financial inclusion-by-margaret-miller-wb

GLOBAL FINANCIAL DEVELOPMENT REPORT 2014

Financial Inclusion

Margaret Miller, Senior Economist, FFIMSIstanbul, TurkeyJune 3, 2014

http://www.worldbank.org/financialdevelopment

MJM1

MJM1 Margaret J. Miller, 5/28/2013

Aspirations and Consumption in Turkey:Access to finance plays a role….

‐ Access to credit can facilitate higher levels of current consumption

‐ Credit and debit cards, mobile money make transacting easier

Access to finance is also about making savings more attractive and easy

‐ Commitment accounts‐ Savings lotteries‐ Automatic deductions‐ Preferential tax treatment

Long‐Term Productive InvestmentsFunding for SMEs

“Improve access to long‐term financing and develop equity and venture capital markets, with a view to unlock the potential of the dynamic SME sector.”

World Bank Country Economic Memorandum, May 2014

Insurance and Risk Hedging Products for Agriculture

Non‐cash, electronic payments

‐ Reduce informality

‐ Increase efficiency

‐ Facilitate commerce

Consumer protection and financial capability

‐ Levels of trust in a society may help to explain financial inclusion‐ Consumer protection laws and regulations support responsible finance

‐ Financial education increases awareness of opportunities, ability to navigate financial markets

• Recent empirical evidence on impact of financial inclusion on economic development and poverty varies by types of financial services

• Basic payments and savings: evidence on benefits, especially for poor households, is quite supportive

• Insurance products: also some evidence of a positive impact• Access to credit—mixed picture: evidence on benefits for smoothing

consumption, but not always for entrepreneurial ventures– dozens of microcredit experiments, other cross‐country research – for example Roodman (2011) and Bauchet and others (2011)– for firms, little effect for micro‐credit but a positive effect on firm growth for small‐and

medium‐size enterprise credit

• Common message from the research: financial inclusion does not mean pushing access for the sake of access, and it certainly does not mean making everybody borrow

Importance of financial inclusion: empirical evidenceIntro Measurement and Impact Public Policy on Financial Inclusion Focus AreasMJM8

MJM8 I would omit this slide. We've already alluded to the research on the importance of financial inclusion in the early slide. This can be discussed without a slide.Margaret J. Miller, 5/29/2013

Global views: Financial Development Barometer

(% of all respondents) Agree?

"Access to basic financial services is a significant problem for households in my country." 61 %

"Limited access to finance is a significant barrier to the growth of small enterprises in my country." 76 %

"In my country, access to finance has improved significantly over the last 5 years." 78 %

“Social banking (that is, state banks and targeted lending programs to poorer segments of the population) is potentially a useful tool to increase financial access." 80 %

"Social banking actually plays an important role in financial access in my home country." 43 %

"The lack of knowledge about basic financial services is a major barrier to financial access among the poor in my country."

78 %

Source: Financial Development Barometer.Note: The barometer is an informal global poll of country officials and financial sector experts from 21 developed and 54 developing economies. From 265 polled, 161 responded (61 %). Results are percentages of “fully agree” and “partially agree” responses out of total responses received.

Intro Measurement and Impact Public Policy on Financial Inclusion Focus Areas

Global views: Financial Development Barometer

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


Financial education

32%

Promote new lending technologies

17%

Better legal framework

18%

Other33%

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

Very important

35%

Somewhat important

25%

Not sure16%

Not very important

24%

What is the role of new technologies (such as mobile banking and biometric borrower identification) in expanding access to finance in your country?

• Not all “unbanked” need financial services, but barriers (cost, travel distance, amount of paperwork and requirements) play an important role

Measuring financial inclusion

Source: Global Findex (Demirguc‐Kunt and Klapper 2012). Note: Respondents can choose more than one reason.


0% 10% 20% 30% 40% 50% 60% 70%

Because of religious reasons

You don't trust them

You don't have the necessary documentation

Too far away

They are too expensive

Because someone else in the family already has an account

Not enough money to use

% of adults without an account

MJM7

MJM7 This slide provides a good grounding for discussion of the difficulties in getting individuals financial services. I like the following one in describing the relatively greater challenge for firms in developing countries getting access to finance.Margaret J. Miller, 5/29/2013

Correlates of financial inclusion/exclusion

Source: Based on Allen and others (2013) Note: Results from a probit regression of a financial inclusion indicator on country fixed effects and individual characteristics, for 124,334 adults (15 years and older) covered by the Global Findex in 2011. The financial inclusion indicator is a 0/1 variable indicating whether person had an account at a formal financial institution in 2011.

Intro Measurement and Impact Public Policy on Financial Inclusion Focus AreasMJM10

MJM10 I like this graphic - lots to discuss here in a talk.Margaret J. Miller, 5/29/2013

Need for “responsible” financial inclusion

Source: World Bank Survey of Financial Capability (2012)

• … highlighted by financial vulnerability of many people, even in middle‐income countries


MJM25 I think this is a very interesting graphic - I would keep unless we're tight on slides, then I think it could be discussed without the visual. We might also want to redo and simplify -- take out the education levels and simply give each country an observation.Margaret J. Miller, 5/29/2013

Measuring financial inclusion

Source: World Bank Enterprise Surveys. Sample includes 137 countries from 2005 to 2011. Country income groups are based on World Bank definition (high income is gross national income of at least $12,476).

• Among firms, the younger and smaller ones face greater constraints, and their growth is affected relatively more by constraints


35

2925

16 15

8

0

5

10

15

20

25

30

35

40

firms with <20 employees 20‐99 employees >100 employees

Developing economies Developed economies

% of firms identifying access to finance as a major constraint

I. The promise of technology

II. Business models, product design

III. Financial literacy / capability

Promoting inclusion: special focus areasIntro Measurement and Impact Public Policy on Financial Inclusion Focus AreasMJM13

MJM13 I like these three focus topics and would keep this slide to clarify the final stage of the presentation and highlight these issues.Margaret J. Miller, 5/29/2013

• Recent innovations in technology– Mobile payments, mobile banking– Borrower identification using biometric data (fingerprinting, iris scans, …)

• Can help reduce transaction costs while increasing financial security• Example: rapid growth in number of phone subscriptions per 100 people


Source: World Development Indicators.


MJM14 I would eliminate this slide.Margaret J. Miller, 5/29/2013

• Example: new evidence that collateral registries spur access to financePublic policy on financial inclusion


0.50

0.73

0.41

0.54

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

Pre reform Post reform

Treatment Group(Registry reform)

Control Group (Noreform)

Share of firms with access to finance

Source: Love, Martinez Peria and Singh (2012)

Note: The effect is larger among smaller firms

• Another example: fingerprinting in Malawi (% of balances repaid on time)


88%

79%

91% 93%89%

26%

74%

92%

96%98%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Worst 2nd quintile 3rd quintile 4th quintile Best

Fingerprinted

Control

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

Note:The repayment rates among fingerprinted (red) and control (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 effect.


• Improvements in lending to micro and small firms can be achieved by leveraging existing relationships

• Example: Banco Azteca, Mexico– in 2002, opened >800 branches in stores of its parent company, a consumer goods retailer– caters to low and middle‐income groups mostly excluded from commercial banking

II. Business models, product design

Source: Bruhn and Love (forthcoming)


MJM16 This is a good slide for business model discussion.Margaret J. Miller, 5/29/2013

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

– Commitment accounts, reminders, labeled accounts, group lending, investment games, timing of repayments, index‐based insurance

• Example 1: commitment accounts– Deposit a certain amount, relinquish access for a period of time or until a goal has been reached– Randomized evaluations on Philippines (Ashraf, Karlan, Yin 2006) and Malawi (Brune et al 2011)– 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 – It seemed primarily to have helped farmers by shielding funds from their social network

• Example 2: index‐based insurance– Clear benefits for lenders (lower risk of weather‐related credit defaults), potential to increase

financial inclusion and agricultural production– But take‐up often low: 20% for loans with rainfall insurance vs. 33% for loans without insurance

(randomized experiment with farmers in Malawi by Gine and Yang, 2009)– 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

II. Business models, product designIntro Measurement and Impact Public Policy on Financial Inclusion Focus AreasMJM17

MJM17 This slide provides some good additional discussion with more detail of the topic - I would keep if possible.Margaret J. Miller, 5/29/2013

Research shows

• Standard, classroom‐based financial education programs aimed at general population do not work, at least not for adults

• In microenterprises, business training programs have been found to lead to improvements in knowledge, but relatively small impact on business practices and performance

III. Financial literacy / capabilityIntro Measurement and Impact Public Policy on Financial Inclusion Focus AreasMJM18

MJM18 I would omit this slide. It has a very condensed approach to the topic - the following one is more nuanced and better introduces our findings.Margaret J. Miller, 5/29/2013

Recent evidence suggests

• It is possible to increase financial literacy through well‐designed and targeted interventions

• Financial education has a measurable impact when reaching people during “teachable moments” (e.g. starting a job, purchasing a financial product)

• … and is especially beneficial for groups with limited financial skills• Leveraging social networks enhances the impact of financial education

– Examples: involve both parents and children, both sender and recipient of remittances

• Delivery mode matters too– “Rule of thumb” training helps (avoids information overload)– Engaging delivery channels show promise

III. Financial literacy / capabilityIntro Measurement and Impact Public Policy on Financial Inclusion Focus AreasMJM19

MJM19 I would keep this slide and the following one from the TV show with financial messages for the discussion of financial literacy / capability.Margaret J. Miller, 5/29/2013

A Focus on Two Interventions

1) School‐based financial education in Brazil

2) Mass media in Mexico and South Africa

Brazil’s Financial Education Program for High Schools

• Give financial education to young Brazilians• Change understanding and knowledge of the relationship

between present choices and future outcomes• Change current behavior: increase savings and improve

planning and spending• Change financial attitudes towards future behavior:

improve financial independence and intentions to save• Change household outcomes: spillover effects on

parental financial knowledge and behavior

Pedagogical Approach

Key points• Complementary to

educational system, strategy• Financial capability taught

within other subjects• Attractive for students and

teachers

Brazil’s Competency Matrix

Positive Impact on Financial Capability

Intention to Save Index

Opportunity for entertainment education to strengthen

financial capability

• Helps address selection bias, where only most interested, informed seek financial training

• Can be used to inform, change attitudes, model skills and support changes in normative behavior

• Cost effective way to reach large numbers• Well suited to new financial consumers in developing countries with limited literacy, numeracy, lack of experience with basic products

Mucho Corazon ‐ A Mexican Soap Opera with Financial Messages

Impact of Mucho Corazon on Views on Saving

Impacts on Seeking Financial AdviceDaily call volume data from the NDMA call centers shows a spike in incoming calls immediately following the episode where the NDMA was introduced into the soap storyline.

• Example of a promising delivery mechanism: entertainment education• But effects of literacy programs tend to be short‐lived … need to be repeated

III. Financial literacy / capability

Source: Berg and Zia (2013)Note: “Hire purchase” refers to contracts where people pay for goods in installments


0.10

0.15

0.20

0.25

0.30

0.35

Someone in Household Has UsedHire Purchase in the Past 6

Months?

Someone in Household HasGambled Money in the Past 6

Months?

Control

Treatment

Share of re

spon

dents

Thank you!

http://responsiblefinance.worldbank.org/http://www.worldbank.org/financialdevelopment

financial inclusion-by-margaret-miller-wb

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