financial services and financial access indicators thorsten beck
TRANSCRIPT
Financial Services and Financial Access Indicators
Thorsten Beck
Overview Introduction Financial intermediaries Financial markets Contractual savings and insurance Access to financial services Compiling data – an on-going effort
Functions of financial markets
Ease the exchange of goods and services Payment services
Mobilize and pool savings Savings services
Produce information ex ante about possible investments and allocate capital Credit services
Monitor investments and exert corporate governance after providing finance
Facilitate the trading, diversification and management of risk
Financial institutions and markets Financial intermediaries
Collect savings and intermediate in the form of debt, collect proprietary information about debtors and monitor them directly
Financial markets Attract savings in the form of debt or equity
instruments to provide resources for firms; information collection and dissemination through price mechanism
Contractual savings and insurance Mobilize savings through contingent contracts, offer
risk management services, provide investment resources in different forms (institutional investors)
Financial intermediaries or markets? Financial system structure varies
widely across countries Financial structure (importance of
banks and markets) has no impact on economic development
The provision of financial services (by whoever) is important for economic development
How to measure provision of financial services While emphasis on financial service provision
as opposed to specific institutional structure, available data are organized by institutions not by services
Careful in interpretation (example US: most credit is not through banks, but other financial intermediaries)
Mix of cross-country comparisons and country-specific data, anecdotal and qualitative evidence
Here, we focus on quantitative measures
Structure of the Financial System
Number
Total assets
Depository institutions
Commercial banks
Mortgage finance companies
Building Societies
Non-depository institutions
Insurance companies
Pension funds
Securities firms
Finance companies
Financial institutions and markets – some initial
thoughts
Stocks vs. flows Are all assets equal? Depth vs. breadth Limitations of quantitative
indicators
Overview Introduction Financial intermediaries Financial markets Contractual savings and insurance Access to financial services Compiling data – an on-going effort
Financial intermediary development
Deposit money banks (offer demand deposits)
Other bank-like institutions (postal banks etc., finance through non-demand deposits)
Non-bank financial institutions (finance through non-deposit sources): leasing companies etc.
Financial intermediary development
Source: International Financial Statistics (IFS)
Liquid Liabilities (currency plus demand and interest-
bearing liabilities of FI)/GDP IFS lines 55l/99b
Bank deposits/GDP IFS lines (24+25)/99b
Bank Credit/GDP IFS lines (22d)/99b
Private Credit/GDP IFS lines (22d+42d)/99b
Financial intermediary development: A note on
deflating
0 5 1
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,
FD
CPI
FD
CPI
GDP
CPI
t
e t
t
e t
t
a t
Private Credit in Brazil 1990 (inflation = 3,000%)37.5% 23.0%
t
t
GDP
FD
)(*5.01,
1
,
,
ta
t
ta
t
te
t
CPI
GDP
CPI
GDP
CPI
FD
Financial intermediary development across countries
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Liquid Liabilities/GDP Bank deposits/GDP Bank Credit/GDP Private Credit/GDP
Low
Lower Middle
Upper Middle
High
How to interpret financial intermediary development Countries with higher levels of financial
intermediary development enjoy higher GDP per capita growth rates.
Rapid growth in financial intermediary development is a good banking crisis predictor.
Financial intermediary development has to be based on fundamentals
Legal system efficiency Transparency Monetary stability
Focus on effectiveness, not size
Financial intermediary development – a caveat
Cross-country comparisons limited to institutions that report to regulators and thus indirectly to IFS.
In most countries, this does not cover semi-formal financial institutions (coops), informal finance and micro-finance
Recent data collection on micro-finance penetration
Financial intermediary development - Efficiency
Source: Bankscope Overhead costs/total assets
Average for all banks or weighted by size? Interest rate margins = net interest
revenue/interest bearing assets Alternatively, as ratio to total assets
Interest rate spread = lending rate – deposit rate (Source: IFS, country-specific)
Overview Introduction Financial intermediaries Financial markets Contractual savings and insurance Access to financial services Compiling data – an on-going effort
Financial market development Primary markets
Number of issues Issue volume/GDP
Problems: Debt issues: refinance? Might vary a lot over the years
Financial market development Secondary market:
Market size Market capitalization/GDP Number of listed firms (debt or equity)/GDP Problem: how much is widely held and traded Problem: comparison over time and across
countries made difficult due to price element Market activity
Value traded/GDP Turnover = value traded/market capitalization
Overview Introduction Financial intermediaries Financial markets Contractual savings and
insurance Access to financial services
Contractual savings and insurance Insurance:
Source: SIGMA Insurance penetration (premium volume/GDP) Insurance Density (premium volume per capita in
USD) Problem: price*quantity Outstanding assets/GDP Range of products
Contractual savings: Source: country-specific Total assets of funded pension programs Total expense for PAYG pension systems
Overview Introduction Financial intermediaries Financial markets Contractual savings and insurance Access to financial services Compiling data – an on-going effort
Access to financial services – How to define access Geographic: deficient access to branches and
outlets Problems: population density, underdeveloped rural areas
(e.g., physical infrastructure), security Socio-economic: deficient access for some
population segments Problems: high minimum deposits and administrative
burden, lack of formality, low educational levels, discrimination
Opportunity: reliance on past record and real estate collateral (instead of on expected future performance)
Problems: credit services limited to entrepreneurs with credit history, connections, or immovable collateral
Access to financial services – Access vs. usage
Usage much easier to measure, but access most likely wider
Understanding usage requires information on both demand and supply
Distinguishing between: Access to financial services
Physical access Affordability
Voluntary self-exclusion Cultural barriers and financial illiteracy Inadequacy of product
Involuntary self-exclusion Involuntary exclusion
Access to financial services – defining the problem properly Payment/savings services
Constrained optimum too low, due to state variables (contractual framework, infrastructure, security, market size etc.)
Equilibrium below constrained optimum, due to regulatory inefficiency, market structure
Credit services Constrained prudent optimum too low, due to (i)
macroeconomic volatility, (ii) deficiencies in contractual and informational framework and (iii) lack of possibilities to diversify risk
Equilibrium below constrained prudent optimum, due to regulatory inefficiency, market structure
Imprudent excess access, beyond constrained optimum
How to measure access:Geographic/physical access
Indicators: Branch/outlet/ATM penetration (legal definition) Compare penetration in urban/rural areas Availability and use of phone and e-finance Alternative providers
Use of indicators: Comparison across geographic units within countries
Relative to GDP, population, area Pitfalls:
Relate to other country characteristics Are more branches better? (Overbranching?) Policies and regulations on branching
How to measure access: Socio-economic
Indicators Number of clients Deposit and loan size distribution, SME lending Fees and minimum balances for deposits Cost and time of payment services Informal finance Firm-level and household surveys
Use of indicators: Cross-country comparisons on firms’ financing patterns and obstacles Characteristics that can explains firms’ and households’ access to
financial services Identify main impediments to access/participation to finance
(economic, legal, social, infrastructure etc.) Pitfalls:
“70% of population do not have access” – define access problem Control for household and firm characteristics when assessing access
and participation
How to measure access – Opportunity Closely linked to socio-economic segmentation Mostly anecdotal evidence
What collateral is accepted by banks? What information requirements do banks have? What are criteria in lending process?
Indirectly inferable from infrastructure Contractual environment Credit information systems
Possible areas to be explored with expert surveys Time and cost to apply for loan Infer size of eligible borrower segment from collateral,
information, minimum loan etc. requirements (provider surveys) and firm/household surveys
Access to Financial Services – Cross-Country Data Few data are available Recent data compilation effort by World Bank
(Beck, Demirguc-Kunt and Martinez Peria, 2005) on branch/ATM penetration and use of loan and deposit accounts
On-going effort to compile data on barriers to banking (cost, requirements etc.)
Going forward: standardized household surveys to measure access to and use of financial services
Already existing: firm-level surveys Going forward: expert surveys on costs of
specific products
Branch penetration across countries
Branch Penetration
0.00 5.00 10.00 15.00 20.00 25.00
Number of branches per100,000 people
Branches per 1,000 sq km
India
Indonesia
Russia
China
Madagascar
Number of Deposits per 1,000 Population
50th Percentile
75th Percentile
1st Percentile
99th Percentile
25th Percentile
14.46
111.38
119.77
287.27
302.05
429.40
486.74
571.03
1,073.48
1,423.12
1,585.99
2,417.64
3,119.95
Armenia
Papua New Guinea
Honduras
Philippines
Bosnia
Venezuela
Guyana
Trinidad and Tobago
Thailand
Mauritius
Greece
Austria
Armenia
Austria
Belgium
BrazilBulgaria
Colombia
Denmark
Ecuador
France
Greece
Guatemala
Guyana
Italy
Kenya
Mexico
Namibia
Nicaragua
Pakistan
Spain
0
.2
.4
.6
.8
1
% o
f Ho
useh
olds
with
Ban
k A
ccou
nts
- F
itted
0 .2 .4 .6 .8 1% of Households with Bank Accounts
Share of households with bank accounts – predicted vs. actual
Barriers to Banking
Minimum Amount to Open Checking Accounts(% of GDP per capita)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Min
imu
m A
mou
nt
(% G
DP
per
cap
ita)
Barriers to Banking
Annual Fees on Checking Accounts (% of GDP per capita)
0.00
5.00
10.00
15.00
20.00
25.00
30.00
Ann
ual F
ees
(% G
DP
per
cap
ita)
Overview Introduction Financial intermediaries Financial markets Contractual savings and insurance Access to financial services Compiling data – an on-going
effort
Compiling data - an on-going effort Good data on banks Good aggregate data on equity
markets and contractual savings Fewer data on cost and efficiency
of financial markets Very few data on service provision
and access
Compiling data – the tasks of IFI and countries IFIs’ task:
Compile cross-country databases Develop and regularly update
indicators of financial services and access
Countries’ task: Collect and process data Develop “within-country databases”
World Bank Questionnaire on Access to Financial Services Collect data on credit, deposit and
payment services across countries for Cross-country comparisons To study the impact of access on poverty
and growth 19 Questions Data will be made public and
accessible