seventy-seventh international atlantic economic conference
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SEVENTY-SEVENTH INTERNATIONAL ATLANTIC ECONOMIC CONFERENCE. MADRID 2-5 APRIL 2014. Asli Demirguc-Kunt Director of Research World Bank Group Financial Inclusion. - PowerPoint PPT PresentationTRANSCRIPT
SEVENTY-SEVENTH INTERNATIONAL ATLANTIC ECONOMIC CONFERENCE
MADRID 2-5 APRIL 2014
Asli Demirguc-KuntDirector of ResearchWorld Bank Group
Financial Inclusion
3
• Increased policy interest– Over 50 countries: formal targets and strategies for financial inclusion– WBG President: has called for achieving universal financial access by 2020
• Critical role in reducing poverty, boosting shared prosperity
• Enables poor people to save and borrow, allowing them to build assets, invest in education and entrepreneurial ventures, thus improving their livelihoods
• New empirical evidence on financial inclusion and its effects
Why financial inclusion ?Intro Measurement and Impact Public Policy Focus Areas Main Messages
4
Global views: Financial Development Barometer
Source: Financial Development Barometer (poll of financial sector officials and experts from 21 developed and 54 developing economies).
Very important35%
Somewhat important25%
Not sure16%
Not very important24%
What is the role of new technologies in expanding access to finance?
Financial education; 32%
Better legal framework and credit information,
27%
Promote new lending technologies; 17%
More competition; 8%
More microfinance; 8%
More state banking; 8%
What is the most effective policy to improve access to finance among low-income borrowers?
Intro Measurement and Impact Public Policy Focus Areas Main Messages
5
• Financial inclusion = share of individuals and firms that use financial services
• … does not mean finance for all at all costs
• Some have no demand or need for financial services
• But for many, the use of financial services is constrained by market and government failures
• That is why it is important to measure not only actual use of financial services, but also the barriers to access
Defining financial inclusionIntro Measurement and Impact Public Policy Focus Areas Main Messages
6
Defining financial inclusionIntro Measurement and Impact Public Policy Focus Areas Main Messages
7
• Globally, about 50 % of adults have a bank account • The other 50 % (2.5 billion) remain “unbanked”
Measuring financial inclusionIntro Measurement and Impact Public Policy Focus Areas Main Messages
Adults with accounts at a formal financial institution
Source: Global Financial Inclusion (Global Findex) Database, worldbank.org/globalfindex
8
Where do the unbanked live?Intro Measurement and Impact Public Policy Focus Areas Main Messages
Source: Global Financial Inclusion (Global Findex) Database, worldbank.org/globalfindex
9
• Not all “unbanked” need financial services, but barriers play a key role
Measuring financial inclusionIntro Measurement and Impact Public Policy Focus Areas Main Messages
Religious reasons
Lack of trust
Lack of documentation
Too far away
Too expensive
Family member already has account
Not enough money
0 5 10 15 20 25 30 35
5
13
18
20
23
25
30
Note: Respondents could choose more than one reason. The data for “not enough money” refer to the percentage of adults who reported only this reason. Source: Demirguc-Kunt and Klapper 2012.
Non-account-holders reporting barrier as a reason for not having an account (%)
10
Correlates of financial inclusion
Source: Based on Allen, Demirguc-Kunt, and others (2012)
Intro Measurement and Impact Public Policy Focus Areas Main Messages
-20%
-15%
-10%
-5%
0%
5%
10%
-16%
-13%
-9%
-6%
3%
-3%
-12%
-2%
2%
7%
-7%-8%
effe
ct o
n pr
obab
ility
of o
wni
ng a
n ac
coun
t (%
)
Poorest 20%
Second 20%
Middle 20%
Fourth 20%
Rural
0-8 yrs of education
Log of household size
Em
ployed
Unem
ployed
Out of w
orkforce
Married
Age
11
Intro Measurement and Impact Public Policy Focus Areas Main Messages
12
Intro Measurement and Impact Public Policy Focus Areas Main Messages
Source: Calculations based on Demirgüç-Kunt and Klapper 2012; World Development Indicators database, World Bank.Note: Higher values of Gini mean more inequality. Data on Gini are for 2009 or the latest available year. Account penetration is share of adults who had an account at a formal financial institution in 2011.
Financial inequality and economic inequality
0 5 10 1520
30
40
50
60
70In
com
e in
equa
lity
(Gin
i coe
ffic
ient
)
account penetration in the richest 20% as a multiple of that in the poorest 20%
Sweden
Haiti
Philippines
13
• Empirical evidence on impact varies by the type of financial services
• Basic payments, savings: strong evidence on benefits, especially for the poor
• Insurance products: also some evidence of a positive impact
• Access to credit: mixed picture – firms: a positive effect on growth, especially start ups, small and medium
enterprises– microenterprises and individuals: evidence on benefits for smoothing
consumption, but not always for entrepreneurial ventures
Evidence on impacts of financial inclusionIntro Measurement and Impact Public Policy Focus Areas Main Messages
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• Policy should focus on addressing market and government failures
• Not on promoting financial inclusion for inclusion’s sake, and certainly not on making everybody borrow
• Direct government interventions in credit markets tend to be politicized and less successful, particularly in weak institutional environments
• Role for government in creating legal and regulatory framework – Examples: protecting creditor rights, regulating business conduct,
overseeing recourse mechanisms to protect consumers
Financial inclusion policy – overall findings from researchIntro Measurement and Impact Public Policy Focus Areas Main Messages
15
Competition policy: important part of consumer protection• Healthy competition among providers increases consumers’ market power• New evidence: lack of bank competition diminishes firms’ access to finance
Intro Measurement and Impact Public Policy Focus Areas Main Messages
Source: Love and Martinez Peria 2012
effect at maximum government ownership
effect at minimum credit information
effect at minimum financial development
average effect (all countries)
-3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0
-3.1
-2.8
-1.3
-0.6
Effect of bank mark-up (Lerner index) on probability of a firm having access to finance
Financial inclusion policy – overall findings from research
16
• Role in supporting information environment (standards for disclosure, transparency, promoting credit bureaus, collateral registries)
Intro Measurement and Impact Public Policy Focus Areas Main Messages
Source: Love, Martínez Pería, and Singh 2013.
Pre-reform Post-reform0
10
20
30
40
50
60
70
80
50
73
41
54
Registry reformers
Non-reformers (matched by region and income)
% o
f firm
s with
acc
ess t
o fin
ance
Financial inclusion policy – overall findings from research
17
Promoting financial inclusion: focus areas
Promoting financial inclusion
I. Promise of technology
II. Product design, business
models
III. Financial capability
Intro Measurement and Impact Public Policy Focus Areas Main Messages
18
• Technological innovations reduce transaction costs, increase financial security• Scope for scaling up, illustrated e.g. by growth in phone subscriptions
I. Promise of technology
Source: World Development Indicators.
Intro Measurement and Impact Public Policy Focus Areas Main Messages
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
25
50
75
100
125
World
High income
Middle income
Low income
Subs
crip
tions
per
100
peo
ple
19
Example: fingerprinting in Malawi (% of balances repaid on time)
I. Promise of technology
Source: Calculations based on Giné, Goldberg, and Yang (2012).
Intro Measurement and Impact Public Policy Focus Areas Main Messages
Worst 2nd quintile 3rd quintile 4th quintile Best0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
88%
79%
91% 93%89%
26%
74%
92%96% 98%
FingerprintedControl
20
• To harness the promise of new technologies…
• …. regulators need to allow competing financial service providers and consumers to take advantage of technological innovations…
• …coupled with strong prudential regulation and supervision to prevent overextension.
I. Promise of technologyIntro Measurement and Impact Public Policy Focus Areas Main Messages
21
• Product design that addresses market failures, meets consumers’ needs and overcomes behavioral problems can foster wider use of financial services
• Example 1: commitment accounts
II. Product design, business modelsIntro Measurement and Impact Public Policy Focus Areas Main Messages
Land under cultivation0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
Ordinary account
Commitment account
acre
sTotal value of
inputsValue of crop
outputFarm profit
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Ordinary account
Commitment account
Loc
al c
urre
ncy
(Mal
awi K
wac
ha, M
K)
Note: The exchange rate was MK145/USD during the study period.Source: Brune, Giné, and others (2011).
22
• Example 2: index insurance
• New evidence: lack of trust, liquidity constraints constrain demand (field experiment in India by Cole and others, 2012)
• What helps: designing products to pay often and fast, an endorsement by a well-regarded institution, simplification and consumer education
II. Product design, business modelsIntro Measurement and Impact Public Policy Focus Areas Main Messages
Source: Giné and Yang, 2009
0
5
10
15
20
25
30
35 33
20
take
-up
of lo
ans (
% o
f far
mer
s)
23
• Example of an innovative business model: Banco Azteca, Mexico• Improved access can be achieved by leveraging existing relationships
II. Product design, business models
Source: Bruhn and Love (forthcoming)
Intro Measurement and Impact Public Policy Focus Areas Main Messages
2000-II
2000-III
2000-IV2001-I
2001-II
2001-III
2001-IV2002-I
2002-II
2002-III
2002-IV2003-I
2003-II
2003-III
2003-IV2004-I
2004-II
2004-III
2004-IV12.0
12.5
13.0
13.5
14.0
14.5
15.0
7.6
7.8
8.0
8.2
8.4
8.6
8.8
9.0
Municipalities without Azteca Municipalities with Azteca
% o
f ind
ivid
uals
who
are
info
rmal
bus
ines
s ow
ners
(mun
icip
aliti
es w
ithou
t Azt
eca)
% o
f ind
ivid
uals
who
are
info
rmal
bus
ines
s ow
ners
(mun
icip
aliti
es w
ith A
ztec
a)
Banco Azteca opening
24
• Classroom-based financial education for general population do not work• Financial literacy can be increased by well-designed, targeted interventions• More likely to work in “teachable moments” (e.g., new job, new mortgage)• Especially beneficial for people with limited financial skills• It helps to leverage social networks (e.g., involve both parents and children)• “Rule of thumb” training helps by avoiding information overload• New delivery channels show promise—example: messages in soap operas
III. Financial capabilityIntro Measurement and Impact Public Policy Focus Areas Main Messages
25
• Financial literacy messages seem to have a real-world effect…
• … but the effect is short-lived – need to repeat / reinforce
III. Financial capability
Source: Berg and Zia (2013)
Intro Measurement and Impact Public Policy Focus Areas Main Messages
Has someone in the household used hire purchase in the past 6 months?
Has someone in the household gambled money in the past 6 months?
0
5
10
15
20
25
30
35
15
26
19
31TreatmentControl
% o
f res
pond
ents
26
• Financial inclusion: critical role in sustainable development, reducing poverty, boosting shared prosperity
• Financial inclusion varies widely around the world; poor people and young and small firms face the greatest barriers
• Innovative technologies, services, business models, and delivery channels hold much promise for increasing financial inclusion
• The role of policy is to address market and government failures, not to increase inclusion for inclusion’s sake
• Key areas: strengthening regulations, improving information environment, ensuring competition among providers, educating & protecting customers.
Main messagesIntro Measurement and Impact Public Policy Focus Areas Main Messages