Financial Inclusion and Development: Recent Impact Evidence


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There is accumulating evidence demonstrating the positive benefits of financial inclusion for the poor.

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Financial Inclusion and Development: Recent Impact Evidence

  1. 1. Financial Inclusion and Development: Recent Impact Evidence Bob Cull, Tilman Ehrbeck and Nina Holle June 2, 2014
  2. 2. 1. A Vast Majority of Poor Households Live and Work in the Informal Economy 2. Increasingly Robust Evidence of Beneficial Economic Impact • Microeconomic Level • Local Economic Activity • Macroeconomic Level 3. Additional Indirect Benefits 2 Agenda/ Outline of the paper
  3. 3. 50+% w/out formal financial account 3 ~50-60% with informal jobs 40+% below $2/day A Vast Majority of Poor Households Live and Work in the Informal Economy
  4. 4. Microeconomic Level: Credit 4 Businesses benefit from access to credit, linkage to broader welfare less clear Mongolia (2010): • Household Welfare: ++ • Business outcomes: ++ India/Spandana (2009/2013): • Household Welfare: 0 • Business Outcomes: + SA/Consumer Credit (2010): • Household Welfare: ++ • Business outcomes: + Mexico/Compartamos (2013): • Household Welfare: + • Business outcomes: ++ Bosnia (2012): • Household Welfare: - • Business outcomes: ++ Phillipines (2011) • Household Welfare: 0 • Business Outcomes: + Morocco (2012): • Household Welfare: 0 • Business outcomes: +
  5. 5. 5 Business investments of women (Kenya)* Health savings and investments (Kenya)** * Dupas, Pascaline et al. (2012a). Savings constraints and microenterprise development: evidence from a field experiment in Kenya. AEJ: Applied Economics. Forthcoming. ** Dupas, Pascaline et al. (2012b). Why don’t the poor save more? Evidence from health savings experiments, NBER Working Paper. *** Brune, Lasse et al. (2013): Commitments to save. A field experiment in rural Malawi. Working Paper. 0 100 Average daily business investment Food expenditures Private expenditures + 38% + 13% + 37% 0 100 200 Health savings Preventative health investments Preventative health investments (commitment account) + 138% + 66% + 75% Agricultural activity (Malawi)*** 0 100 Agricultural input Crop output Expenditures + 27% + 28% + 17% Without access to c. savings With access to c. savings Without access to savings With access to savings Without access to savings With access to savings Microeconomic Level: Savings Savings help manage cash flow spikes, smooth consumption and build working capital
  6. 6. 6 Agricultural activities (Ghana) * Protection against negative impact of natural disasters (Kenya) ** * Karlan, Dean et al. 2012. Agricultural Decisions after relaxing credit and risk constraint, NBER Working Paper. ** Janzen, Sarah and Carter, Michael. 2012. The impact of microinsurance on asset accumulation and human capital investments: Evidence from a drought in Kenya. Working Paper. 0 100 Investments in cultivation Use of chemical fertilizer Land preparation costs (incl. shift towards riskier crop) + 13% + 24% + 13% Without access to insurance With access to insurance Without access to insurance With access to insurance - 43%- 18% - 11% 0 100 Asset sales Reduction of meals Dependency on food aid Microeconomic Level: Insurance Access to insurance increases risk appetite and protects livelihoods
  7. 7. • Sharing risk in Kenya (Jack/Suri 2014) • M-Pesa users were able to fully absorb negative income shocks through increase in remittances • Consumption of households without access to M-Pesa fell on average 7% • Reducing transaction costs in Niger (Aker et al. 2010) • Reductions in costs of cash transfer programs (both for implementing agency and recipient) • Recipients’ cost savings resulted in diversification of expenditures (including food) 7 Microeconomic Level: Payments Mobile money reduces households’ transaction costs and improves ability to share risk
  8. 8. • Opening bank branches in unbanked locations reduced rural poverty in India (Burgess and Pande 2005) • Opening Banco Azteca branches in retail stores had a significant impact on regional economy in Mexico (Bruhn and Love 2013, Ruiz 2013) • 7% increase in overall income levels • Households were better able to smooth consumption and accumulated more durable goods 8 Local Economic Activity Financial access improves the local economy
  9. 9. 9 GDP Growth Rates and Financial Depth 1980-2003 Source: Honohan, Patrick, and Thorsten Beck. 2007. Making Finance Work for Africa. Washington, D.C.: World Bank Group. Macroeconomic Level Positive correlation between financial depth and growth Correlation less clear if: − Economies with weak institutional framework − High inflation environments − Very low and very high levels of financial intermediation − Short time horizon
  10. 10. 10 ARG AUS AUT BEL BGD BOL BRA CAN CHE CHL CIV CMR COLCRI DNK DOM ECU EGY ESP ETH FIN FRA GBR GHA GRC GTM HKG HND HUN IDN IND IRL IRN ITA JAM JOR JPN KORLKA LSO LUX MDG MEX MUS MYS NER NGA NLD NOR NPL NZL PAK PAN PER PHL PRT ROM SEN SGP SLE SLV SWE THA TTO TUN TUR TZA UGA URY USA VEN ZMB -0.03 -0.02 -0.01 0 0.01 0.02 0.03 -3 -2 -1 0 1 2 Change in Gini coefficient Private credit to GDP Source: Beck, Thorsten, Aslı Demirgüç-Kunt ,and Ross Levine. 2007. “Finance, Inequality, and the Poor,” Journal of Economic Growth, Vol. 12 (1). Access to credit and income equality Private credit to GDP Change in Gini coefficient Macroeconomic Level Financial deepening reduces inequality
  11. 11. • More effective and efficient execution of other social policies • Payment of CCTs (e.g. Bolsa Familia reduced transaction costs from 14.7% to 2.6%) • Enabling new private-sector business models that help address development priorities • E.g. Microleasing for off-grid solar power, community-based water stations (Kenya, Tanzania) 11 Additional indirect benefits
  12. 12. Advancing financial inclusion to improve the lives of the poor