Research Program on Access to Finance Asli Demirguc-Kunt The World Bank Prepared for Knowledge for Change November 9, 2006
Why are we interested in access? Financial exclusion is likely to act as a brake on development Theoretical models have shown that financial market frictions can be the critical mechanism for generating poverty traps An extensive empirical literature exists on the links between financial development and growth But, limited evidence linking access to financial services to outcomes, due to lack of data 2
Why would access matter for the outcomes we care about? Firms access to financial services Matters because of the impact on growth, and especially of small and new firms (entry) To date: ICA and other firm level data Households access to financial services Matters because of poverty reduction, risk mitigation, more voice and inclusion To date: some data from existing LSMS and some specialized households surveys 3
Research Program on Access Data collection Impact of access to finance On firms and households Channels through which access to finance can contribute to growth process Promoting innovation and the process of technology adoption, entrepreneurship Different ways of improving access Microfinance innovations to improvements in the functioning of mainstream finance 4
Defining access is not easy Access vs. Usage Usage is much easier to measure However, access is likely to be wider some may have access, yet may not wish to use services Understanding usage requires information on both demand and supply Thus need to collect indicators that measure both: Actual use of various services (savings, payment, credit) Barriers to access, to identify boundaries and causes of exclusion 5
Data Collection Efforts Regulator surveys cross country Number of branches and loan and deposit accounts relative to population, average size of loans and deposits relative to GDP per capita Bank (provider) surveys top 5 commercial banks in every country Developing indicators of barriers to banking by collecting data on minimum deposit balances, deposit and loan fees, requirements to open a bank account and apply for a bank loan, cost of electronic transfers, etc. Household surveys Pulling together existing data from LSMS and others Coordinating and designing core set of indicators to include in HH surveys going forward All complementary efforts to get a full picture of access 6
Barriers to Access- Bank Surveys Surveys of 193 banks in 58 countries Develop and analyze indicators of physical access, affordability and eligibility barriers to deposit, loan and payment services At least 30% of the market in terms of total loans or deposits 7
Minimum Balance to Open Checking Account (% of GDPPC) 150 8 Ghana Bolivia Jordan Sri Lanka Philippines Kenya Armenia Indonesia India Colombia Chile Lebanon Korea, Rep. Dominican Republic Bangladesh Peru Pakistan Trinidad and Tobago Mexico Albania Greece Bulgaria Egypt, Arab Rep. Czech Republic Malta Hungary Slovak Republic Bosnia and Herzegovina Romania Slovenia Turkey Switzerland Sweden Swaziland Spain South Africa Moldova Malawi Lithuania Israel Germany Georgia Denmark Croatia Brazil Belgium Belarus Australia Algeria Ethiopia Sierra Leone Uganda Madagascar Mozambique Nigeria Cameroon 100 50 Minimum Balance to Open Checking Account (% of GDPPC) 0 Sample size: 56 countries
Annual Fees for a Checking Account (% of GDPPC) 9 Chile Indonesia South Africa Lebanon Peru Bolivia Brazil Colombia Sri Lanka Dominican Republic Moldova Mexico Egypt, Arab Rep. Romania Armenia Trinidad and Tobago Bosnia and Herzegovina Georgia Turkey Czech Republic Germany Albania Spain Slovak Republic Slovenia Hungary Australia Bulgaria Algeria Denmark Belgium Switzerland Croatia Korea, Rep. Nigeria Israel Greece Lithuania Sweden Philippines Pakistan Malta Jordan India Ethiopia Belarus Bangladesh Ghana Madagascar Cameroon Swaziland Kenya Malawi Uganda Sierra Leone 25 20 15 10 5 Annual Fee Checking Account (% of GDPPC) 0 Sample size: 55 countries
Number of Documents Needed to Open a Checking Account 10 Bangladesh Chile Trinidad and Tobago Sierra Leone Uganda Cameroon Kenya Ethiopia Nigeria Malawi Ghana South Africa Turkey Indonesia Philippines Malta Colombia Swaziland Australia Algeria Madagascar Armenia Mexico India Brazil Dominican Republic Pakistan Sri Lanka Lebanon Bolivia Greece Peru Moldova Croatia Jordan Korea, Rep. Slovenia Belgium Bosnia and Herzegovina Bulgaria Georgia Lithuania Hungary Slovak Republic Belarus Denmark Romania Israel Switzerland Sweden Spain Mozambique Czech Republic Albania 5 4 3 2 1 0 Number of Documents Needed to Open Checking Account (Out of 5) Sample size: 54 countries
Minimum Loan Size Required for an SME Loan 11 Uganda Georgia Ghana Albania Lebanon Cameroon Philippines Ethiopia Armenia Bolivia Bosnia and Herzegovina Jordan Malta Sierra Leone Colombia Zimbabwe Pakistan Kenya India Chile Bulgaria Mexico Moldova Hungary Slovak Republic Peru Dominican Republic Greece Mozambique Belgium Croatia Sri Lanka Spain Turkey Lithuania Madagascar Korea, Rep. South Africa Switzerland Australia Trinidad and Tobago Brazil Slovenia Czech Republic Denmark Egypt, Arab Rep. Belarus Algeria Bangladesh 10,000 8,000 6,000 4,000 2,000 Minimum Amount SME Loan (% of GDPPC) 0 Sample size: 49 countries
Fees on SME loans 12 Cameroon Hungary Greece Belgium Australia Dominican Republic Brazil Zimbabwe Madagascar Bulgaria Turkey Sierra Leone Denmark Kenya South Africa Uganda Moldova Malawi Ghana Lebanon Mexico Trinidad and Tobago Slovak Republic Bosnia and Herzegovina Korea, Rep. Spain Jordan Albania Georgia Croatia India Egypt, Arab Rep. Lithuania Bolivia Czech Republic Ethiopia Slovenia Malta Colombia Armenia Peru Bangladesh Switzerland Algeria 30 20 10 0 Sample size: 44 countries Fee SME Loan (% of Minimum Loan Amount)
Days to Process an SME Loan Application 13 Lebanon Madagascar Ethiopia Albania Egypt, Arab Rep. Chile Bulgaria Dominican Republic Czech Republic India Sri Lanka France Mexico Bolivia Indonesia Sierra Leone Cameroon Bosnia and Herzegovina Lithuania Colombia Jordan Hungary Armenia Trinidad and Tobago Australia Belarus Malta Kenya Georgia Croatia Turkey Uganda Moldova South Africa Zimbabwe Slovenia Peru Brazil Belgium Slovak Republic Switzerland Korea, Rep. Greece Spain Israel Denmark Algeria Ghana Mozambique Pakistan Philippines Bangladesh 40 30 20 10 Days to Process SME Loan Applications 0 Sample size: 52 countries
Cost to Transfer Funds Internationally (% of US $250) 14 Malta Jordan Bulgaria Lebanon South Africa Cameroon Lithuania Kenya Sweden Australia Albania Greece Korea, Rep. Georgia Sierra Leone Peru India Malawi Spain Turkey Armenia Slovak Republic Madagascar Denmark Czech Republic Bosnia and Herzegovina Trinidad and Tobago Hungary Croatia Switzerland Slovenia Indonesia Bangladesh Ethiopia Belarus Egypt, Arab Rep. Uganda Belgium Moldova Bolivia Brazil Ghana Swaziland Dominican R 20 15 10 5 0 Cost to Transfer Funds Internationally (% of 250) Sample size: 44 countries
Barriers are lower In countries with Better physical infrastructure More efficient contractual and information environment Greater competition in banking Greater transparency and higher disclosure standards 15
Bank ownership matters.. Foreign banks charge higher fees, but banking systems with greater foreign entry have lower barriers in general Government banks do not provide improved access, but in banking systems dominated by state banks, customers face lower fees but poorer quality of service (fewer locations that accept loan applications, longer loan processing times). 16
Further Work Identify outlier countries case studies Measuring causal impact of improved access to credit and deposit services on economic outcomes - Randomized evaluations Indonesia; impact of access to bank accounts Sri Lanka and Mexico; estimating rate of return to capital invested in microenterprises 17
Other on-going work on Access Role of financing constraints in the business environment Impact of access to finance on firm innovation and entrepreneurship Microfinance evaluating pro-poor innovations, institutional prerequisites to improve microfinance performance => Policy Research Report on Access to Finance 18
Other Research on Finance Risk Management/Stability Impact of regulation & supervision, deposit insurance Globalization of financial services Capital market development Insurance 19
Thank you More information on existing and on-going research, data, and conferences: http://econ.worldbank.org/programs/finance 20