SEVENTY-SEVENTH INTERNATIONAL
ATLANTIC ECONOMIC CONFERENCE
MADRID 2-5 APRIL 2014
Asli Demirguc-Kunt
Director of Research
World Bank Group
Financial Inclusion
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
Why financial inclusion ?
• 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
3
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
Global views: Financial Development Barometer
What is the role of new technologies in
expanding access to finance?
What is the most effective policy to
improve access to finance among lowincome borrowers?
More state
banking, 8%
Not very
important
24%
Very
important
35%
More
microfinance,
8%
More
competition,
8%
Promote new
lending
technologies,
17%
Not sure
16%
Somewhat
important
25%
Financial
education,
32%
Better legal
framework
and credit
information,
27%
Source: Financial Development Barometer (poll of financial sector officials and experts from 21 developed and 54 developing
economies).
4
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
Defining financial inclusion
• 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
5
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
Defining financial inclusion
6
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
Measuring financial inclusion
• Globally, about 50 % of adults have a bank account
• The other 50 % (2.5 billion) remain “unbanked”
Adults with accounts at a formal financial institution
Source: Global Financial Inclusion (Global Findex) Database, worldbank.org/globalfindex7
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
Where do the unbanked live?
Source: Global Financial Inclusion (Global Findex) Database, worldbank.org/globalfindex8
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
Measuring financial inclusion
• Not all “unbanked” need financial services, but barriers play a key role
Not enough money
30
Family member already has account
25
Too expensive
23
Too far away
20
Lack of documentation
18
Lack of trust
13
Religious reasons
5
0
5
10
15
20
25
30
35
Non-account-holders reporting barrier as a reason for
not having an account (%)
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.
9
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
Correlates of financial inclusion
0%
-6%
-10%
-9%
-13%
-12%
Employed
-3%
Married
-5%
-2%
Log of household size
Age
effect on probability of owning an account (%)
2%
Out of workforce
7%
Unemployed
Rural
3%
0-8 yrs of education
Fourth 20%
Middle 20%
Second 20%
5%
Poorest 20%
10%
-7%
-8%
-15%
-16%
-20%
Source: Based on Allen, Demirguc-Kunt, and others (2012)
10
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
11
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
Financial inequality and economic inequality
Income inequality (Gini coefficient)
70
Haiti
60
50
40
Philippines
30
Sweden
20
0
5
10
15
account penetration in the richest 20% as a multiple of that in the poorest 20%
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.
12
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
Evidence on impacts of financial inclusion
• 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
13
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
Financial inclusion policy – overall findings from research
• 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
14
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
Financial inclusion policy – overall findings from research
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
average effect (all countries)
-0.6
effect at minimum financial development
-1.3
effect at minimum credit information
-2.8
effect at maximum government ownership
-3.1
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
Effect of bank mark-up (Lerner index) on probability of a
firm having access to finance
Source: Love and Martinez Peria 2012
15
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
Financial inclusion policy – overall findings from research
• Role in supporting information environment (standards for disclosure,
transparency, promoting credit bureaus, collateral registries)
80
73
% of firms with access to finance
Registry reformers
70
60
50
Non-reformers (matched by region and
income)
54
50
41
40
30
20
10
0
Pre-reform
Source: Love, Martínez Pería, and Singh 2013.
Post-reform
16
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
Promoting financial inclusion: focus areas
Promoting
financial
inclusion
I. Promise of
technology
II. Product design,
business models
III. Financial
capability
17
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
I. Promise of technology
• Technological innovations reduce transaction costs, increase financial security
• Scope for scaling up, illustrated e.g. by growth in phone subscriptions
125
World
High income
Middle income
75
Low income
50
25
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Subscriptions per 100 people
100
Source: World Development Indicators.
18
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
I. Promise of technology
Example: fingerprinting in Malawi (% of balances repaid on time)
100%
90%
91% 92%
88%
93%
98%
96%
89%
79%
80%
74%
70%
60%
Fingerprinted
50%
Control
40%
30%
26%
20%
Source:
Calculations based on
Giné, Goldberg, and
Yang (2012).
10%
0%
Worst
2nd quintile
3rd quintile
4th quintile
Best
19
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
I. Promise of technology
• 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.
20
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
II. Product design, business models
• Product design that addresses market failures, meets consumers’ needs and
overcomes behavioral problems can foster wider use of financial services
• Example 1: commitment accounts
30,000
25,000
0.45
Ordinary
account
Commitment
account
0.40
Ordinary
account
0.35
Commitment
account
0.30
acres
Local currency (Malawi Kwacha, MK)
35,000
20,000
0.25
0.20
15,000
0.15
10,000
0.10
5,000
0.05
0
0.00
Total value of
inputs
Value of crop
output
Note: The exchange rate was MK145/USD during the study period.
Source: Brune, Giné, and others (2011).
Farm profit
Land under cultivation
21
Measurement and Impact
Public Policy
Focus Areas
Main Messages
II. Product design, business models
• Example 2: index insurance
take-up of loans (% of farmers)
Intro
35
33
30
25
20
20
15
10
5
0
loans without rainfall
insurance
loans with rainfall
insurance
Source: Giné
and Yang, 2009
• 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
22
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
II. Product design, business models
Banco Azteca opening
9.0
8.8
14.5
8.6
14.0
8.4
13.5
8.2
13.0
8.0
12.5
7.8
12.0
7.6
% of individuals who are informal business
owners (municipalities with Azteca)
15.0
2000-II
2000-III
2000-IV
2001-I
2001-II
2001-III
2001-IV
2002-I
2002-II
2002-III
2002-IV
2003-I
2003-II
2003-III
2003-IV
2004-I
2004-II
2004-III
2004-IV
% of individuals who are informal business
owners (municipalities without Azteca)
• Example of an innovative business model: Banco Azteca, Mexico
• Improved access can be achieved by leveraging existing relationships
Municipalities without Azteca
Source: Bruhn and Love (forthcoming)
Municipalities with Azteca
23
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
III. Financial capability
•
•
•
•
•
•
•
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
24
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
III. Financial capability
•
Financial literacy messages seem to have a real-world effect…
35
Treatment
% of respondents
30
31
Control
26
25
19
20
15
15
10
5
0
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?
Source: Berg
and Zia (2013)
… but the effect is short-lived – need to repeat / reinforce
25
Intro
Measurement and Impact
Public Policy
Focus Areas
Main Messages
Main messages
• 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.
26