Global Financial Development Report 2014 Financial Inclusion

2

• Increased policy interest– Over 50 countries: formal targets and strategies for financial inclusion– WBG President: achieving universal financial access by 2020 is possible

Importance of financial inclusionIntro Measurement and Impact Public Policy Focus Areas Main Messages

3


• Critical role in reducing poverty, boosting shared prosperity


4



• Enables poor people to save and borrow, allowing them to build assets, invest in education and entrepreneurial ventures, thus improving their livelihoods


5



• 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


6

Global views: Financial Development Barometer

Source: Financial Development Barometer (poll of financial sector officials and experts from 21 developed and 54 developing economies).

Intro Measurement and Impact Public Policy Focus Areas Main Messages

7



Very important35%

Somewhat important25%

Not sure16%

Not very important24%

What is the role of new technologies in expanding access to finance?


8



Very important35%


Not sure16%



Financial education; 32%

Better legal framework and credit information,

27%

Promote new lending technologies; 17%

More competition; 8%

More microfinance; 8%

More state banking; 8%

What is the most effective policy to improve access to finance among low-income borrowers?


9



Very important35%


Not sure16%



Financial education, 32%


27%







10



Very important35%


Not sure16%





27%







11



Very important35%


Not sure16%





27%







12



Very important35%


Not sure16%





27%







13

Defining financial inclusionIntro Measurement and Impact Public Policy Focus Areas Main Messages

14

• Globally, about 50 % of adults have a bank account • The other 50 % (2.5 billion) remain “unbanked”

Measuring financial inclusionIntro Measurement and Impact Public Policy Focus Areas Main Messages

Source: Global Financial Inclusion (Global Findex) Database, worldbank.org/globalfindex

15

• 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

16

• Not all “unbanked” need financial services, but barriers play a key role


17



Religious reasons

Lack of trust

Lack of documentation

Too far away

Too expensive

Family member already has account

Not enough money

0 5 10 15 20 25 30 35

30

Note: Respondents could choose more than one reason. The data for “not enough money” refer to the percentage of adults who reported only this reason. Source: Demirguc-Kunt and Klapper 2012.

Non-account-holders reporting barrier as a reason for not having an account (%)

18



Religious reasons

Lack of trust


Too far away

Too expensive


Not enough money

0 5 10 15 20 25 30 35

23

25

30



19



Religious reasons

Lack of trust


Too far away

Too expensive


Not enough money

0 5 10 15 20 25 30 35

18

20

23

25

30



20



Religious reasons

Lack of trust


Too far away

Too expensive


Not enough money

0 5 10 15 20 25 30 35

5

13

18

20

23

25

30



21

Correlates of financial inclusion

Source: Based on Allen, Demirguc-Kunt, and others (2012)


-20%

-15%

-10%

-5%

0%

5%

10%

-16%

-13%

-9%

-6%

eff

ec

t o

n p

rob

ab

ility

of

ow

nin

g a

n a

cc

ou

nt

(%)

Po

ore

st 20

%

Se

con

d 2

0%

Mid

dle

20

%

Fo

urth

20

%

22




-20%

-15%

-10%

-5%

0%

5%

10%

-16%

-13%

-9%

-6%

3%

-12%

eff

ec

t o

n p

rob

ab

ility

of

ow

nin

g a

n a

cc

ou

nt

(%)

Po

ore

st 20

%

Se

con

d 2

0%

Mid

dle

20

%

Fo

urth

20

%

0-8

yrs of e

du

catio

n

Ag

e

23




-20%

-15%

-10%

-5%

0%

5%

10%

-16%

-13%

-9%

-6%

3%

-12%

7%

-7%-8%

eff

ec

t o

n p

rob

ab

ility

of

ow

nin

g a

n a

cc

ou

nt

(%)

Po

ore

st 20

%

Se

con

d 2

0%

Mid

dle

20

%

Fo

urth

20

%

0-8

yrs of e

du

catio

n

Em

plo

yed

Un

em

plo

yed

Ou

t of w

orkfo

rce

Ag

e

24




-20%

-15%

-10%

-5%

0%

5%

10%

-16%

-13%

-9%

-6%

3%

-3%

-12%

-2%

2%

7%

-7%-8%

eff

ec

t o

n p

rob

ab

ility

of

ow

nin

g a

n a

cc

ou

nt

(%)

Po

ore

st 20

%

Se

con

d 2

0%

Mid

dle

20

%

Fo

urth

20

%

Ru

ral

0-8

yrs of e

du

catio

n

Lo

g o

f ho

use

ho

ld size

Em

plo

yed

Un

em

plo

yed

Ou

t of w

orkfo

rce

Ma

rried

Ag

e

25


Source: Calculations based on Demirgüç-Kunt and Klapper 2012; World Development Indicators database, World Bank.Note: Higher values of Gini mean more inequality. Data on Gini are for 2009 or the latest available year. Account penetration is share of adults who had an account at a formal financial institution in 2011.

Financial inequality and economic inequality

0 5 10 1520

30

40

50

60

70

26




0 5 10 1520

30

40

50

60

70

account penetration in the richest 20% as a multiple of that in the poorest 20%

27




0 5 10 1520

30

40

50

60

70In

com

e in

equa

lity

(G

ini c

oeff

icie

nt)


28




0 5 10 1520

30

40

50

60

70In

com

e in

equa

lity

(G

ini c

oeff

icie

nt)


Sweden

Haiti

Philippines

29




0 5 10 1520

30

40

50

60

70In

com

e in

equa

lity

(G

ini c

oeff

icie

nt)


Sweden

Haiti

Philippines

30

Evidence on impacts of financial inclusionIntro Measurement and Impact Public Policy Focus Areas Main Messages

31

• Basic payments, savings: strong evidence on benefits, especially for the poor


32


• Insurance products: also some evidence of a positive impact


33



• Access to credit: mixed picture – firms: a positive effect on growth, especially start ups, small and medium

enterprises


34



• 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


35

Financial inclusion policy – overall findings from researchIntro Measurement and Impact Public Policy Focus Areas Main Messages

36

• Policy should focus on addressing market and government failures


37


• Not on promoting financial inclusion for inclusion’s sake, and certainly not on making everybody borrow


38



• Direct government interventions in credit markets tend to be politicized and less successful, particularly in weak institutional environments


39



• 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


40

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

Financial inclusion policy – overall findings from research

41




effect at maximum government ownership

effect at minimum credit information

effect at minimum financial development

average effect (all countries)

-3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0

-3.1

-2.8

-1.3

-0.6

Effect of bank mark-up (Lerner index) on probability of a firm having access to finance


42








-3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0

-3.1

-2.8

-1.3

-0.6



43








-3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0

-3.1

-2.8

-1.3

-0.6



44

• Role in supporting information environment (standards for disclosure, transparency, promoting credit bureaus, collateral registries)


Source: Love, Martínez Pería, and Singh 2013.

Pre-reform Post-reform0

10

20

30

40

50

60

70

80

41

54

Registry reformers

Non-reformers (matched by region and income)

% o

f fi

rms

wit

h ac

cess

to f

inan

ce


45

• Role in supporting information environment (standards for disclosure, transparency, promoting credit bureaus, collateral registries)


Source: Love, Martínez Pería, and Singh 2013.

Pre-reform Post-reform0

10

20

30

40

50

60

70

80

50

73

41

54

Registry reformers

Non-reformers (matched by region and income)

% o

f fi

rms

wit

h ac

cess

to f

inan

ce


46

Promoting financial inclusion: focus areas

Promoting financial inclusion

I. Promise of technology

II. Product design, business models

III. Financial capability


47







48







49







50

• Technological innovations reduce transaction costs, increase financial security• Scope for scaling up, illustrated e.g. by growth in phone subscriptions


Source: World Development Indicators.


1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0

25

50

75

100

125

World High income

Middle income Low income

Sub

scri

ptio

ns p

er 1

00 p

eopl

e

51





1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0

25

50

75

100

125

World High income

Middle income Low income

Sub

scri

ptio

ns p

er 1

00 p

eopl

e

52





1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0

25

50

75

100

125

World

High income

Middle income

Low income

Sub

scri

ptio

ns p

er 1

00 p

eopl

e

53

Example: fingerprinting in Malawi (% of balances repaid on time)


Source: Calculations based on Giné, Goldberg, and Yang (2012).


Worst 2nd quintile 3rd quintile 4th quintile Best0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

79%

91% 93%89%

74%

92%96% 98%

FingerprintedControl

54

Example: fingerprinting in Malawi (% of balances repaid on time)


Source: Calculations based on Giné, Goldberg, and Yang (2012).


Worst 2nd quintile 3rd quintile 4th quintile Best0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

88%

79%

91% 93%89%

26%

74%

92%96% 98%

FingerprintedControl

55

• To harness the promise of new technologies…

I. Promise of technologyIntro Measurement and Impact Public Policy Focus Areas Main Messages

56


• …. regulators need to allow competing financial service providers and consumers to take advantage of technological innovations…


57


• …. 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.


58

• Product design that addresses market failures, meets consumers’ needs and overcomes behavioral problems can foster wider use of financial services

II. Product design, business modelsIntro Measurement and Impact Public Policy Focus Areas Main Messages

Note: The exchange rate was MK145/USD during the study period.Source: Brune, Giné, and others (2011).

59


• Example 1: commitment accounts


Land under cultivation0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

Ordinary account

Commitment account

acre

s

Total value of inputs

Value of crop output

Farm profit0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Ordinary account

Commitment account

Loc

al c

urre

ncy

(Mal

awi K

wac

ha, M

K)


60


• Example 1: commitment accounts


Land under cultivation0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

Ordinary account

Commitment account

acre

s

Total value of inputs

Value of crop output

Farm profit0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Ordinary account

Commitment account

Loc

al c

urre

ncy

(Mal

awi K

wac

ha, M

K)


61

• Example 2: index insurance


Source: Giné and Yang, 2009

0

5

10

15

20

25

30

35 33

tak

e-u

p o

f lo

ans

(%

of

farm

ers)

62




0

5

10

15

20

25

30

35 33

20

tak

e-u

p o

f lo

ans

(%

of

farm

ers)

63


• New evidence: lack of trust, liquidity constraints constrain demand (field experiment in India by Cole and others, 2012)



0

5

10

15

20

25

30

35 33

20

tak

e-u

p o

f lo

ans

(%

of

farm

ers)

64


• 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



0

5

10

15

20

25

30

35 33

20

tak

e-u

p o

f lo

ans

(%

of

farm

ers)

65

• Example of an innovative business model: Banco Azteca, Mexico• Improved access can be achieved by leveraging existing relationships


Source: Bruhn and Love (forthcoming)


2000-II

2000-III

2000-IV2001-I

2001-II

2001-III

2001-IV2002-I

2002-II

2002-III

2002-IV2003-I

2003-II

2003-III

2003-IV2004-I

2004-II

2004-III

2004-IV12.0

12.5

13.0

13.5

14.0

14.5

15.0

7.6

7.8

8.0

8.2

8.4

8.6

8.8

9.0

Municipalities without Azteca Municipalities with Azteca

% o

f ind

ivid

uals

who

are

info

rmal

bus

ines

s ow

ners

(mun

icip

aliti

es w

itho

ut A

ztec

a)

% o

f ind

ivid

uals

who

are

info

rmal

bus

ines

s ow

ners

(mun

icip

aliti

es w

ith

Azt

eca)

66





2000-II

2000-III

2000-IV2001-I

2001-II

2001-III

2001-IV2002-I

2002-II

2002-III

2002-IV2003-I

2003-II

2003-III

2003-IV2004-I

2004-II

2004-III

2004-IV12.0

12.5

13.0

13.5

14.0

14.5

15.0

7.6

7.8

8.0

8.2

8.4

8.6

8.8

9.0


% o

f ind

ivid

uals

who

are

info

rmal

bus

ines

s ow

ners

(mun

icip

aliti

es w

itho

ut A

ztec

a)

% o

f ind

ivid

uals

who

are

info

rmal

bus

ines

s ow

ners

(mun

icip

aliti

es w

ith

Azt

eca)

Banco Azteca opening

67





2000-II

2000-III

2000-IV2001-I

2001-II

2001-III

2001-IV2002-I

2002-II

2002-III

2002-IV2003-I

2003-II

2003-III

2003-IV2004-I

2004-II

2004-III

2004-IV12.0

12.5

13.0

13.5

14.0

14.5

15.0

7.6

7.8

8.0

8.2

8.4

8.6

8.8

9.0


% o

f ind

ivid

uals

who

are

info

rmal

bus

ines

s ow

ners

(mun

icip

aliti

es w

itho

ut A

ztec

a)

% o

f ind

ivid

uals

who

are

info

rmal

bus

ines

s ow

ners

(mun

icip

aliti

es w

ith

Azt

eca)

Banco Azteca opening

68

• Classroom-based financial education for general population do not work

III. Financial capabilityIntro Measurement and Impact Public Policy Focus Areas Main Messages

69

• Classroom-based financial education for general population do not work• Financial literacy can be increased by well-designed, targeted interventions


70

• 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)


71

• 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


72

• 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)


73

• 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


74

• 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

• 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


76

• Financial literacy messages seem to have a real-world effect…


Source: Berg and Zia (2013)


Has someone in the household used hire purchase in the past 6 months?

Has someone in the household gambled money in the past 6 months?

0

5

10

15

20

25

30

35

19

31TreatmentControl

% o

f re

spon

dent

s

77







0

5

10

15

20

25

30

35

15

26

19

31TreatmentControl

% o

f re

spon

dent

s

78


• … but the effect is short-lived – need to repeat / reinforce






0

5

10

15

20

25

30

35

15

26

19

31TreatmentControl

% o

f re

spon

dent

s

• Poverty and Shared Prosperity• Technology, Business Models• Policy• Regulations, Information, Competition, Education and Protection

Global Financial Development Report 2014

Source: AFP


79

• 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

Global Financial Development Report 2014

Source: AFP


80