financial (dis-)information and disclosure: experimental evidence from mexico a xavier giné world...
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![Page 1: Financial (Dis-)Information and Disclosure: Experimental Evidence from Mexico A Xavier Giné World Bank G20 Meeting, Moscow Financial (Dis-)Information](https://reader034.vdocument.in/reader034/viewer/2022051620/56649eca5503460f94bd8c9b/html5/thumbnails/1.jpg)
Financial (Dis-)Information and Disclosure: Experimental Evidence
from MexicoA
Xavier GinéWorld Bank
G20 Meeting, Moscow
Financial (Dis-)Information and Disclosure: Experimental Evidence
from MexicoA
Xavier GinéWorld Bank
G20 Meeting, Moscow
![Page 2: Financial (Dis-)Information and Disclosure: Experimental Evidence from Mexico A Xavier Giné World Bank G20 Meeting, Moscow Financial (Dis-)Information](https://reader034.vdocument.in/reader034/viewer/2022051620/56649eca5503460f94bd8c9b/html5/thumbnails/2.jpg)
Motivation• Access to financial services is limited in
developing countries (Demirguc-Kunt and Klapper, 2012).
• Several explanations have emerged– Transactions costs, asymetries of information,
financial illiteracy
• Poor quality of the product – Evidence of repayment problems and hidden
charges in credit and savings products among low-income households in Mexico
– Savings: Hidden fees yield negative effective rate
– Credit: Many regulated and unregulated institutions, with large variation in total cost of credit.
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Motivation• In 2009, new requirements for disclosure
formats and pricing transparency through modifications to the Law for Transparency and Regulation of Financial Services– Required that consumers be presented with
key financial terms.
• Yet, problems persist, and it is unclear whether these disclosure modifications are effective– Fung, Graham and Weil ‘s “Full Disclosure”
book
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Example: Credit
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CAT= 267% CAT= 107%
Example: Credit
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Example: Savings
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Example: Savings
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Why aren’t financial products transparent?
• Financial products are inherently complicated– But then firms would have an incentive
to make simpler products or to provide information
– Is government intervention needed in this case?
• Firms purposefully make products more complicated to maximize profits– Firms make more money when pricing
is not transparent– In this case, firms will resist
transparency initiatives
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What do we do?• Implement two studies to answer the
following questions:– What is the quality of information
provided to low-income customers interested in savings and credit products?
• Does information vary by the type of consumer?
• Are financial institutions complying with the new transparency rules? Are they offering the cheapest products that meet the customer needs?
– How effective are disclosure forms?
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Study 1: Audit Study• Trained low income “shoppers”
interested in credit and savings products visit financial institutions to assess the (quantity and quality of) information provided by the staff
• Savings Scripts differed along:• Specific savings needs: 5000 Pesos (USD
385) in a Checking account or Fixed Term deposit.
• Credit Scripts differed along:• Over indebtedness: Asked for a loan
representing 20% or 70% of their household income.
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Audit Study
• Both Scripts differed along:• Financial Literacy: Neophytes and
Experienced• Awareness of Competition: Among
experienced shoppers, half mention a previous high interest rate offer, the other half mentioned a low interest rate.
• Formal dress: Shoppers were encouraged to dress formally on alternate interactions with the lender.
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Setup• Collaborative effort with CONDUSEF,
member of the National Council for Financial Inclusion
• 4 towns near DF, with population between 30,000 and 50,000 habitants, predominantly from the low-middle income socio-economic group.
• 26 FIs (regulated and not) have presence– Commercial Banks, Low income banks,
SOFOMS, SCAPS and SOFIPOS
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Setup• Savings
– 4 professional auditors made 7 visits each to different institutions in each town for a total of 112 visits.
• Credit– 18 trained low-income individuals had 115
interactions and 215 visits (each interaction could have up to 4 visits).
• After each visit, auditor had to fill in a questionnaire, validated via audio recording.
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High Experience Low experience Fix term account Checking accountFinancial Literacy Profile Term profile
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
17.3***
9.4
13.812.6
SAVINGS: Interview timeM
inu
tes
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High Experience Low experience High over indebted
Low over indebted
Financial Literacy Profile Over indebtedness profile
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.034.7***
29.0
32.5***31.1
CREDIT: Interview timeM
inu
tes
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High Experience Low experience Fix term account Checking accountFinancial Literacy Profile Term profile
82.0%
84.0%
86.0%
88.0%
90.0%
92.0%
94.0%
96.0%
98.0%
100.0%
88.7%
94.4%
90.6%
92.6%
SAVINGS: Product offered aligned with needs
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High Experience Low experience High over indebted
Low over indebted
Financial Literacy Profile Over indebtedness profile
0.00
500.00
1000.00
1500.00
2000.00
2500.00
3000.00
1598.29 1670.46
2451.22***
841.27
CREDIT: Requested - Approved amount
Me
xic
an
Pe
so
s
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High Experience Low experience Fix term account Checking accountFinancial Literacy Profile Term profile
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
8.6***
5.4
6.3***
7.7
SAVINGS: Number of information items (of 18)
Ite
ms
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High Experience Low experience Fix term account Checking accountFinancial Literacy Profile Term profile
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
1.5 1.5 1.51.5
SAVINGS: Legal requirements (out of 2)
Ite
ms
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High Experience Low experience Fix term account Checking accountFinancial Literacy Profile Term profile
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.03.7
3.23.4 3.5
SAVINGS : Terms of account (out of 10)
Ite
ms
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High Experience Low experience Fix term account Checking accountFinancial Literacy Profile Term profile
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2.3***
0.5
1.0***
1.8
SAVINGS: Fees and Commissions (out of 6)
Ite
ms
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High Experience Low experience Fix term account Checking accountFinancial Literacy Profile Term profile
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
67%***
43%
54% 55%
SAVINGS: Pct of terms mentioned from actual product offered
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High Experience Low experience Fix term account Checking accountFinancial Literacy Profile Term profile
0%
1%
2%
3%
4%
5%
2.23%2.07%
3.87%***
0.71%
SAVINGS: GAT of actual product of-fered
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High Experience Low experience Fix term account Checking accountFinancial Literacy Profile Term profile
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
1.38***
0.46
0.870.96
SAVINGS: Explanation of termsIt
em
s
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High Experience Low experience Fix term account Checking accountFinancial Literacy Profile Term profile
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
1.061.11
1.26
0.91
SAVINGS: Total number of printed materials
Ite
ms
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Summary of Results
• Staff tends to disinform potential clients, especially neophytes– Yet, experienced shoppers rate the staff
higher– In general, staff cannot explain key
terms such as GAT and CAT
• Misalignment of incentives between staff and potential client– Staff adjusts correctly loan size but
client typically ends up with more expensive credit and savings products
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Conclusion and Caveats
• The study covers only one region of one country– Need replication to other contexts
• Disclosure and transparency policies are difficult to implement successfully because FIs have a strong incentive to undo them– They are insufficient for debiasing
customers