Getting Finance Indicators Financial Analysis Unit Kumar / Lin / Safavian / Tzioumis April 25th, 2007
1. Getting Finance Indicators Introduction A new set of indicators on household access to finance Challenge 1: Global - intended to cover a large number of countries Challenge 2: Dynamic - to be repeated on an annual basis, to permit monitoring of reform Challenge 3: Reform oriented not only to quantify access but to identify barriers for policy reform 2
Introduction Core Proposal Data collection: Combination of sources: Regulators Financial institutions initially, banks Users Standardization across countries With a standard questionnaire and a standard user Differences due to User Profiles Supplementary surveys by mystery shoppers Can examine issues such as gender/income bias Modular possibilities: Could be extended to include: A wider spectrum of the financial services or A wider set of financial institutions 3
2. Motivation and Value-added Why are indicators on financial access useful? Governments can identify barriers to access which impede economic growth and take steps to address them International agencies and donors can use such monitors to track financial assistance projects and reform outcomes All policy makers can assess special issues such as gender/income bias Researchers will have access to data for meaningful analysis of access related issues 4
Value-added Links to Previous efforts Household surveys: Useful for single country studies. Expensive and time consuming for cross-country work. Present proposals are complementary. Supplier side surveys: Regulators or Financial institutions. Efforts so far have been selective and one-time only. Difficulties of coverage and potential bias in response. The new approach: A combination: Builds upon previous efforts - provider and user data; regulators and financial institutions. Time-series data collection: Allows monitoring of reforms over time. Enables dynamic analysis of policy change. 5
3. Methodology: (i) the Standard Household Urban households: Increasing trend Easier initially Male-headed household Universally dominant and more prominent in poorer countries But less prevalent in lower income households within countries Household income = mean income Difference between mean and median income drops as inequality falls Salaried employment in non-agricultural sector Household size varies by country Used to estimate household income from per capita income 6
3. Methodology (cont.) Attributes of a Standard Household Urban and Rural Population Distribution Global Trends Show Increasing Urban Populations 7 Source: United Nations, World Urbanization Prospects; 2005 Revision
3. Methodology (cont.) Attributes of a Standard Household Difference Between Mean and Median Measures falls as Inequality falls Inequality and central tendency measures, UN-WIID2 Percentage difference between median and mean income (%) 60 50 MEX LKA 40 30 20 10 0 NLD SVN AUT GBR ESP FIN CAN CHE FRA ITA DNK Source: World Income Inequality Database (v. 2: June 2005), UN-WIDER. Both income levels and Gini coefficients refer to household incomes. ISR USA RUS SGP 20 30 40 50 Gini coefficient (%) Sample: 29 co untries 8
3. Methodology: (ii) Mystery Shoppers Mystery Shoppers (1) To provide a check on data obtained from financial institutions Mystery Shoppers (2) To simulate users of different profiles (e.g. a female, a lower income person, a person with limited education or with less collateral) Use of different profiles of mystery shoppers can test for biases in service provision and simulate randomized trials Will be undertaken selectively to supplement core data collection efforts, in a few countries. Mystery shopper methodology already applied with success in finance (e.g. Microsave on MFIs in East Africa). 9
3. Methodology: (iii) Financial institutions / Services covered Measuring Access - Access to Institutions All Financial Service Providers Formal Financial Institutions Banks / Near Banks Other Formal Informal Non-Intermediated Country X Commercial Banks Development Banks Coop. Banks State / Private Domestic / Foreign Full Service Credit Unions Insurance Companies Pension Funds Mutual Funds Brokerage Houses Credit Coops Regulated Microfinance Pawnshops Money Lenders Check Cashing Outlets Unregulated Microfinance NGOs Family and Friends 0% 20% 40% 60% 80% 100% Financial Institution / Assets Microfinance 10
3. Methodology (iii) (cont.) Financial institutions surveyed Measuring Access - Services Transactions/ Payments Savings Credit Insurance Pensions Cashing Checks Paying Bills Receiving Remittances Earning a return Getting a Keeping Money in Loan Savings InstrumentsServicing a Loan Obtain Credit Getting Life Insurance Getting Non-life Insurance Retirement Having a savings Pension Banks Non-bank FIs Insurance Cos Cooperatives Microfinance 11
3. Methodology (iii) (cont.) 100 Banks dominate almost all countries financial systems in terms of savings/credit/payment services Will focus on Top 5-6 institutions Share of banking sector in financial system (assets, %) 90 80 73.0 70 60 50 40 30 12 South Africa Namibia Japan Morocco Kenya Hong Kong Hungary Ghana Sweden Kuwait Costa Rica Gabon Tanzania Madagascar Cameroon Uganda Bangladesh Pakistan Nigeria
3. Methodology (iii) (cont.) Other institutions Later stages Potential Overall Project (in 3-5 years) Institutions Banks and full service credit unions Finance companies, credit card companies Insurance companies Mutual Funds, Brokerage houses Pension funds Regulated Microfinance /Credit cooperatives Informal: Moneylenders, check cashers Services Banking services Payments, receipts, transactions Savings Loans and Credits Insurance Retirement services: pensions Pilot Project (next 1 2 years) Banking Payments Savings Credit 13
4. Proposed Indicators: Criteria: Combine Key Institutions and Core Services Detailed indicators pinpoint actionable barriers Modular approach - Can expand to other formal / informal institutions - Can expand to cover additional services Core indicators: 1. Being Banked 2. Making Payments / Receiving Remittances 3. Growing Savings 4. Getting a Loan / Getting Credit 14
Core Indicator 1: Being Banked Sub-indicators: 1. Availability of services Opening & maintaining an account [cost, time, process] Aggregate availability and use of banking services 2. Quality of services Mode of access Disclosure frequency Overdraft services & foreign currency services Basic Banking services 3. The Banking environment Regulatory environment Infrastructure 15
Construction of Indicators-An Example - Being Banked 1. Availability of Services: 1.1 Opening an account Number of documents needed to open a bank account (Nos) Total fees to open a bank account/ GDP per capita Minimum initial balance/ GDP p.c. Locations where account opening application can be submitted (Nos) Days taken to process an account application (No of days) 1.2 Maintaining an account Min. ongoing balance / GDP p. c. Monthly maintenance fee/ GDP p. c. No fee threshold/ GDP p. c. Additional fee for specific services / GDP p.c. 1.3 Aggregate Availability of Banking Services Branches (ATMs) / 000 square kms (000 population) Deposit (loan) accounts/ 000 square kms (000 population) 16
Construction of Indicators-An Example - Being Banked contd/2 2. Quality of Services: 2.1 Mode of Access Hours of operation (hours) After hour accessibility (0/1) Automatic ATM privileges (0/1) Availability of telephone transactions (0/1) Availability of Internet banking (0/1) 2.2 Routine Disclosures Statement availability (0/1) Statement periodicity 0/1) 2.3 Basic Banking Availability of basic service package (no fees, non minima, no overdraft) (0/1) Checking restrictions (Nos) Withdraw restrictions (Nos) Inquiries restriction (Nos) Mobile / Offsite banking services(0/1) 17
Construction of Indicators-An Example - Being Banked contd/3 3. The Banking Environment: The Regulatory Environment and Access (Questions for the Banking Regulator and Supervisor) Documents to open an account (0/6) Regulations on maintaining an account (0/2) Regulations on banking services (0/10) Regulations on branch banking (0/2) Services provided on branch location (0/1) Branch opening requirements (0/6) Banking Infrastructure (Questions for the Banking Regulator and Supervisor) Central information registry available (0/1) ATM network compatibility (0/1) ATM network usage fee (0/1) 18
Core Indicator 2: Making Payments / Receiving Remittances Paying for groceries / necessities at stores Paying bills of utility companies Sending domestic transfers [cost & process] Receiving domestic transfers [cost & process] Sending cross-border remittances [cost & process] Receiving cross-border remittances [cost & process] Policies towards payment systems 19
Core Indicator 3: Growing Savings The simplest form of savings (keeping funds safe in a financial institution) is covered in Being Banked The present indicator goes beyond deposit accounts to remunerated accounts and return-generating products along a continuum of returns/risks. Sub-indicators: Earning a Return on Savings in a Bank account Features of savings account Savings and Investment Simple Instruments Certificates of Deposit Savings and Investment Complex Instruments Financial instruments Regulatory policies 20
Core Indicator 4: Getting a Loan / Getting Credit Getting loans (typically given on a one-time basis) Getting credit (draw upon a standing loan facility) Sub-indicators common to all loan products Regulatory policy towards loans and credit cards Nature of documentation needed Collateral requirements/ credit reporting Regulatory ceilings / floors on interest rates Sub indicators specific to standardized loan products Applying for a loan Servicing a loan Getting and using a credit card 21
4. Indicators proposed Links to previous work an example Reaching out Regulator Survey Getting Finance Regulator Survey Module Access to Banking Services Use of Banking Services Barriers: Opening /Maintaining an Account Barriers: Limited Features of Banking Services Barriers: Banking Environment. Being Banked ATMS/ Branches per 000 persons ATMs/ Branches per 000 square kms Loan/deposit accounts per 000 persons Avg loan/ deposit size/ % GDP per capita Documentation to open an account Fees to open an account Minimum initial balance Fees to use specific services Locations for processing account opening Mode of access Routine disclosures ATM services Checking services Basic Banking Regulations: Opening Maintaining Convenience Physical Infrastructure: ATMS/ Branches/ 000 persons or 000 22 sq kms Loan / Deposit Nos / Size
5. Implementation - Partner Coordination Partnerships CGAP (and affiliated MFIs); IFC PEP Programs FPD Finance units/ Regional FPD units Gender Programs (PREM / IFC) DFID UK (Reimbursable TA agreement) UNCDF Partner priorities and partnerships in data collection envisaged Selection Criteria of Countries for pilot phase: Emphasis on Africa will be attempted Inclusion of a limited number of developed countries for benchmarking Donor considerations donor program countries Practical considerations countries where there are well established Bank partnerships 23
5. Implementation Countries for Pilot Proposed Countries (preliminary list) Africa region ECA region MNA region East Asia region South Asia region LAC region Developed countries (for benchmarking) Burkina Faso, DR Congo, Gambia, Ghana, Kenya, Madagascar, Malawi, Mozambique, Nigeria, Tanzania, Uganda, Zambia. Bulgaria, Georgia, Poland. Jordan (or Egypt), Morocco, Yemen. Indonesia, Philippines, Laos (or Vietnam). Bangladesh, Pakistan, Nepal. Colombia, Mexico, Nicaragua (or Guatemala). USA, Germany/ Netherlands/ Sweden 24
5. Implementation Timeline Proposed Timetable : Pilot Phase FY 2007 08 Concept note circulated to Bank and partners April 2007 Formulation of Questionnaires May 2007 Launching of pre-pilots in 1-3 countries Sept. 2007 Launching of data collection in 15-25 countries Oct-Dec 2007 Data cleaning and processing Jan-Mar 2008 Preparation of first round report May 2008 25