Download Financial Services and Financial Access Indicators

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


Mobilize and pool savings



Savings services
Produce information ex ante about possible
investments and allocate capital


Payment services
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


Financial markets


Collect savings and intermediate in the form of debt,
collect proprietary information about debtors and
monitor them directly
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 nondemand 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 interestbearing liabilities of FI)/GDP


Bank deposits/GDP


IFS lines (24+25)/99b
Bank Credit/GDP


IFS lines 55l/99b
IFS lines (22d)/99b
Private Credit/GDP

IFS lines (22d+42d)/99b
Financial intermediary development:
A note on deflating
 FDt
FDt  1 

0.5 * 

CPI e , t  1 
 CPI e , t
GDPt
CPI a , t
Private Credit in Brazil 1990 (inflation = 3,000%)
37.5%
23.0%
FD t
GDP t
FDt
CPI e,t
GDPt
GDPt 1
0.5 * (

)
CPI a,t CPI a,t 1
Financial intermediary development across
countries
0.8
0.7
0.6
0.5
Low
Lower Middle
Upper Middle
High
0.4
0.3
0.2
0.1
0
Liquid Liabilities/GDP
Bank deposits/GDP
Bank Credit/GDP
Private Credit/GDP
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 semiformal 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


Interest rate margins = net interest
revenue/interest bearing assets


Average for all banks or weighted by size?
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


Socio-economic: deficient access for some population
segments


Problems: population density, underdeveloped rural areas
(e.g., physical infrastructure), security
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



Voluntary self-exclusion




Physical access
Affordability
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




Indirectly inferable from infrastructure



What collateral is accepted by banks?
What information requirements do banks have?
What are criteria in lending process?
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
Branches per 1,000 sq km
Number of branches per
100,000 people
India
Indonesia
Russia
China
0.00
5.00
10.00
15.00
20.00
25.00
Number of Deposits per 1,000 Population
99th Percentile
Austria
3,119.
Greece
75th
Percentile
2,417.64
Mauritius
1,585.99
Thailand
1,423.12
Trinidad and Tobago
1,073.48
Guyana
50th Percentile
25th Percentile
571.03
Venezuela
486.74
Bosnia
429.40
Philippines
302.05
Honduras
287.27
Papua New Guinea
119.77
Armenia
111.38
1st Percentile Madagascar 14.46
Share of households with bank
accounts – predicted vs. actual
al
U awi
ga
nd
G
Ba h a
ng an
Zi lad a
m esh
ba
bw
Bo
G
sn
eo e
ia
-H B rgia
er oli
D
ze vi
om
g a
in C ov
ic o l in
a n om a
Re b i
pu a
A blic
lb
Bu ani
lg a
U ari
ru a
g
Le uay
Li ban
th on
ua
n
M ia
Sl alt
ov a
en
S p ia
ai
n
Ita
S w ly
ed
en
M
Minimum Amount (% GDP per capita)
Barriers to Banking
Minimum Amount to Open Checking Accounts
(% of GDP per capita)
60.0
50.0
40.0
30.0
20.0
10.0
0.0
ala
Ug wi
an
d
Ba Gh a
ng ana
la
d
Bo
Ge esh
sn
or
ia
-H Bo gia
er liv
ze i a
Do
g
m
in Co ovin
ica lo a
n mb
Re ia
pu
Al blic
b
Bu ania
lg
Ur aria
ug
Le ua
ba y
Li no
th n
ua
n
M ia
Sl alt
ov a
en
i
Sp a
ai
n
Ita
Sw ly
ed
en
M
Annual Fees (% GDP per capita)
Barriers to Banking
Annual Fees on Checking Accounts
(% of GDP per capita)
30.00
25.00
20.00
15.00
10.00
5.00
0.00
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