio-economic
status, Roma households are
17 percentage points less likely to have a current account
10 percentage points less likely to have a savings accounts
9 percentage points less likely to have a credit card
17 percentage points less likely to have saving
21 percentage points more likely to have arrears
Households speaking Romani at home are even less likely to use banking
services in general
12
LOWER USE OF FORMAL FINANCIAL SERVICES AND GREATER FINANCIAL VULNERABILITY
Report Objectives:
Do Roma face financial exclusion broadly? E.g. lack access to
financial services such as bank accounts and savings accounts?
- YES
Do Roma have access to microcredit and can more
microcredit boost (self-) employment among Roma?
Policy recommendation for financial inclusion
13
REDUCING ROMA VULNERABILITY AND PROMOTING SELF-EMPLOYMENT THROUGH FINANCIAL INCLUSION
ROMA SELF-EMPLOYMENT (MALE/FEMALE) RATES ARE RELATIVELY LOW, EXCEPT IN ROMANIA…
32 39 32 23 17
10 4
2 19
3
0
10
20
30
40
50
60
70
80
90
100
Bulgaria Czech Republic
Hungary Romania Slovakia
Employed by employer Self-employed
22 18 12 12 9
4 1
1 7 0
0
10
20
30
40
50
60
70
80
90
100
Bulgaria Czech Republic
Hungary Romania Slovakia
Employed by employer Self-employed
Roma working age men Roma working age women
24- 40% of working age men and 14-35% of working age women
15
BUT INTEREST IN SELF-EMPLOYMENT IS HIGH
20
8 12
28
11
20
18 12
12
14
10
4 2
19
3
0
10
20
30
40
50
60
70
Bulgaria Czech Republic
Hungary Romania Slovakia Pe
rce
nta
ge o
f w
ork
ing
age
me
n in
tere
ste
d in
se
lf-e
mp
loym
en
t
Yes Maybe Already self-employed
16
3 9
21
7
19
11
10
13
12
4
1
1
7
0
0
10
20
30
40
50
60
70
Bulgaria Czech Republic
Hungary Romania Slovakia
Pe
rce
nta
ge o
f w
ork
ing
age
wo
me
n in
tere
ste
d in
se
lf-e
mp
loym
en
t
Yes Maybe Already self-employed
Roma working age men Roma working age women
0
10
20
30
40
50
60
70
80
90
100
Bulgaria Czech Republic Hungary Romania Slovakia
% Starting Roma Entrepreneurs Reporting Lack of Finance as a Key Problem
MANY EXISTING ENTREPRENEURS REPORT LACK OF FINANCE A KEY OBSTACLE TO STARTING A BUSINESS
At most one third of formal businesses have loans
Savings is a primary source of funding for 60-82%
At most 21% of businesses report ‘loans’ as a primary source of funding
Lack of access to finance most commonly reported barrier to start-up business
17
What Are the Barriers?
LOANS ARE OFTEN NOT PRIMARY SOURCE OF BUSINESS FUNDING – AMONG ROMA AND NON-ROMA NEIGHBORS
But very few Roma use loans for income generating purposes
18
18
10
39
15
1
15
2 1
25
6
17
27
8 9
2 6
13
4
36
10
3
10
19
7
19
2
38
16
2
12 7
2
26
2
34
15
2 5
11 6
0 5
10 15 20 25 30 35 40 45
Pe
rce
nt
Bulgaria Czech Republic Hungary Romania Slovakia
THOSE WITH LOANS MOSTLY CONSUMER LOANS: FEW HAVE INCOME GENERATING PURPOSE
Existing businesses: “intensive credit margin” Current
Business Owners
Start-ups: “extensive credit margin” Aged 20-54, and:
(1) current business owners working informally, as unskilled
worker, in periodic jobs without a contract, or
(2) those interested in becoming self-employed, currently
an employee or unemployed
19
FURTHER DISTINGUISH TWO GROUPS OF POTENTIAL BORROWERS FOR ANALYSIS
At most ¼ completed secondary school (higher in CZ) & at most ¼ completed apprenticeships
May indicate limited financial- / business skills
Limited work experience
Lack of proof of creditworthiness
20
16
59
20 16 16
44
23
15
28
87
98 94
80
98
50
69 62 62
86
0
20
40
60
80
100
Bulgaria Czech Republic Hungary Romania Slovakia
Pe
rce
nt
Secondary School Completion
Intensive Extensive With Credit Refused Credit
EDUCATION LEVELS AMONG (ASPIRING) ENTREPRENEURS MUCH LOWER THAN GENERAL POPULATIONS BEING REFUSED BANK
CREDIT
21
ARREARS ON UTILITY BILLS ARE COMMON AMONG ASPIRING AND EXISTING ROMA ENTREPRENEURS
35
14
37
28
46
36
54
34
18
3 0
11
0 1 1
16
1 1
0
10
20
30
40
50
60
Bulgaria Czech Republic Hungary Romania Slovakia
Pe
rce
nt
Utility Bills Intensive Utility Bills Extensive Mortgage Intensive Mortgage Extensive
25-67% of the employed among aspiring Roma entrepreneurs do not have a formal contract
No proof of income due to informality
51-73% of this group have a temporary job
No proof of stable income stream
22
ASPIRING ENTREPRENEURS LACK STABLE INCOME
Microcredit largely provided to existing businesses, by commercial banks, beyond reach of many Roma entrepreneurs
Greater depth of outreach in Bulgaria, Hungary, Romania
Microcredit programs successfully reaching Roma are often small in size
SUPPLY SIDE BARRIERS TO ACCESSING MICROCREDIT
Requires a comprehensive approach. Face considerable
challenges accessing credit:
lack work experience
lack collateral such as savings
are indebted, and
have lower education than the average person from general
population who has been refused credit
Findings consistent with field experiences by microcredit
providers E.g.: Kiútprogram, Autonómia, Mikrofond
24
CAN MICROCREDIT SUBSTANTIALLY RAISE ROMA SELF-EMPLOYMENT?
Report Objectives:
Do Roma face financial exclusion broadly? E.g. lack access to
financial services such as bank accounts and savings accounts? -
YES
Do Roma have access to microcredit and can microcredit
substantially boost (self-) employment among Roma? -
Requires comprehensive, incremental approach
Policy recommendation for financial inclusion: follow
incremental approach, with focus on savings facilitation
25
REDUCING ROMA VULNERABILITY AND PROMOTING SELF-EMPLOYMENT THROUGH FINANCIAL INCLUSION
Follow incremental approach to financial inclusion
Focus on savings facilitation, especially targeted savings
Focus on access to standard bank accounts
Address financial literacy and business skills
Facilitate smaller group of (aspiring) Roma entrepreneurs with
asset transfers and accessing MFI microloans
Monitor financial access using available survey questionnaires
and rigorously evaluate financial inclusion programs
26
COMPREHENSIVE APPROACH TO FINANCIAL INCLUSION
GLOBAL EXPERIENCES: INNOVATIVE INSTITUTIONAL APPROACHES TO REACHING POOR WITH BASIC FINANCIAL SERVICES
27
Bank on San Francisco, USA
Correspondent banking in Brazil
M-PESA, Kenya, mobile phone money account for easy transfer of funds using SMS
Channel government social safety net transfers through bank accounts instead of cash
PROMOTING FINANCIAL INCLUSION: PROGRAM EXAMPLES
Promoting targeted savings ETP Slovakia’s "Individual Development Account“ for housing Kindergarten-to-college (K2C) initiative in USA
Global “Graduation” pilot program Several poor and middle income countries From addressing basic needs, to savings, to skills transfer, to asset
transfer
Promoting financial literacy ETP Slovakia and Autonomia work
Promoting access to microloans Kiut and others
28
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