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									Measuring Financial Access


      Anjali Kumar
          World Bank
         October 2008
    Overview


    Why Does Financial Access Matter?
    How do we Measure Financial Access?
    Demand side Measures – User Surveys
    Supply Side Measures – Service Providers
    Banking the Poor and Lessons for the Rich
    What Have We Learned?
    What Next?
                                                 2
Why Does Financial Access Matter?

 Improved Financial Access has both
   private and social benefits
     Higher growth and increased allocative efficiency
     As well as reduced income inequality and poverty

 Better access to finance helps achieve these
   results by…

       Providing credit resources to dynamic entrepreneurs
       Allocating credit to the marginally highest returns
       Enabling participation in payments networks
       Mobilizing savings; managing risks

 2005: Year of Microfinance (designated by the United Nations)
 2006: M. Yunus and the Grameen Bank awarded Nobel Prize         3
Measuring Access: Conceptual Issues
  Voluntary exclusion? Access is wider than use

        But in practice, the distinction may not be useful:
        „Voluntary‟ exclusion may be due to price barriers
        Or due to discriminatory practices
        Conversely „involuntary‟ exclusion with bad credit histories

    Access for whom – individual or household?

      Users data often from household surveys of income or
       expenditure
      But intra-household transfers are opaque
      And many correlates of access such as income,
       education, age or employment are meaningful only at
       individual levels

  Good practice today suggests hybrids (WB, Finscope)                  4
Measuring Access – User /Demand Side
  Household survey approach.
     Module of expenditure / income surveys (UK, Netherlands, USA)
     European household expenditure surveys for new states

  Specialized surveys of household financial access
     USA: Townsend /Chicago; Dunham / OCC; Barr (ongoing)
     DFID / WB: Brazil, Colombia, Mexico, S. Africa, other African
      countries
  A standardized global methodology? DFID / World Bank

  Advantages
     provides correlates of who has access
     income, education, poverty levels, occupations, etc

  Disadvantages: Potentially costly and time consuming
                                                                      5
Measuring Access - Provider or
Supply side
    Institutional:
       eg banks, non-banks, insurance, NGOs/ MFIs,

    Functional:
       eg credit services, payments, savings, insurance

    Product based:
       Credit cards, insurance policies, mortgage loans



                                                           6
Mapping Access – Instituional
Measure of the Served and Excluded
                              Financially Served

                             Formally Included
                                                        Informally Financially
                                         Formal other     Served Excluded
                                         (only)
                      Bank                                (only)




  Country X




          0%           20%          40%           60%          80%        100%


               Bank            Formal other         Informal          Excluded
                                                                                 7
 Mapping Access from Household
 Surveys – Institutions and Functions

            (A1)     (A2)      (A3)        (A4)    (A5)    (A6)     (S1)        (S2)

Country     Banked Formally Financially Payments Savings   Loans    Formally    Direct
                   served   served                         and      served      and
                                                           credit   (bottom     indirect
                                                                    quintile)   access


Brazil      43.0     79.3      83.8        25.1    39.7    22.5     49.2a       80.7
                                                                    43.2b
Colombia    39.2     48.1      50.6        24.1    36.4    6.4      -           67.2
Mexico      23.0     52.0      78.6        20.8    44.1    7.4      16.8c       67.3
                                                                    25.1d
South
            47.0     55.0      63.0        31.0    29.0    19.0     -           -
Africa
Namibia     51.1     53.9      55.8        41.1    51.3    22.7     -           -
            43.2     49.0      54.0        43..1   51.3    20.6     -           -
Botswana
Zambia      14.6     22.4      33.7        14.4    21.9    5.5      -           -


Source: Barr, Kumar and Litan (2007) Chapter 1
                                                                                           8
Supply Side Statistics from
Regulators and Banks
 Reaching Out: Access to and Use of
  Banking Services Across Countries
    Geographic and Demographic use
    Loan and Deposit accounts
 Barriers to Banking
    Physical Access
    Affordability
    Eligibility
 Finance for All?
    Fraction of Households with an Account
     World Bank Research Group (Beck, Demirguc-Kunt,
                                                       9
      Martinez Peria, Honohan)
New Supply Side Study: “Banking the
   Poor”
   How many persons have access to banking services?
   What matters for access to banking services?
   54 Poor Countries covered;
   15 Dimensions of Access
   74 Variables / Indicators explored
   11 Country Characteristic control variables
   2 Surveys: Commercial and Central Banks
   Methodology can be applied to rich countries too
   And many results may hold for richer countries
“Banking the Poor” – October 2008, World Bank.
     Finance and Private Sector Development Department
     A study led by Anjali Kumar with a team comprising Hedia Arbi, Ying Lin,
     Max Heimann, Joana Pascual, Vikram Pathania, Valentina Saltane,
     Mehnaz Safavian                                                            10
Main Measures Explored and Findings

1. Accounts per 000: income is a key factor
2. Complexity: Documents to open an account, days to open
     an account, loan application processes - associated with
     reduced access
3.   Costs: Opening charges, maintenance costs - recurring
     charges and complex fee structures matter
4.   Quality and Convenience features: enhance banking services
     for the already banked but are not likely to bring new entrants
5.   Special Schemes – Basic banking, special savings vehicles:
     – hard to find a measurable impact upon access
6.   Mobile technology, retail payments services: enhance
     convenience / depth
7.   Transparency, information, institutions, competition:
     associated with better access
                                                                       11
                            More Complexity in Opening Accounts -
                            Fewer Accounts
                            Documents Needed to Open an Account :
                             5 in Cote d‟Ivoire, Nicaragua
                             Only 1 in Singapore, Thailand
                                                          Documents Required to O pen an Account and Access

                                              M alaysia

                                      Sri Lanka                      M auritius
 Acccounts per 000 Adults




                                                     Afghanistan
                                                  Singapore
                                       Thailand                 Cape Verde                       Tanzania
                                                              Guatemala
                                                                                       Niger                       Zambia
                                Honduras                                                       India                    Bangladesh
                                                                   Burkina Faso                  Benin
                                                  Rwanda
                                 Indonesia            Pakistan                                                Gambia                    Cote d'Ivoire
                                                                    Philippines
                                                                              Ghana                         Swaziland
                                                                                                                                               Nicaragua
                                                                             M exico                             Cambodia
                                                                                                               South Africa
                                                                                               Namibia
                                                                                                                                                           12

Coef = -372, t-stat = -5.6                                                                                                    Documents Required
                 More Complexity in Business Loan
                 Applications - less firms with credit

                            More complex business loan applications mean fewer small
                              firms use working capital credit…
                                                                    Reduced Access for Small Firms

                                                                       Burkina Faso
 `% of small micro firms with
   loans for working capital




                                                                                                             Thailand
                                Ethiopia                                      Mauritius                       Kenya
                                                           Vietnam                     Burundi
                                                                                     South Africa                             El Salvador
                                                                                                    Rwanda      Sri Lanka
                                                                 Cameroon                                               Benin
                                      Niger   Honduras                                                                                    Nicaragua
                                                             Mali                       Gambia      Madagascar       Ghana
                                                                                                              Tanzania
                                                                                                      Swaziland                      Cape
                                                                                                                           P hilippines Verde
                                                         Senegal                                                                      DRC     Indonesia
                                                                        Botswana                                   Cambodia
                                                                                                           Angola


Co ef = -0.3, t-s tat = -1.83                                                                                                                             13
                                                                    Business Loan Complexity of Loan P rocedures
Some Costs Matter – Ongoing Costs
matter more than one-time costs

   Monthly maintenance fee, as a % monthly wage is:
      3% in Rwanda; 0.05% in Singapore
   Over half of all sampled banks charge monthly fees
   Banks in Africa charge monthly fees more often
   And their fees tend to be higher ($4, vs 0.50c in Asia)

         Periodic monthly fees for current account
                maintenance (% monthly income)
    Who has the highest?               Who has the lowest?
    Liberia             51.5           Afghanistan            0.0
    Ethiopia            45.3           India                  0.0
    Niger               28.2           Namibia                0.0
    Congo, D.R.         23.6           Nepal                  0.0
                                                                    14
    Malawi              23.4           Vietnam                0.0
Mobile Technology? Limited Use for
Financial Access so far
  ATMs, the internet and cell phones can save costs
     lower unit costs
     falling marginal costs
  Internet services more commonly offered by banks
  Landline phone and cellphone services are similar
  Balance inquiries are the most common service
                 East Asia   Latin America
     Internet:   83%    88 %
     Cell phone: 60%    35%
  Mini-statements are next
  Money transfers and bill payments are lower
                                                       15
Special incentives to promote access?
Mixed Success
 Eg.,
  ‘Basic’ or simplified accounts? USA, UK, Canada,
   Sweden, India, Mexico, Pakistan…
     Commercial banks schemes seem to help access
     Regulations alone do not help
  Matched savings may work
     Require governments to make matching contributions to private
      savings, in some agreed proportion.
     But such schemes require subsidies.
     Only offered in Singapore in our sample
  Yet 22 countries offer tax incentives for savings
  Many governments prefer to forgo revenue through tax
   waivers instead of spending on subsidies                           16
  What Next?

 Focus in richer countries is exclusion and not access
    In USA, UK and Europe, access is 80% or higher
    Focus: converse concept of financial exclusion
    Eg in USA – racial or ethnic issues in exclusion – “redlining”

 There are costs of exclusion in rich countries too…
    Difficulties of making social transfer payments
    Eg unemployment and pension benefits

 Remedies such as First Accounts, CRA, Basic
  Banking?
    See if results above apply to richer countries too

                                                                      17
  What More?


 Questions today
    Access versus safe access?
    Can access be too easy?
 Back to the future: measures of
 overindebtedness?
   New efforts in Europe – eg mortgage debt
    exposure at household level
   Credit Card debt measures – Brazil, Mexico
                                                 18
Thank You


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