Global Financial Development Report 2014 - Financial Inclusion
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Global Financial Development Report 2014 - Financial Inclusion

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As mobile banking and other technological innovations fuel the expansion of financial services in many developing countries, a new World Bank Group report urges policy makers to focus on products......

As mobile banking and other technological innovations fuel the expansion of financial services in many developing countries, a new World Bank Group report urges policy makers to focus on products that benefit the poor, women and other vulnerable groups the most.

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  • Financial inclusion has moved up the policy agenda. It has become a subject of considerable interest in international forums, such as the G-20. At the country level, about two-thirds of regulatory and supervisory agencies are now charged with enhancing financial inclusion. In recent years, 52 countries have committed to formal targets for financial inclusion, and have formulated explicit financial inclusion strategies. During the recent Annual Meetings, the World Bank Group President Jim Yong Kim announced an ambitious target of universal financial access by the year 2020.The increased emphasis on financial inclusion reflects a growing realization of its potentially transformative power to accelerate development gains. Inclusive financial systems provide individuals and firms with greater access to resources to meet their financial needs, such as saving for retirement, investing in education, capitalizing on business opportunities, and confronting shocks. Financial inclusion is important for economic development, because it enables poor people to save and borrow, allowing them to build assets, invest in education and entrepreneurial ventures, and thus improve their livelihoods. It plays a critical part in sustainable development, reducing poverty, boosting shared prosperity.We can now illustrate this better with improved theoretical models, which illustrate how financial market frictions generate poverty traps and slower growth.Moreover, we now have much more empirical evidence on financial inclusion and its effects around the world.
  • Financial inclusion has moved up the policy agenda. It has become a subject of considerable interest in international forums, such as the G-20. At the country level, about two-thirds of regulatory and supervisory agencies are now charged with enhancing financial inclusion. In recent years, 52 countries have committed to formal targets for financial inclusion, and have formulated explicit financial inclusion strategies. During the recent Annual Meetings, the World Bank Group President Jim Yong Kim announced an ambitious target of universal financial access by the year 2020.The increased emphasis on financial inclusion reflects a growing realization of its potentially transformative power to accelerate development gains. Inclusive financial systems provide individuals and firms with greater access to resources to meet their financial needs, such as saving for retirement, investing in education, capitalizing on business opportunities, and confronting shocks. Financial inclusion is important for economic development, because it enables poor people to save and borrow, allowing them to build assets, invest in education and entrepreneurial ventures, and thus improve their livelihoods. It plays a critical part in sustainable development, reducing poverty, boosting shared prosperity.We can now illustrate this better with improved theoretical models, which illustrate how financial market frictions generate poverty traps and slower growth.Moreover, we now have much more empirical evidence on financial inclusion and its effects around the world.
  • Financial inclusion has moved up the policy agenda. It has become a subject of considerable interest in international forums, such as the G-20. At the country level, about two-thirds of regulatory and supervisory agencies are now charged with enhancing financial inclusion. In recent years, 52 countries have committed to formal targets for financial inclusion, and have formulated explicit financial inclusion strategies. During the recent Annual Meetings, the World Bank Group President Jim Yong Kim announced an ambitious target of universal financial access by the year 2020.The increased emphasis on financial inclusion reflects a growing realization of its potentially transformative power to accelerate development gains. Inclusive financial systems provide individuals and firms with greater access to resources to meet their financial needs, such as saving for retirement, investing in education, capitalizing on business opportunities, and confronting shocks. Financial inclusion is important for economic development, because it enables poor people to save and borrow, allowing them to build assets, invest in education and entrepreneurial ventures, and thus improve their livelihoods. It plays a critical part in sustainable development, reducing poverty, boosting shared prosperity.We can now illustrate this better with improved theoretical models, which illustrate how financial market frictions generate poverty traps and slower growth.Moreover, we now have much more empirical evidence on financial inclusion and its effects around the world.
  • Financial inclusion has moved up the policy agenda. It has become a subject of considerable interest in international forums, such as the G-20. At the country level, about two-thirds of regulatory and supervisory agencies are now charged with enhancing financial inclusion. In recent years, 52 countries have committed to formal targets for financial inclusion, and have formulated explicit financial inclusion strategies. During the recent Annual Meetings, the World Bank Group President Jim Yong Kim announced an ambitious target of universal financial access by the year 2020.The increased emphasis on financial inclusion reflects a growing realization of its potentially transformative power to accelerate development gains. Inclusive financial systems provide individuals and firms with greater access to resources to meet their financial needs, such as saving for retirement, investing in education, capitalizing on business opportunities, and confronting shocks. Financial inclusion is important for economic development, because it enables poor people to save and borrow, allowing them to build assets, invest in education and entrepreneurial ventures, and thus improve their livelihoods. It plays a critical part in sustainable development, reducing poverty, boosting shared prosperity.We can now illustrate this better with improved theoretical models, which illustrate how financial market frictions generate poverty traps and slower growth.Moreover, we now have much more empirical evidence on financial inclusion and its effects around the world.
  • The left-hand donut chart…. under the “new technologies”, the survey explicitly mentioned mobile banking and biometric borrower identification The right-hand donut chart…. - the “more competition” category combines “policies promoting competition from foreign banks” and “policies promoting competition from domestic banks”- the “better legal framework and credit information category” combines “better legal framework” and “policies to improve credit information”
  • The left-hand donut chart…. under the “new technologies”, the survey explicitly mentioned mobile banking and biometric borrower identification The right-hand donut chart…. - the “more competition” category combines “policies promoting competition from foreign banks” and “policies promoting competition from domestic banks”- the “better legal framework and credit information category” combines “better legal framework” and “policies to improve credit information”
  • The left-hand donut chart…. under the “new technologies”, the survey explicitly mentioned mobile banking and biometric borrower identification The right-hand donut chart…. - the “more competition” category combines “policies promoting competition from foreign banks” and “policies promoting competition from domestic banks”- the “better legal framework and credit information category” combines “better legal framework” and “policies to improve credit information”
  • The left-hand donut chart…. under the “new technologies”, the survey explicitly mentioned mobile banking and biometric borrower identification The right-hand donut chart…. - the “more competition” category combines “policies promoting competition from foreign banks” and “policies promoting competition from domestic banks”- the “better legal framework and credit information category” combines “better legal framework” and “policies to improve credit information”
  • The left-hand donut chart…. under the “new technologies”, the survey explicitly mentioned mobile banking and biometric borrower identification The right-hand donut chart…. - the “more competition” category combines “policies promoting competition from foreign banks” and “policies promoting competition from domestic banks”- the “better legal framework and credit information category” combines “better legal framework” and “policies to improve credit information”
  • The left-hand donut chart…. under the “new technologies”, the survey explicitly mentioned mobile banking and biometric borrower identification The right-hand donut chart…. - the “more competition” category combines “policies promoting competition from foreign banks” and “policies promoting competition from domestic banks”- the “better legal framework and credit information category” combines “better legal framework” and “policies to improve credit information”
  • The left-hand donut chart…. under the “new technologies”, the survey explicitly mentioned mobile banking and biometric borrower identification The right-hand donut chart…. - the “more competition” category combines “policies promoting competition from foreign banks” and “policies promoting competition from domestic banks”- the “better legal framework and credit information category” combines “better legal framework” and “policies to improve credit information”
  • Financial inclusion = share of individuals and firms that use financial services… does not mean finance for all at all costsSome have no demand or need for financial servicesBut for many, the use of financial services is constrained by market and government failuresThat is why it is important to measure not only actual use of financial services, but also the barriers to accessExamples of marketfailures:asymmetric information, consumers' and providers’ departures from rationality,…This chart illustrates the distinction between the use of and access to financial services. Actual use is easier to observe empirically. Some individuals and firms may have access to, but choose not to use some financial services. Some may have indirect access, for example, by being able to use someone else’s bank account. Others may not use financial services because they do not need them or because of cultural or religious reasons. The nonusers include individuals who prefer to deal in cash and firms without promising investment projects. From a policy maker’s viewpoint, nonusers do not constitute an issue because their nonuse is driven by lack of demand. However, financial literacy can still improve awareness and generate demand. Also, nonuse for religious reasons can be addressed by allowing the entry of financial institutions that offer, for instance, Shari’a-compliant financial services.Some customers may be involuntarily excluded from the use of financial services. This is illustrated by the “involuntary exclusion” box in figure 1.1. Several groups belong to this category. One notable group consists of individuals and firms that are unbankable from the perspective of commercial financial institutions and markets because they have insufficient income or represent an excessive lending risk. In this case, lack of use may not be caused by market or government failure. Other groups in this category may not have access because of discrimination, lack of information, shortcomings in contract enforcement, a poor information environment, shortcomings in product features that may make a product inappropriate for some customer groups, price barriers because of market imperfections, ill-informed regulations, or the political capture of regulators. If high prices exclude large parts of the population, this may be a symptom of underdeveloped physical or institutional infrastructure, regulatory barriers, or lack of competition. Financial exclusion deserves policy action if it is driven by barriers that restrict access by individuals for whom the marginal benefit of using a financial service would otherwise be greater than the marginal cost of providing the service. In considering involuntarily excluded users, one must distinguish between those individuals facing price barriers and financial exclusion arising because of high idiosyncratic risk or poor project quality (those people identified as group #3 in the figure) and those individuals facing such barriers because of market imperfections such as asymmetric information (group #4 in the figure).
  • Mention that 22 % of adults made new savings/deposits with financial institution, and 9 % received new loans in 2011.Simply having an account does not guarantee that it will be regularly used. It is possible to create many new accounts but their real-world impact is small if they simply lie dormant. In the report, we also show a different map, illustrating frequency of use around the world.
  • Mention that 22 % of adults made new savings/deposits with financial institution, and 9 % received new loans in 2011.Simply having an account does not guarantee that it will be regularly used. It is possible to create many new accounts but their real-world impact is small if they simply lie dormant. In the report, we also show a different map, illustrating frequency of use around the world.
  • What are the (self-reported) reasons for not having a bank account? As illustrated in this chart, the reason most frequently cited for not having a formal account is the lack of enough money to have and use one. This is the response given by 65 percent of adults who are without a formal account; 30 percent cite this as the only reason. The next most commonly cited reasons for not having an account are the expense of banks or accounts and the fact that another family member already has an account. The other reasons reported are the excessive distance of banks, a lack of the necessary documentation, a lack of trust in banks, and religious reasons. Twenty percent of unbanked respondents cited distance as a key reason as to why they did not have a formal account. The frequency with which this barrier was cited increases sharply as one moves down the income level of countries, from 10 percent in high-income economies to 28 percent in low-income economies. Among developing economies, there is a significant relationship between distance as a self-reported barrier and objective measures of providers such as bank branch penetration. To illustrate this point: Tanzania has a large share of non–account-holders who cite distance as a reason they do not have an account—47 percent—and also ranks near the bottom in bank branch penetration, averaging less than 0.5 bank branches per 1,000 square kilometers.
  • What are the (self-reported) reasons for not having a bank account? As illustrated in this chart, the reason most frequently cited for not having a formal account is the lack of enough money to have and use one. This is the response given by 65 percent of adults who are without a formal account; 30 percent cite this as the only reason. The next most commonly cited reasons for not having an account are the expense of banks or accounts and the fact that another family member already has an account. The other reasons reported are the excessive distance of banks, a lack of the necessary documentation, a lack of trust in banks, and religious reasons. Twenty percent of unbanked respondents cited distance as a key reason as to why they did not have a formal account. The frequency with which this barrier was cited increases sharply as one moves down the income level of countries, from 10 percent in high-income economies to 28 percent in low-income economies. Among developing economies, there is a significant relationship between distance as a self-reported barrier and objective measures of providers such as bank branch penetration. To illustrate this point: Tanzania has a large share of non–account-holders who cite distance as a reason they do not have an account—47 percent—and also ranks near the bottom in bank branch penetration, averaging less than 0.5 bank branches per 1,000 square kilometers.
  • What are the (self-reported) reasons for not having a bank account? As illustrated in this chart, the reason most frequently cited for not having a formal account is the lack of enough money to have and use one. This is the response given by 65 percent of adults who are without a formal account; 30 percent cite this as the only reason. The next most commonly cited reasons for not having an account are the expense of banks or accounts and the fact that another family member already has an account. The other reasons reported are the excessive distance of banks, a lack of the necessary documentation, a lack of trust in banks, and religious reasons. Twenty percent of unbanked respondents cited distance as a key reason as to why they did not have a formal account. The frequency with which this barrier was cited increases sharply as one moves down the income level of countries, from 10 percent in high-income economies to 28 percent in low-income economies. Among developing economies, there is a significant relationship between distance as a self-reported barrier and objective measures of providers such as bank branch penetration. To illustrate this point: Tanzania has a large share of non–account-holders who cite distance as a reason they do not have an account—47 percent—and also ranks near the bottom in bank branch penetration, averaging less than 0.5 bank branches per 1,000 square kilometers.
  • What are the (self-reported) reasons for not having a bank account? As illustrated in this chart, the reason most frequently cited for not having a formal account is the lack of enough money to have and use one. This is the response given by 65 percent of adults who are without a formal account; 30 percent cite this as the only reason. The next most commonly cited reasons for not having an account are the expense of banks or accounts and the fact that another family member already has an account. The other reasons reported are the excessive distance of banks, a lack of the necessary documentation, a lack of trust in banks, and religious reasons. Twenty percent of unbanked respondents cited distance as a key reason as to why they did not have a formal account. The frequency with which this barrier was cited increases sharply as one moves down the income level of countries, from 10 percent in high-income economies to 28 percent in low-income economies. Among developing economies, there is a significant relationship between distance as a self-reported barrier and objective measures of providers such as bank branch penetration. To illustrate this point: Tanzania has a large share of non–account-holders who cite distance as a reason they do not have an account—47 percent—and also ranks near the bottom in bank branch penetration, averaging less than 0.5 bank branches per 1,000 square kilometers.
  • What are the (self-reported) reasons for not having a bank account? As illustrated in this chart, the reason most frequently cited for not having a formal account is the lack of enough money to have and use one. This is the response given by 65 percent of adults who are without a formal account; 30 percent cite this as the only reason. The next most commonly cited reasons for not having an account are the expense of banks or accounts and the fact that another family member already has an account. The other reasons reported are the excessive distance of banks, a lack of the necessary documentation, a lack of trust in banks, and religious reasons. Twenty percent of unbanked respondents cited distance as a key reason as to why they did not have a formal account. The frequency with which this barrier was cited increases sharply as one moves down the income level of countries, from 10 percent in high-income economies to 28 percent in low-income economies. Among developing economies, there is a significant relationship between distance as a self-reported barrier and objective measures of providers such as bank branch penetration. To illustrate this point: Tanzania has a large share of non–account-holders who cite distance as a reason they do not have an account—47 percent—and also ranks near the bottom in bank branch penetration, averaging less than 0.5 bank branches per 1,000 square kilometers.
  • What can data on some 124,000 people tell us about the drivers of financial inclusion? The massive dataset underlying the Global Findex database provides a unique source of information on what drives financial inclusion around the world. Allen, Demirgüç-Kunt, and others (2012) subject the dataset to a battery of statistical tests to address the question of what drives financial inclusion. The results are illustrated by this chart, which shows results from a probit regression of a financial inclusion indicator on country fixed effects and a set of individual characteristics, for 124,334 adults (15 years and older) covered by the Global Findex database in 2011. The analysis considers a host of other country-level characteristics and policies as potential determinants of account use. Theanalysis focuses on three indicators of account use: (1) ownership of an account, (2) use of the account to save, and (3) frequent use of the account, defined as three or more withdrawals per month. We find that these indicators are associated with a better enabling environment for accessing financial services, such as lower banking costs, greater proximity to financial providers, and fewer documentation requirements to open an account. People who are poor, young, unemployed, out of the workforce, less well educated, or who live in rural areas are relatively less likely to have an account. Policies targeted at enhancing financial inclusion—such as offering basic or low-fee accounts, granting exemptions from onerous documentation requirements, allowing correspondent banking, and using bank accounts to make government payments—are especially effective among those people who are most likely to be excluded: the poor and rural residents.Note: the financial inclusion indicator is a 0/1 variable indicating whether a person had an account at a formal financial institution in 2011. For definitions, data sources, standard errors of the parameter estimates, additional estimation methods, and additional regressions for other dependent variables (savings and the frequency of use of accounts), see Allen, Demirgüç-Kunt, and others (2012).
  • What can data on some 124,000 people tell us about the drivers of financial inclusion? The massive dataset underlying the Global Findex database provides a unique source of information on what drives financial inclusion around the world. Allen, Demirgüç-Kunt, and others (2012) subject the dataset to a battery of statistical tests to address the question of what drives financial inclusion. The results are illustrated by this chart, which shows results from a probit regression of a financial inclusion indicator on country fixed effects and a set of individual characteristics, for 124,334 adults (15 years and older) covered by the Global Findex database in 2011. The analysis considers a host of other country-level characteristics and policies as potential determinants of account use. Theanalysis focuses on three indicators of account use: (1) ownership of an account, (2) use of the account to save, and (3) frequent use of the account, defined as three or more withdrawals per month. We find that these indicators are associated with a better enabling environment for accessing financial services, such as lower banking costs, greater proximity to financial providers, and fewer documentation requirements to open an account. People who are poor, young, unemployed, out of the workforce, less well educated, or who live in rural areas are relatively less likely to have an account. Policies targeted at enhancing financial inclusion—such as offering basic or low-fee accounts, granting exemptions from onerous documentation requirements, allowing correspondent banking, and using bank accounts to make government payments—are especially effective among those people who are most likely to be excluded: the poor and rural residents.Note: the financial inclusion indicator is a 0/1 variable indicating whether a person had an account at a formal financial institution in 2011. For definitions, data sources, standard errors of the parameter estimates, additional estimation methods, and additional regressions for other dependent variables (savings and the frequency of use of accounts), see Allen, Demirgüç-Kunt, and others (2012).
  • What can data on some 124,000 people tell us about the drivers of financial inclusion? The massive dataset underlying the Global Findex database provides a unique source of information on what drives financial inclusion around the world. Allen, Demirgüç-Kunt, and others (2012) subject the dataset to a battery of statistical tests to address the question of what drives financial inclusion. The results are illustrated by this chart, which shows results from a probit regression of a financial inclusion indicator on country fixed effects and a set of individual characteristics, for 124,334 adults (15 years and older) covered by the Global Findex database in 2011. The analysis considers a host of other country-level characteristics and policies as potential determinants of account use. Theanalysis focuses on three indicators of account use: (1) ownership of an account, (2) use of the account to save, and (3) frequent use of the account, defined as three or more withdrawals per month. We find that these indicators are associated with a better enabling environment for accessing financial services, such as lower banking costs, greater proximity to financial providers, and fewer documentation requirements to open an account. People who are poor, young, unemployed, out of the workforce, less well educated, or who live in rural areas are relatively less likely to have an account. Policies targeted at enhancing financial inclusion—such as offering basic or low-fee accounts, granting exemptions from onerous documentation requirements, allowing correspondent banking, and using bank accounts to make government payments—are especially effective among those people who are most likely to be excluded: the poor and rural residents.Note: the financial inclusion indicator is a 0/1 variable indicating whether a person had an account at a formal financial institution in 2011. For definitions, data sources, standard errors of the parameter estimates, additional estimation methods, and additional regressions for other dependent variables (savings and the frequency of use of accounts), see Allen, Demirgüç-Kunt, and others (2012).
  • What can data on some 124,000 people tell us about the drivers of financial inclusion? The massive dataset underlying the Global Findex database provides a unique source of information on what drives financial inclusion around the world. Allen, Demirgüç-Kunt, and others (2012) subject the dataset to a battery of statistical tests to address the question of what drives financial inclusion. The results are illustrated by this chart, which shows results from a probit regression of a financial inclusion indicator on country fixed effects and a set of individual characteristics, for 124,334 adults (15 years and older) covered by the Global Findex database in 2011. The analysis considers a host of other country-level characteristics and policies as potential determinants of account use. Theanalysis focuses on three indicators of account use: (1) ownership of an account, (2) use of the account to save, and (3) frequent use of the account, defined as three or more withdrawals per month. We find that these indicators are associated with a better enabling environment for accessing financial services, such as lower banking costs, greater proximity to financial providers, and fewer documentation requirements to open an account. People who are poor, young, unemployed, out of the workforce, less well educated, or who live in rural areas are relatively less likely to have an account. Policies targeted at enhancing financial inclusion—such as offering basic or low-fee accounts, granting exemptions from onerous documentation requirements, allowing correspondent banking, and using bank accounts to make government payments—are especially effective among those people who are most likely to be excluded: the poor and rural residents.Note: the financial inclusion indicator is a 0/1 variable indicating whether a person had an account at a formal financial institution in 2011. For definitions, data sources, standard errors of the parameter estimates, additional estimation methods, and additional regressions for other dependent variables (savings and the frequency of use of accounts), see Allen, Demirgüç-Kunt, and others (2012).
  • What can we say about the linkage between financial inclusion and shared prosperity?We need more data to be able to come up with very strong conclusion, but the early calculations illustrated here suggest that there is a strong correlation between inequality in the use of formal accounts and general income inequality as measured by the Gini coefficient (with higher values indicating higher income inequality). Let me illustrate this by the contrasting situations in two countries. In Sweden, which has one of the lowest Gini coefficients (25), account penetration in the poorest income quintile is essentially the same as in the richest (resulting in a value of close to 1 on the vertical axis). In Paraguay, at the other end of the spectrum with a Gini coefficient of 52, there is a large gap in account penetration: only 4 percent of adults in the poorest quintile have a formal account, compared with 51 percent in the richest (resulting in a value of about 13 on the vertical axis).
  • What can we say about the linkage between financial inclusion and shared prosperity?We need more data to be able to come up with very strong conclusion, but the early calculations illustrated here suggest that there is a strong correlation between inequality in the use of formal accounts and general income inequality as measured by the Gini coefficient (with higher values indicating higher income inequality). Let me illustrate this by the contrasting situations in two countries. In Sweden, which has one of the lowest Gini coefficients (25), account penetration in the poorest income quintile is essentially the same as in the richest (resulting in a value of close to 1 on the vertical axis). In Paraguay, at the other end of the spectrum with a Gini coefficient of 52, there is a large gap in account penetration: only 4 percent of adults in the poorest quintile have a formal account, compared with 51 percent in the richest (resulting in a value of about 13 on the vertical axis).
  • What can we say about the linkage between financial inclusion and shared prosperity?We need more data to be able to come up with very strong conclusion, but the early calculations illustrated here suggest that there is a strong correlation between inequality in the use of formal accounts and general income inequality as measured by the Gini coefficient (with higher values indicating higher income inequality). Let me illustrate this by the contrasting situations in two countries. In Sweden, which has one of the lowest Gini coefficients (25), account penetration in the poorest income quintile is essentially the same as in the richest (resulting in a value of close to 1 on the vertical axis). In Paraguay, at the other end of the spectrum with a Gini coefficient of 52, there is a large gap in account penetration: only 4 percent of adults in the poorest quintile have a formal account, compared with 51 percent in the richest (resulting in a value of about 13 on the vertical axis).
  • What can we say about the linkage between financial inclusion and shared prosperity?We need more data to be able to come up with very strong conclusion, but the early calculations illustrated here suggest that there is a strong correlation between inequality in the use of formal accounts and general income inequality as measured by the Gini coefficient (with higher values indicating higher income inequality). Let me illustrate this by the contrasting situations in two countries. In Sweden, which has one of the lowest Gini coefficients (25), account penetration in the poorest income quintile is essentially the same as in the richest (resulting in a value of close to 1 on the vertical axis). In Paraguay, at the other end of the spectrum with a Gini coefficient of 52, there is a large gap in account penetration: only 4 percent of adults in the poorest quintile have a formal account, compared with 51 percent in the richest (resulting in a value of about 13 on the vertical axis).
  • What can we say about the linkage between financial inclusion and shared prosperity?We need more data to be able to come up with very strong conclusion, but the early calculations illustrated here suggest that there is a strong correlation between inequality in the use of formal accounts and general income inequality as measured by the Gini coefficient (with higher values indicating higher income inequality). Let me illustrate this by the contrasting situations in two countries. In Sweden, which has one of the lowest Gini coefficients (25), account penetration in the poorest income quintile is essentially the same as in the richest (resulting in a value of close to 1 on the vertical axis). In Paraguay, at the other end of the spectrum with a Gini coefficient of 52, there is a large gap in account penetration: only 4 percent of adults in the poorest quintile have a formal account, compared with 51 percent in the richest (resulting in a value of about 13 on the vertical axis).
  • For the microenterprises and individuals, the evidence comes from dozens of microcredit experiments as well as from other cross-country research. See for example Roodman (2011) and Bauchet and others (2011)
  • For the microenterprises and individuals, the evidence comes from dozens of microcredit experiments as well as from other cross-country research. See for example Roodman (2011) and Bauchet and others (2011)
  • For the microenterprises and individuals, the evidence comes from dozens of microcredit experiments as well as from other cross-country research. See for example Roodman (2011) and Bauchet and others (2011)
  • For the microenterprises and individuals, the evidence comes from dozens of microcredit experiments as well as from other cross-country research. See for example Roodman (2011) and Bauchet and others (2011)
  • For the microenterprises and individuals, the evidence comes from dozens of microcredit experiments as well as from other cross-country research. See for example Roodman (2011) and Bauchet and others (2011)
  • The overall message from research is rather clear: 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.The government has an important role in creating legal and regulatory framework. This means, for example, protecting creditor rights, regulating business conduct, overseeing recourse mechanisms to protect consumers.
  • The overall message from research is rather clear: 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.The government has an important role in creating legal and regulatory framework. This means, for example, protecting creditor rights, regulating business conduct, overseeing recourse mechanisms to protect consumers.
  • The overall message from research is rather clear: 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.The government has an important role in creating legal and regulatory framework. This means, for example, protecting creditor rights, regulating business conduct, overseeing recourse mechanisms to protect consumers.
  • The overall message from research is rather clear: 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.The government has an important role in creating legal and regulatory framework. This means, for example, protecting creditor rights, regulating business conduct, overseeing recourse mechanisms to protect consumers.
  • The overall message from research is rather clear: 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.The government has an important role in creating legal and regulatory framework. This means, for example, protecting creditor rights, regulating business conduct, overseeing recourse mechanisms to protect consumers.
  • The chart shows new evidence on the link between bank competition and firms’ access to finance, combining multi-year firm-level surveys with panel country-level data on bank competition for 53 countries. Specifically, the chart shows the slope coefficient from a probit regression, explaining the probability of a firm having access to finance (a bank loan, line of credit, or overdraft) as a function of mark-up in the banking sector (approximated by Lerner index), controlling for other factors. Higher Lerner index means lower competition, so a negative estimate in this chart means that lower competition is associated with lower firm access to finance.This negative effect gets stronger with lower financial development, worse credit information, and higher share of government banks. The chart illustrates this by showing the slope coefficient at the level corresponding to the least-developed financial system (measured by private sector credit to GDP), the lowest availability of credit information (0 in “Doing Business”), and the highest degree of government ownership (100 percent for fully government-owned banking system), respectively.Notes:Access to finance … dummy variable equal to 1 if the firm has access to bank finance (loan, overdraft or line of credit) from World Bank Enterprise Surveys. Financial development … domestic credit to the private sector (fraction of GDP) from WDI. Credit information index … depth of credit information index is a measure of the coverage, scope and accessibility of credit information available through either a public credit registry or a private credit bureau, both by law, and in practice. (0-6) obtained from Doing Business Indicators. Share of government-owned banks fraction of banking system's assets in banks that are 50% or more government-owned from the World Bank Regulation and Supervision Survey.
  • The chart shows new evidence on the link between bank competition and firms’ access to finance, combining multi-year firm-level surveys with panel country-level data on bank competition for 53 countries. Specifically, the chart shows the slope coefficient from a probit regression, explaining the probability of a firm having access to finance (a bank loan, line of credit, or overdraft) as a function of mark-up in the banking sector (approximated by Lerner index), controlling for other factors. Higher Lerner index means lower competition, so a negative estimate in this chart means that lower competition is associated with lower firm access to finance.This negative effect gets stronger with lower financial development, worse credit information, and higher share of government banks. The chart illustrates this by showing the slope coefficient at the level corresponding to the least-developed financial system (measured by private sector credit to GDP), the lowest availability of credit information (0 in “Doing Business”), and the highest degree of government ownership (100 percent for fully government-owned banking system), respectively.Notes:Access to finance … dummy variable equal to 1 if the firm has access to bank finance (loan, overdraft or line of credit) from World Bank Enterprise Surveys. Financial development … domestic credit to the private sector (fraction of GDP) from WDI. Credit information index … depth of credit information index is a measure of the coverage, scope and accessibility of credit information available through either a public credit registry or a private credit bureau, both by law, and in practice. (0-6) obtained from Doing Business Indicators. Share of government-owned banks fraction of banking system's assets in banks that are 50% or more government-owned from the World Bank Regulation and Supervision Survey.
  • The chart shows new evidence on the link between bank competition and firms’ access to finance, combining multi-year firm-level surveys with panel country-level data on bank competition for 53 countries. Specifically, the chart shows the slope coefficient from a probit regression, explaining the probability of a firm having access to finance (a bank loan, line of credit, or overdraft) as a function of mark-up in the banking sector (approximated by Lerner index), controlling for other factors. Higher Lerner index means lower competition, so a negative estimate in this chart means that lower competition is associated with lower firm access to finance.This negative effect gets stronger with lower financial development, worse credit information, and higher share of government banks. The chart illustrates this by showing the slope coefficient at the level corresponding to the least-developed financial system (measured by private sector credit to GDP), the lowest availability of credit information (0 in “Doing Business”), and the highest degree of government ownership (100 percent for fully government-owned banking system), respectively.Notes:Access to finance … dummy variable equal to 1 if the firm has access to bank finance (loan, overdraft or line of credit) from World Bank Enterprise Surveys. Financial development … domestic credit to the private sector (fraction of GDP) from WDI. Credit information index … depth of credit information index is a measure of the coverage, scope and accessibility of credit information available through either a public credit registry or a private credit bureau, both by law, and in practice. (0-6) obtained from Doing Business Indicators. Share of government-owned banks fraction of banking system's assets in banks that are 50% or more government-owned from the World Bank Regulation and Supervision Survey.
  • The chart shows new evidence on the link between bank competition and firms’ access to finance, combining multi-year firm-level surveys with panel country-level data on bank competition for 53 countries. Specifically, the chart shows the slope coefficient from a probit regression, explaining the probability of a firm having access to finance (a bank loan, line of credit, or overdraft) as a function of mark-up in the banking sector (approximated by Lerner index), controlling for other factors. Higher Lerner index means lower competition, so a negative estimate in this chart means that lower competition is associated with lower firm access to finance.This negative effect gets stronger with lower financial development, worse credit information, and higher share of government banks. The chart illustrates this by showing the slope coefficient at the level corresponding to the least-developed financial system (measured by private sector credit to GDP), the lowest availability of credit information (0 in “Doing Business”), and the highest degree of government ownership (100 percent for fully government-owned banking system), respectively.Notes:Access to finance … dummy variable equal to 1 if the firm has access to bank finance (loan, overdraft or line of credit) from World Bank Enterprise Surveys. Financial development … domestic credit to the private sector (fraction of GDP) from WDI. Credit information index … depth of credit information index is a measure of the coverage, scope and accessibility of credit information available through either a public credit registry or a private credit bureau, both by law, and in practice. (0-6) obtained from Doing Business Indicators. Share of government-owned banks fraction of banking system's assets in banks that are 50% or more government-owned from the World Bank Regulation and Supervision Survey.
  • Note: Based on firm-level surveys in 73 countries, the study compares the access of firms to credit in seven countries that have introduced collateral registries for movable assets against the access of firms in a sample of countries matched by region and income per capita.Sources: Doing Business, Enterprise Surveys, calculations by Love, MartínezPería, and Singh (2013).
  • Note: Based on firm-level surveys in 73 countries, the study compares the access of firms to credit in seven countries that have introduced collateral registries for movable assets against the access of firms in a sample of countries matched by region and income per capita.Sources: Doing Business, Enterprise Surveys, calculations by Love, MartínezPería, and Singh (2013).
  • Against this broader policy context, let me now focus on three areas: (1) the potential of new technology to increase financial inclusion; (2) the role of product design and business models; and (3) the role of financial literacy, financial capability, and business training. The report’s emphasis of these topicsreflects the impact these areas can have on financial inclusion and shared prosperity, as well as the fact that there is new evidence to highlight.Let me also add that these three areas can reinforce each other. For example, new technology can be used not only to boost financial inclusion, but also to improve product design and strengthen financial capability (as examined in the studies on the use of text messages to promote savings behavior that are referenced in chapter 2 of the report).
  • Against this broader policy context, let me now focus on three areas: (1) the potential of new technology to increase financial inclusion; (2) the role of product design and business models; and (3) the role of financial literacy, financial capability, and business training. The report’s emphasis of these topicsreflects the impact these areas can have on financial inclusion and shared prosperity, as well as the fact that there is new evidence to highlight.Let me also add that these three areas can reinforce each other. For example, new technology can be used not only to boost financial inclusion, but also to improve product design and strengthen financial capability (as examined in the studies on the use of text messages to promote savings behavior that are referenced in chapter 2 of the report).
  • Against this broader policy context, let me now focus on three areas: (1) the potential of new technology to increase financial inclusion; (2) the role of product design and business models; and (3) the role of financial literacy, financial capability, and business training. The report’s emphasis of these topicsreflects the impact these areas can have on financial inclusion and shared prosperity, as well as the fact that there is new evidence to highlight.Let me also add that these three areas can reinforce each other. For example, new technology can be used not only to boost financial inclusion, but also to improve product design and strengthen financial capability (as examined in the studies on the use of text messages to promote savings behavior that are referenced in chapter 2 of the report).
  • Against this broader policy context, let me now focus on three areas: (1) the potential of new technology to increase financial inclusion; (2) the role of product design and business models; and (3) the role of financial literacy, financial capability, and business training. The report’s emphasis of these topicsreflects the impact these areas can have on financial inclusion and shared prosperity, as well as the fact that there is new evidence to highlight.Let me also add that these three areas can reinforce each other. For example, new technology can be used not only to boost financial inclusion, but also to improve product design and strengthen financial capability (as examined in the studies on the use of text messages to promote savings behavior that are referenced in chapter 2 of the report).
  • Examples of technological innovations: mobile payments, mobile money, use of biometric information for borrower identificationNote: by “biometric information” we mean fingerprinting, iris scans, and other techniques. These are now increasingly used for example for borrower identification.
  • Examples of technological innovations: mobile payments, mobile money, use of biometric information for borrower identificationNote: by “biometric information” we mean fingerprinting, iris scans, and other techniques. These are now increasingly used for example for borrower identification.
  • Examples of technological innovations: mobile payments, mobile money, use of biometric information for borrower identificationNote: by “biometric information” we mean fingerprinting, iris scans, and other techniques. These are now increasingly used for example for borrower identification.
  • Recent innovations in technologyMobile payments, mobile bankingBorrower identification using biometric data (fingerprinting, iris scans, …)… can help reduce transaction costs while increasing financial security as demonstrated in the chart.In the experiment, farmers in Malawi who applied for agricultural input loans to grow paprika were randomly assigned to either a control group, or a treatment group where each member had a fingerprint collected as part of the loan application.The chart shows the repayment rates among fingerprinted (dark blue) and control (light blue) groups by quartiles of the ex-ante probability of default. Individuals in the "worse" quintile are those with highest probability of default, and those for whom fingerprinting had the largest (and statistically significant) effect.The studyfinds that fingerprinting led to substantially higher repayment rates for the subgroup of borrowers with the highest ex ante default risk. This suggests that fingerprinting, by improving personal identification, enhanced the credibility of the lender’s dynamic incentive, that is, the threat of denying credit based on earlier repayment performance. The impact of fingerprinting on repayment in the highest default risk subgroup (20 percent of borrowers) is large. By contrast, fingerprinting had no impact on repayment among farmers with low ex ante default risk.
  • Recent innovations in technologyMobile payments, mobile bankingBorrower identification using biometric data (fingerprinting, iris scans, …)… can help reduce transaction costs while increasing financial security as demonstrated in the chart.In the experiment, farmers in Malawi who applied for agricultural input loans to grow paprika were randomly assigned to either a control group, or a treatment group where each member had a fingerprint collected as part of the loan application.The chart shows the repayment rates among fingerprinted (dark blue) and control (light blue) groups by quartiles of the ex-ante probability of default. Individuals in the "worse" quintile are those with highest probability of default, and those for whom fingerprinting had the largest (and statistically significant) effect.The studyfinds that fingerprinting led to substantially higher repayment rates for the subgroup of borrowers with the highest ex ante default risk. This suggests that fingerprinting, by improving personal identification, enhanced the credibility of the lender’s dynamic incentive, that is, the threat of denying credit based on earlier repayment performance. The impact of fingerprinting on repayment in the highest default risk subgroup (20 percent of borrowers) is large. By contrast, fingerprinting had no impact on repayment among farmers with low ex ante default risk.
  • Product design that addresses market failures, meets consumers’ needs and overcomes behavioral problems can foster wider use of financial servicesExamples include: commitment accounts, reminders, labeled accounts, group lending, investment games, timing of repayments, index-based insuranceLet me focus here on two example. The first one, illustrated on this slide, are commitment accountsRandomized evaluation in Malawi (Brune et al 2011) shows that commitment “treatment” led to increases in bank deposits and caused increases in agricultural input use, crop sales, and household expenditures over the next agricultural year Interestingly, the commitments seemed primarily to have helped farmers by shielding funds from their social network
  • Product design that addresses market failures, meets consumers’ needs and overcomes behavioral problems can foster wider use of financial servicesExamples include: commitment accounts, reminders, labeled accounts, group lending, investment games, timing of repayments, index-based insuranceLet me focus here on two example. The first one, illustrated on this slide, are commitment accountsRandomized evaluation in Malawi (Brune et al 2011) shows that commitment “treatment” led to increases in bank deposits and caused increases in agricultural input use, crop sales, and household expenditures over the next agricultural year Interestingly, the commitments seemed primarily to have helped farmers by shielding funds from their social network
  • Product design that addresses market failures, meets consumers’ needs and overcomes behavioral problems can foster wider use of financial servicesExamples include: commitment accounts, reminders, labeled accounts, group lending, investment games, timing of repayments, index-based insuranceLet me focus here on two example. The first one, illustrated on this slide, are commitment accountsRandomized evaluation in Malawi (Brune et al 2011) shows that commitment “treatment” led to increases in bank deposits and caused increases in agricultural input use, crop sales, and household expenditures over the next agricultural year Interestingly, the commitments seemed primarily to have helped farmers by shielding funds from their social network
  • As the second example, let me tell you about the puzzling case of index insurance.On the face of it, index insurance makes a lot of sense. It has clear benefits for lenders (lower risk of weather-related credit defaults), potential to increase financial inclusion and agricultural production.But in practice,take-up hasoften been low. For example, in a randomized experiment with farmers in Malawi, Gine and Yang (2009) found that 20% for loans with rainfall insurance vs. 33% for loans without insurance.New evidence: lack of trust and liquidity constraints are significant non-price frictions that constrain demand (field experiment in India by Cole and others, 2012) What has been shown to help: designing products to pay often and fast, an endorsement by a well-regarded institution, simplification and consumer education.
  • As the second example, let me tell you about the puzzling case of index insurance.On the face of it, index insurance makes a lot of sense. It has clear benefits for lenders (lower risk of weather-related credit defaults), potential to increase financial inclusion and agricultural production.But in practice,take-up hasoften been low. For example, in a randomized experiment with farmers in Malawi, Gine and Yang (2009) found that 20% for loans with rainfall insurance vs. 33% for loans without insurance.New evidence: lack of trust and liquidity constraints are significant non-price frictions that constrain demand (field experiment in India by Cole and others, 2012) What has been shown to help: designing products to pay often and fast, an endorsement by a well-regarded institution, simplification and consumer education.
  • As the second example, let me tell you about the puzzling case of index insurance.On the face of it, index insurance makes a lot of sense. It has clear benefits for lenders (lower risk of weather-related credit defaults), potential to increase financial inclusion and agricultural production.But in practice,take-up hasoften been low. For example, in a randomized experiment with farmers in Malawi, Gine and Yang (2009) found that 20% for loans with rainfall insurance vs. 33% for loans without insurance.New evidence: lack of trust and liquidity constraints are significant non-price frictions that constrain demand (field experiment in India by Cole and others, 2012) What has been shown to help: designing products to pay often and fast, an endorsement by a well-regarded institution, simplification and consumer education.
  • As the second example, let me tell you about the puzzling case of index insurance.On the face of it, index insurance makes a lot of sense. It has clear benefits for lenders (lower risk of weather-related credit defaults), potential to increase financial inclusion and agricultural production.But in practice,take-up hasoften been low. For example, in a randomized experiment with farmers in Malawi, Gine and Yang (2009) found that 20% for loans with rainfall insurance vs. 33% for loans without insurance.New evidence: lack of trust and liquidity constraints are significant non-price frictions that constrain demand (field experiment in India by Cole and others, 2012) What has been shown to help: designing products to pay often and fast, an endorsement by a well-regarded institution, simplification and consumer education.
  • Beyond product design, improvements in lending to micro and small firms can be achieved by leveraging existing relationshipsOne of the many examples of innovative business model comes from Mexico.In 2002, Banco Azteca opened >800 branches in stores of its parent company (Groupo Electra), a consumer goods retailercaters to low and middle-income groups mostly excluded from commercial banking.
  • Beyond product design, improvements in lending to micro and small firms can be achieved by leveraging existing relationshipsOne of the many examples of innovative business model comes from Mexico.In 2002, Banco Azteca opened >800 branches in stores of its parent company (Groupo Electra), a consumer goods retailercaters to low and middle-income groups mostly excluded from commercial banking.
  • Beyond product design, improvements in lending to micro and small firms can be achieved by leveraging existing relationshipsOne of the many examples of innovative business model comes from Mexico.In 2002, Banco Azteca opened >800 branches in stores of its parent company (Groupo Electra), a consumer goods retailercaters to low and middle-income groups mostly excluded from commercial banking.
  • Research shows that standard, classroom-based financial education programs aimed at general population do not work, at least not for adultsIn microenterprises, business training programs have been found to lead to improvements in knowledge, but relatively small impact on business practices and performanceRecent evidence suggests that financial literacy can be increased by well-designed, targeted interventionsThe interventions are more likely to work during “teachable moments”, such as starting a job or purchasing a newfinancial product, such as mortgageAlso, we find that these interventions tend to be especially beneficial for people with limited financial skillsIt also helps to leverage social networks. For example, involve both parents and children, or both senders and recipients of remittances.Finally, research emphasizes the importance of the delivery mode.It points to a role for“rule of thumb” training, which helps by avoiding information overloadIt also shows a promising role for new delivery channels. One example of such channel is inserting financial literacy messages into soap operas. A recent study, done with contribution from World Bank staff, entailed the content development, production, and impact evaluation of financial capability story lines that were included in a popular South African soap opera, “Scandal!”. The soap opera has been running four episodes a week for eight years (more than 1,500 episodes). It is broadcast on the second-most watched station in South Africa—the show reaches approximately 3 million viewers—and has been especially popular among low-income South Africans. The financial education story line stretched over two consecutive months, a time span deemed necessary by social marketing specialists for the viewers to connect emotionally with the characters, for the events to unfold, and for the financial literacy messages to sink in. The financial education messages in the story line were tested through focus groups to ensure that they would be correctly understood by the target group, that the plot appeared realistic, and that the target group could identify with the characters and their problems. All changes suggested by the focus group members were included in the final story line. The development and production of the story line lasted for eight months and cost approximately $90,000.To evaluate the impact of the project, a randomized encouragement design methodology with the following key components was used. A financial incentive was provided to half of the sample (the randomly selected treatment group) to encourage the participants to watch “Scandal!” A financial incentive of the same amount was provided to the other half of the sample (the randomly selected control group) to watch a soap opera that is similar in terms of content and viewership profile and that airs around the same time, but that did not have a financial literacy component. Two phone-based surveys were conducted. A final face-to-face survey probed the longer-term effects of the soap opera four months after the financial literacy episodes had been broadcast.
  • Research shows that standard, classroom-based financial education programs aimed at general population do not work, at least not for adultsIn microenterprises, business training programs have been found to lead to improvements in knowledge, but relatively small impact on business practices and performanceRecent evidence suggests that financial literacy can be increased by well-designed, targeted interventionsThe interventions are more likely to work during “teachable moments”, such as starting a job or purchasing a newfinancial product, such as mortgageAlso, we find that these interventions tend to be especially beneficial for people with limited financial skillsIt also helps to leverage social networks. For example, involve both parents and children, or both senders and recipients of remittances.Finally, research emphasizes the importance of the delivery mode.It points to a role for“rule of thumb” training, which helps by avoiding information overloadIt also shows a promising role for new delivery channels. One example of such channel is inserting financial literacy messages into soap operas. A recent study, done with contribution from World Bank staff, entailed the content development, production, and impact evaluation of financial capability story lines that were included in a popular South African soap opera, “Scandal!”. The soap opera has been running four episodes a week for eight years (more than 1,500 episodes). It is broadcast on the second-most watched station in South Africa—the show reaches approximately 3 million viewers—and has been especially popular among low-income South Africans. The financial education story line stretched over two consecutive months, a time span deemed necessary by social marketing specialists for the viewers to connect emotionally with the characters, for the events to unfold, and for the financial literacy messages to sink in. The financial education messages in the story line were tested through focus groups to ensure that they would be correctly understood by the target group, that the plot appeared realistic, and that the target group could identify with the characters and their problems. All changes suggested by the focus group members were included in the final story line. The development and production of the story line lasted for eight months and cost approximately $90,000.To evaluate the impact of the project, a randomized encouragement design methodology with the following key components was used. A financial incentive was provided to half of the sample (the randomly selected treatment group) to encourage the participants to watch “Scandal!” A financial incentive of the same amount was provided to the other half of the sample (the randomly selected control group) to watch a soap opera that is similar in terms of content and viewership profile and that airs around the same time, but that did not have a financial literacy component. Two phone-based surveys were conducted. A final face-to-face survey probed the longer-term effects of the soap opera four months after the financial literacy episodes had been broadcast.
  • Research shows that standard, classroom-based financial education programs aimed at general population do not work, at least not for adultsIn microenterprises, business training programs have been found to lead to improvements in knowledge, but relatively small impact on business practices and performanceRecent evidence suggests that financial literacy can be increased by well-designed, targeted interventionsThe interventions are more likely to work during “teachable moments”, such as starting a job or purchasing a newfinancial product, such as mortgageAlso, we find that these interventions tend to be especially beneficial for people with limited financial skillsIt also helps to leverage social networks. For example, involve both parents and children, or both senders and recipients of remittances.Finally, research emphasizes the importance of the delivery mode.It points to a role for“rule of thumb” training, which helps by avoiding information overloadIt also shows a promising role for new delivery channels. One example of such channel is inserting financial literacy messages into soap operas. A recent study, done with contribution from World Bank staff, entailed the content development, production, and impact evaluation of financial capability story lines that were included in a popular South African soap opera, “Scandal!”. The soap opera has been running four episodes a week for eight years (more than 1,500 episodes). It is broadcast on the second-most watched station in South Africa—the show reaches approximately 3 million viewers—and has been especially popular among low-income South Africans. The financial education story line stretched over two consecutive months, a time span deemed necessary by social marketing specialists for the viewers to connect emotionally with the characters, for the events to unfold, and for the financial literacy messages to sink in. The financial education messages in the story line were tested through focus groups to ensure that they would be correctly understood by the target group, that the plot appeared realistic, and that the target group could identify with the characters and their problems. All changes suggested by the focus group members were included in the final story line. The development and production of the story line lasted for eight months and cost approximately $90,000.To evaluate the impact of the project, a randomized encouragement design methodology with the following key components was used. A financial incentive was provided to half of the sample (the randomly selected treatment group) to encourage the participants to watch “Scandal!” A financial incentive of the same amount was provided to the other half of the sample (the randomly selected control group) to watch a soap opera that is similar in terms of content and viewership profile and that airs around the same time, but that did not have a financial literacy component. Two phone-based surveys were conducted. A final face-to-face survey probed the longer-term effects of the soap opera four months after the financial literacy episodes had been broadcast.
  • Research shows that standard, classroom-based financial education programs aimed at general population do not work, at least not for adultsIn microenterprises, business training programs have been found to lead to improvements in knowledge, but relatively small impact on business practices and performanceRecent evidence suggests that financial literacy can be increased by well-designed, targeted interventionsThe interventions are more likely to work during “teachable moments”, such as starting a job or purchasing a newfinancial product, such as mortgageAlso, we find that these interventions tend to be especially beneficial for people with limited financial skillsIt also helps to leverage social networks. For example, involve both parents and children, or both senders and recipients of remittances.Finally, research emphasizes the importance of the delivery mode.It points to a role for“rule of thumb” training, which helps by avoiding information overloadIt also shows a promising role for new delivery channels. One example of such channel is inserting financial literacy messages into soap operas. A recent study, done with contribution from World Bank staff, entailed the content development, production, and impact evaluation of financial capability story lines that were included in a popular South African soap opera, “Scandal!”. The soap opera has been running four episodes a week for eight years (more than 1,500 episodes). It is broadcast on the second-most watched station in South Africa—the show reaches approximately 3 million viewers—and has been especially popular among low-income South Africans. The financial education story line stretched over two consecutive months, a time span deemed necessary by social marketing specialists for the viewers to connect emotionally with the characters, for the events to unfold, and for the financial literacy messages to sink in. The financial education messages in the story line were tested through focus groups to ensure that they would be correctly understood by the target group, that the plot appeared realistic, and that the target group could identify with the characters and their problems. All changes suggested by the focus group members were included in the final story line. The development and production of the story line lasted for eight months and cost approximately $90,000.To evaluate the impact of the project, a randomized encouragement design methodology with the following key components was used. A financial incentive was provided to half of the sample (the randomly selected treatment group) to encourage the participants to watch “Scandal!” A financial incentive of the same amount was provided to the other half of the sample (the randomly selected control group) to watch a soap opera that is similar in terms of content and viewership profile and that airs around the same time, but that did not have a financial literacy component. Two phone-based surveys were conducted. A final face-to-face survey probed the longer-term effects of the soap opera four months after the financial literacy episodes had been broadcast.
  • Research shows that standard, classroom-based financial education programs aimed at general population do not work, at least not for adultsIn microenterprises, business training programs have been found to lead to improvements in knowledge, but relatively small impact on business practices and performanceRecent evidence suggests that financial literacy can be increased by well-designed, targeted interventionsThe interventions are more likely to work during “teachable moments”, such as starting a job or purchasing a newfinancial product, such as mortgageAlso, we find that these interventions tend to be especially beneficial for people with limited financial skillsIt also helps to leverage social networks. For example, involve both parents and children, or both senders and recipients of remittances.Finally, research emphasizes the importance of the delivery mode.It points to a role for“rule of thumb” training, which helps by avoiding information overloadIt also shows a promising role for new delivery channels. One example of such channel is inserting financial literacy messages into soap operas. A recent study, done with contribution from World Bank staff, entailed the content development, production, and impact evaluation of financial capability story lines that were included in a popular South African soap opera, “Scandal!”. The soap opera has been running four episodes a week for eight years (more than 1,500 episodes). It is broadcast on the second-most watched station in South Africa—the show reaches approximately 3 million viewers—and has been especially popular among low-income South Africans. The financial education story line stretched over two consecutive months, a time span deemed necessary by social marketing specialists for the viewers to connect emotionally with the characters, for the events to unfold, and for the financial literacy messages to sink in. The financial education messages in the story line were tested through focus groups to ensure that they would be correctly understood by the target group, that the plot appeared realistic, and that the target group could identify with the characters and their problems. All changes suggested by the focus group members were included in the final story line. The development and production of the story line lasted for eight months and cost approximately $90,000.To evaluate the impact of the project, a randomized encouragement design methodology with the following key components was used. A financial incentive was provided to half of the sample (the randomly selected treatment group) to encourage the participants to watch “Scandal!” A financial incentive of the same amount was provided to the other half of the sample (the randomly selected control group) to watch a soap opera that is similar in terms of content and viewership profile and that airs around the same time, but that did not have a financial literacy component. Two phone-based surveys were conducted. A final face-to-face survey probed the longer-term effects of the soap opera four months after the financial literacy episodes had been broadcast.
  • Research shows that standard, classroom-based financial education programs aimed at general population do not work, at least not for adultsIn microenterprises, business training programs have been found to lead to improvements in knowledge, but relatively small impact on business practices and performanceRecent evidence suggests that financial literacy can be increased by well-designed, targeted interventionsThe interventions are more likely to work during “teachable moments”, such as starting a job or purchasing a newfinancial product, such as mortgageAlso, we find that these interventions tend to be especially beneficial for people with limited financial skillsIt also helps to leverage social networks. For example, involve both parents and children, or both senders and recipients of remittances.Finally, research emphasizes the importance of the delivery mode.It points to a role for“rule of thumb” training, which helps by avoiding information overloadIt also shows a promising role for new delivery channels. One example of such channel is inserting financial literacy messages into soap operas. A recent study, done with contribution from World Bank staff, entailed the content development, production, and impact evaluation of financial capability story lines that were included in a popular South African soap opera, “Scandal!”. The soap opera has been running four episodes a week for eight years (more than 1,500 episodes). It is broadcast on the second-most watched station in South Africa—the show reaches approximately 3 million viewers—and has been especially popular among low-income South Africans. The financial education story line stretched over two consecutive months, a time span deemed necessary by social marketing specialists for the viewers to connect emotionally with the characters, for the events to unfold, and for the financial literacy messages to sink in. The financial education messages in the story line were tested through focus groups to ensure that they would be correctly understood by the target group, that the plot appeared realistic, and that the target group could identify with the characters and their problems. All changes suggested by the focus group members were included in the final story line. The development and production of the story line lasted for eight months and cost approximately $90,000.To evaluate the impact of the project, a randomized encouragement design methodology with the following key components was used. A financial incentive was provided to half of the sample (the randomly selected treatment group) to encourage the participants to watch “Scandal!” A financial incentive of the same amount was provided to the other half of the sample (the randomly selected control group) to watch a soap opera that is similar in terms of content and viewership profile and that airs around the same time, but that did not have a financial literacy component. Two phone-based surveys were conducted. A final face-to-face survey probed the longer-term effects of the soap opera four months after the financial literacy episodes had been broadcast.
  • Research shows that standard, classroom-based financial education programs aimed at general population do not work, at least not for adultsIn microenterprises, business training programs have been found to lead to improvements in knowledge, but relatively small impact on business practices and performanceRecent evidence suggests that financial literacy can be increased by well-designed, targeted interventionsThe interventions are more likely to work during “teachable moments”, such as starting a job or purchasing a newfinancial product, such as mortgageAlso, we find that these interventions tend to be especially beneficial for people with limited financial skillsIt also helps to leverage social networks. For example, involve both parents and children, or both senders and recipients of remittances.Finally, research emphasizes the importance of the delivery mode.It points to a role for“rule of thumb” training, which helps by avoiding information overloadIt also shows a promising role for new delivery channels. One example of such channel is inserting financial literacy messages into soap operas. A recent study, done with contribution from World Bank staff, entailed the content development, production, and impact evaluation of financial capability story lines that were included in a popular South African soap opera, “Scandal!”. The soap opera has been running four episodes a week for eight years (more than 1,500 episodes). It is broadcast on the second-most watched station in South Africa—the show reaches approximately 3 million viewers—and has been especially popular among low-income South Africans. The financial education story line stretched over two consecutive months, a time span deemed necessary by social marketing specialists for the viewers to connect emotionally with the characters, for the events to unfold, and for the financial literacy messages to sink in. The financial education messages in the story line were tested through focus groups to ensure that they would be correctly understood by the target group, that the plot appeared realistic, and that the target group could identify with the characters and their problems. All changes suggested by the focus group members were included in the final story line. The development and production of the story line lasted for eight months and cost approximately $90,000.To evaluate the impact of the project, a randomized encouragement design methodology with the following key components was used. A financial incentive was provided to half of the sample (the randomly selected treatment group) to encourage the participants to watch “Scandal!” A financial incentive of the same amount was provided to the other half of the sample (the randomly selected control group) to watch a soap opera that is similar in terms of content and viewership profile and that airs around the same time, but that did not have a financial literacy component. Two phone-based surveys were conducted. A final face-to-face survey probed the longer-term effects of the soap opera four months after the financial literacy episodes had been broadcast.
  • Research shows that standard, classroom-based financial education programs aimed at general population do not work, at least not for adultsIn microenterprises, business training programs have been found to lead to improvements in knowledge, but relatively small impact on business practices and performanceRecent evidence suggests that financial literacy can be increased by well-designed, targeted interventionsThe interventions are more likely to work during “teachable moments”, such as starting a job or purchasing a newfinancial product, such as mortgageAlso, we find that these interventions tend to be especially beneficial for people with limited financial skillsIt also helps to leverage social networks. For example, involve both parents and children, or both senders and recipients of remittances.Finally, research emphasizes the importance of the delivery mode.It points to a role for“rule of thumb” training, which helps by avoiding information overloadIt also shows a promising role for new delivery channels. One example of such channel is inserting financial literacy messages into soap operas. A recent study, done with contribution from World Bank staff, entailed the content development, production, and impact evaluation of financial capability story lines that were included in a popular South African soap opera, “Scandal!”. The soap opera has been running four episodes a week for eight years (more than 1,500 episodes). It is broadcast on the second-most watched station in South Africa—the show reaches approximately 3 million viewers—and has been especially popular among low-income South Africans. The financial education story line stretched over two consecutive months, a time span deemed necessary by social marketing specialists for the viewers to connect emotionally with the characters, for the events to unfold, and for the financial literacy messages to sink in. The financial education messages in the story line were tested through focus groups to ensure that they would be correctly understood by the target group, that the plot appeared realistic, and that the target group could identify with the characters and their problems. All changes suggested by the focus group members were included in the final story line. The development and production of the story line lasted for eight months and cost approximately $90,000.To evaluate the impact of the project, a randomized encouragement design methodology with the following key components was used. A financial incentive was provided to half of the sample (the randomly selected treatment group) to encourage the participants to watch “Scandal!” A financial incentive of the same amount was provided to the other half of the sample (the randomly selected control group) to watch a soap opera that is similar in terms of content and viewership profile and that airs around the same time, but that did not have a financial literacy component. Two phone-based surveys were conducted. A final face-to-face survey probed the longer-term effects of the soap opera four months after the financial literacy episodes had been broadcast.
  • The impact evaluation found substantial improvements in content-specific financial knowledge, a greater affinity for formal borrowing, less affinity for hire purchase agreements (which spread the cost of an expensive item over a period of time at a high interest rate), and a decline in gambling (Berg and Zia 2013). The possible negative consequences of hire purchase and gambling were highlighted in the soap opera story line: the main character ended up in considerable financial distress because of a hire purchase transaction and gambling.The results of the final face-to-face survey show that respondents in the treatment group were substantially less likely to have signed a hire purchase agreement or to have gambled during the previous six months (respectively, 19 percent and 31 percent in the control group vs. 15 percent and 26 percent in the treatment group). The heterogeneous effects were strongest among the respondents with low initial financial literacy and low formal educational attainment. The complementary qualitative analysis confirmed these findings and highlighted some key gender differences in the way men and women think about borrowing: women generally take on debt as a last resort, while men are more willing to borrow for purchases.Note: “Hire purchase” refers to contracts where people pay for goods in installments
  • The impact evaluation found substantial improvements in content-specific financial knowledge, a greater affinity for formal borrowing, less affinity for hire purchase agreements (which spread the cost of an expensive item over a period of time at a high interest rate), and a decline in gambling (Berg and Zia 2013). The possible negative consequences of hire purchase and gambling were highlighted in the soap opera story line: the main character ended up in considerable financial distress because of a hire purchase transaction and gambling.The results of the final face-to-face survey show that respondents in the treatment group were substantially less likely to have signed a hire purchase agreement or to have gambled during the previous six months (respectively, 19 percent and 31 percent in the control group vs. 15 percent and 26 percent in the treatment group). The heterogeneous effects were strongest among the respondents with low initial financial literacy and low formal educational attainment. The complementary qualitative analysis confirmed these findings and highlighted some key gender differences in the way men and women think about borrowing: women generally take on debt as a last resort, while men are more willing to borrow for purchases.Note: “Hire purchase” refers to contracts where people pay for goods in installments
  • The impact evaluation found substantial improvements in content-specific financial knowledge, a greater affinity for formal borrowing, less affinity for hire purchase agreements (which spread the cost of an expensive item over a period of time at a high interest rate), and a decline in gambling (Berg and Zia 2013). The possible negative consequences of hire purchase and gambling were highlighted in the soap opera story line: the main character ended up in considerable financial distress because of a hire purchase transaction and gambling.The results of the final face-to-face survey show that respondents in the treatment group were substantially less likely to have signed a hire purchase agreement or to have gambled during the previous six months (respectively, 19 percent and 31 percent in the control group vs. 15 percent and 26 percent in the treatment group). The heterogeneous effects were strongest among the respondents with low initial financial literacy and low formal educational attainment. The complementary qualitative analysis confirmed these findings and highlighted some key gender differences in the way men and women think about borrowing: women generally take on debt as a last resort, while men are more willing to borrow for purchases.Note: “Hire purchase” refers to contracts where people pay for goods in installments
  • Global Financial Development Report 2014 is the second in a series of policy research reports on financial sector issues.The objective of the report is to contribute to financial sector policy debates, building on new data, surveys, research, and country experience, with emphasis on emerging markets and developing economies. The report’s findings and policy recommendations are relevant for policy-makers; staff of central banks, ministries of finance, and financial regulation agencies; non-governmental organizations and donors; academics and other researchers and analysts; and members of the finance and development community.The report is prepared by a small team anchored in DEC. The work is done in collaboration within WBG—and let me acknowledge here the useful contributions that we have received from our colleagues at the IFC and MIGA—as well as with external contributors.Let me use this opportunity to thank KaushikBasu and Mahmoud Mohieldin for their guidance.Each report focuses on a theme. The theme of the first GFDR, which we presented here about a year ago, was rethinking the role of the state in financeThe current report focuses on financial inclusion.Before I get into the substance of the report, let me emphasize that there is much more to the GFDR than “just another report”. Accompanying it is an updated and expanded version of the Global Financial Development Database, tracking financial systems in more than 200 economies since 1960. The database—together with relevant research papers and other background materials—is available on the report’s interactive website, worldbank.org/financialdevelopment. (A part of the data is also made available in a Little Data Book on Financial Development.)
  • Global Financial Development Report 2014 is the second in a series of policy research reports on financial sector issues.The objective of the report is to contribute to financial sector policy debates, building on new data, surveys, research, and country experience, with emphasis on emerging markets and developing economies. The report’s findings and policy recommendations are relevant for policy-makers; staff of central banks, ministries of finance, and financial regulation agencies; non-governmental organizations and donors; academics and other researchers and analysts; and members of the finance and development community.The report is prepared by a small team anchored in DEC. The work is done in collaboration within WBG—and let me acknowledge here the useful contributions that we have received from our colleagues at the IFC and MIGA—as well as with external contributors.Let me use this opportunity to thank KaushikBasu and Mahmoud Mohieldin for their guidance.Each report focuses on a theme. The theme of the first GFDR, which we presented here about a year ago, was rethinking the role of the state in financeThe current report focuses on financial inclusion.Before I get into the substance of the report, let me emphasize that there is much more to the GFDR than “just another report”. Accompanying it is an updated and expanded version of the Global Financial Development Database, tracking financial systems in more than 200 economies since 1960. The database—together with relevant research papers and other background materials—is available on the report’s interactive website, worldbank.org/financialdevelopment. (A part of the data is also made available in a Little Data Book on Financial Development.)

Transcript

  • 1. Intro Measurement and Impact Public Policy Focus Areas Main Messages Importance of financial inclusion • Increased policy interest – Over 50 countries: formal targets and strategies for financial inclusion – WBG President: achieving universal financial access by 2020 is possible 2
  • 2. Intro Measurement and Impact Public Policy Focus Areas Main Messages Importance of financial inclusion • Increased policy interest – Over 50 countries: formal targets and strategies for financial inclusion – WBG President: achieving universal financial access by 2020 is possible • Critical role in reducing poverty, boosting shared prosperity 3
  • 3. Intro Measurement and Impact Public Policy Focus Areas Main Messages Importance of financial inclusion • Increased policy interest – Over 50 countries: formal targets and strategies for financial inclusion – WBG President: achieving universal financial access by 2020 is possible • 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 4
  • 4. Intro Measurement and Impact Public Policy Focus Areas Main Messages Importance of financial inclusion • Increased policy interest – Over 50 countries: formal targets and strategies for financial inclusion – WBG President: achieving universal financial access by 2020 is possible • 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 5
  • 5. Intro Measurement and Impact Public Policy Focus Areas Main Messages Global views: Financial Development Barometer Source: Financial Development Barometer (poll of financial sector officials and experts from 21 developed and 54 developing economies). 6
  • 6. 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? Not very important 24% Very important 35% Not sure 16% Somewhat important 25% Source: Financial Development Barometer (poll of financial sector officials and experts from 21 developed and 54 developing economies). 7
  • 7. 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). 8
  • 8. 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). 9
  • 9. 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). 10
  • 10. 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). 11
  • 11. 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). 12
  • 12. Intro Measurement and Impact Public Policy Focus Areas Main Messages Defining financial inclusion 13
  • 13. 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” Source: Global Financial Inclusion (Global Findex) Database, worldbank.org/globalfindex 14
  • 14. 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/globalfindex 15
  • 15. 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 16
  • 16. 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 Too expensive Too far away Lack of documentation Lack of trust Religious reasons 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. 17
  • 17. 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 Lack of documentation Lack of trust Religious reasons 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. 18
  • 18. 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 Religious reasons 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. 19
  • 19. 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. 20
  • 20. Intro Measurement and Impact Public Policy Focus Areas Main Messages Correlates of financial inclusion effect on probability of owning an account (%) Fourth 20% Middle 20% Second 20% 5% Poorest 20% 10% 0% -5% -6% -10% -9% -13% -15% -16% -20% Source: Based on Allen, Demirguc-Kunt, and others (2012) 21
  • 21. Intro Measurement and Impact Public Policy Focus Areas Main Messages Correlates of financial inclusion 0% Age effect on probability of owning an account (%) 3% 0-8 yrs of education Fourth 20% Middle 20% Second 20% 5% Poorest 20% 10% -5% -6% -10% -9% -13% -12% -15% -16% -20% Source: Based on Allen, Demirguc-Kunt, and others (2012) 22
  • 22. Intro Measurement and Impact Public Policy Focus Areas Main Messages Correlates of financial inclusion 0% Employed Age effect on probability of owning an account (%) Out of workforce 7% Unemployed 3% 0-8 yrs of education Fourth 20% Middle 20% Second 20% 5% Poorest 20% 10% -5% -6% -10% -7% -8% -9% -13% -12% -15% -16% -20% Source: Based on Allen, Demirguc-Kunt, and others (2012) 23
  • 23. 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) 24
  • 24. Intro Measurement and Impact Public Policy Focus Areas Main Messages Financial inequality and economic inequality 70 60 50 40 30 20 0 5 10 15 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. 25
  • 25. Intro Measurement and Impact Public Policy Focus Areas Main Messages Financial inequality and economic inequality 70 60 50 40 30 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. 26
  • 26. Intro Measurement and Impact Public Policy Focus Areas Main Messages Financial inequality and economic inequality Income inequality (Gini coefficient) 70 60 50 40 30 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. 27
  • 27. 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. 28
  • 28. 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. 29
  • 29. Intro Measurement and Impact Public Policy Focus Areas Main Messages Evidence on impacts of financial inclusion 30
  • 30. Intro Measurement and Impact Public Policy Focus Areas Main Messages Evidence on impacts of financial inclusion • Basic payments, savings: strong evidence on benefits, especially for the poor 31
  • 31. Intro Measurement and Impact Public Policy Focus Areas Main Messages Evidence on impacts of financial inclusion • Basic payments, savings: strong evidence on benefits, especially for the poor • Insurance products: also some evidence of a positive impact 32
  • 32. Intro Measurement and Impact Public Policy Focus Areas Main Messages Evidence on impacts of financial inclusion • 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 33
  • 33. Intro Measurement and Impact Public Policy Focus Areas Main Messages Evidence on impacts of financial inclusion • 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 34
  • 34. Intro Measurement and Impact Public Policy Focus Areas Main Messages Financial inclusion policy – overall findings from research 35
  • 35. 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 36
  • 36. 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 37
  • 37. 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 38
  • 38. 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 39
  • 39. 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 Source: Love and Martinez Peria 2012 40
  • 40. 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 41
  • 41. 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 42
  • 42. 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 43
  • 43. 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 % of firms with access to finance Registry reformers 70 60 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 44
  • 44. 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 45
  • 45. 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 46
  • 46. 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 47
  • 47. 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 48
  • 48. 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 49
  • 49. 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 1… 1… 1… 1… 1… 1… 1… 1… 1… 1… 2… 2… 2… 2… 2… 2… 2… 2… 2… 2… 2… 2… Subscriptions per 100 people 100 Source: World Development Indicators. 50
  • 50. 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 1… 1… 1… 1… 1… 1… 1… 1… 1… 1… 2… 2… 2… 2… 2… 2… 2… 2… 2… 2… 2… 2… Subscriptions per 100 people 100 Source: World Development Indicators. 51
  • 51. 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 1… 1… 1… 1… 1… 1… 1… 1… 1… 1… 2… 2… 2… 2… 2… 2… 2… 2… 2… 2… 2… 2… Subscriptions per 100 people 100 Source: World Development Indicators. 52
  • 52. Intro Measurement and Impact Public Policy Focus Areas Main Messages I. Promise of technology Example: fingerprinting in Malawi (% of balances repaid on time) 100% 91% 92% 93% 98% 96% 90% 89% 79% 80% 74% 70% 60% 50% Fingerprinted Control 40% 30% 20% Source: Calculations based on Giné, Goldberg, and Yang (2012). 10% 0% Worst 2nd quintile 3rd quintile 4th quintile Best 53
  • 53. 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% 50% Fingerprinted Control 40% 30% 26% 20% Source: Calculations based on Giné, Goldberg, and Yang (2012). 10% 0% Worst 2nd quintile 3rd quintile 4th quintile Best 54
  • 54. Intro Measurement and Impact Public Policy Focus Areas Main Messages I. Promise of technology • To harness the promise of new technologies… 55
  • 55. 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… 56
  • 56. 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. 57
  • 57. 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 Note: The exchange rate was MK145/USD during the study period. Source: Brune, Giné, and others (2011). 58
  • 58. 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 0.40 Commitment account Ordinary account 0.35 Ordinary account 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 59
  • 59. 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 0.40 Commitment account Ordinary account 0.35 Ordinary account 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 60
  • 60. 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 15 10 5 0 loans without rainfall insurance with rainfall insurance loans Source: Giné and Yang, 2009 61
  • 61. 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 with rainfall insurance loans Source: Giné and Yang, 2009 62
  • 62. 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 with rainfall insurance loans Source: Giné and Yang, 2009 • New evidence: lack of trust, liquidity constraints constrain demand (field experiment in India by Cole and others, 2012) 63
  • 63. 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 with rainfall insurance loans 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 64
  • 64. Intro Measurement and Impact Public Policy Focus Areas Main Messages II. Product design, business models 15.0 9.0 14.5 8.8 8.6 14.0 8.4 13.5 8.2 13.0 8.0 7.8 12.0 7.6 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 12.5 % of individuals who are informal business owners (municipalities with Azteca) % 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 65
  • 65. Intro Measurement and Impact Public Policy Focus Areas Main Messages II. Product design, business models 15.0 Banco Azteca opening 9.0 8.8 14.5 8.6 14.0 8.4 13.5 8.2 13.0 8.0 7.8 12.0 7.6 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 12.5 % of individuals who are informal business owners (municipalities with Azteca) % 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 66
  • 66. Intro Measurement and Impact Public Policy Focus Areas Main Messages II. Product design, business models 15.0 Banco Azteca opening 9.0 8.8 14.5 8.6 14.0 8.4 13.5 8.2 13.0 8.0 7.8 12.0 7.6 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 12.5 % of individuals who are informal business owners (municipalities with Azteca) % 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 67
  • 67. Intro Measurement and Impact Public Policy Focus Areas Main Messages III. Financial capability • Classroom-based financial education for general population do not work 68
  • 68. 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 69
  • 69. 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) 70
  • 70. 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 71
  • 71. 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) 72
  • 72. 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 73
  • 73. 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 74
  • 74. 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 75
  • 75. 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 25 20 19 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) 76
  • 76. 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) 77
  • 77. 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 78
  • 78. Intro Measurement and Impact Public Policy Focus Areas Main Messages Global Financial Development Report 2014 • • • • Poverty and Shared Prosperity Technology, Business Models Policy Regulations, Information, Competition, Education and Protection Source: AFP 79
  • 79. Intro Measurement and Impact Public Policy Focus Areas Main Messages Global Financial Development Report 2014 • Second in a series – New data, recent research, lessons from operational work – Collaboration within WBG and with external contributors • Each report focuses on a theme – 2013: rethinking the role of the state in finance – 2014: financial inclusion • More than a report – – – – Updated and expanded Global Financial Development Database Little Data Book on Financial Development 2014 Other datasets, surveys, underlying research studies All at worldbank.org/financialdevelopment Source: AFP 80