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Housing Finance across Countries: New Data and Analysis

Thorsten Beck's picture

Housing finance is a hot topic across the developed and developing world, though for different reasons. With some developed economies just coming out of a housing slump and others still in the middle of it (including my current host country, the Netherlands), often caused by easy and excessive access to mortgage credit before the crisis, households in many developing countries suffer rather from a dearth of long-term financing options. To illustrate this discrepancy, total mortgage debt outstanding in the Netherlands is equivalent to 83% of GDP, whereas it amounts to less than one percent of GDP across many low- and lower-middle-income countries in Asia and Africa. What explains these differences? Are underdeveloped housing finance systems just a symptom of the general shallowness of financial systems across developing countries?  Or are there country factors and policies that specifically explain underdeveloped mortgage markets?

In a recent paper with Anton Badev, Ligia Vado and Simon Walley, we try to answer some of these questions with new data on mortgage depth and penetration. Specifically, drawing on a painstaking exercise of putting together country-level information on the depth of mortgage finance systems across countries and over time and using the recent data on the use of housing finance in the Global Findex database, we explore factors explaining the large cross-country variation in housing finance across the world

An Analysis of National Financial Inclusion Strategies

Martin Cihak's picture

More than 50 countries have recently published explicit financial inclusion strategies and committed to formal targets for financial inclusion. These strategies and commitments reflect a growing recognition of the role of financial inclusion in reducing poverty and boosting shared prosperity. The Financial Inclusion Strategies Database—one of the supporting materials for the World Bank Group’s Global Financial Development Report 2014—summarizes the national strategies in a format that eases comparisons across countries, thus assisting research in this area. In this post, we present an introductory statistical analysis of the dataset.

Demand collapse, not credit crunch, was hurting Eastern European firms the most in the crisis

Rong Qian's picture

While there is a consensus among researchers and policy makers that the 2008–2009 crisis was triggered by financial market disruptions in the United States, there is little agreement on whether the transmission of the crisis and the subsequent prolonged recession were caused by credit factors or a collapse of demand for goods and services. On the one hand, a credit crunch, defined as a reduction in the ability of firms to get loans or a sudden tightening of the conditions required to obtain a bank loan, squeezes firms’ working capital and hurts their production. On the other hand, adverse demand shocks to firms come from declines in demand for firms’ products and services. Each type of factor has fundamentally different policy implications. If credit factors are found to play the main role, the solution would be to provide more and cheaper credit. But if demand factors are the main drivers, the focus should be on boosting investors’ and consumers’ confidence. Interestingly, most of the effort to understand the impact of the crisis focuses on credit and not on demand.

Understanding Banks in Emerging Markets: Observing, Asking, or Experimenting?

Thorsten Beck's picture

Empirical banking research stands and falls with high-quality data. The recent years have seen a large number of new data sources and empirical methodologies being applied to understand how banks operate in the often challenging environment of emerging and developing economies.

A recent conference at the EBRD, jointly organized with the European Banking Center at Tilburg University, the Review of Finance, and the Centre for Economic Policy Research in London, brought together researchers using three types of data sources asking a variety of important questions. Vox has now published an eBook that provides an overview of the different topics discussed during the conference. The studies presented at the conference and in the eBook use data from existing data repositories such as credit registries ('observing'); from large-scale surveys of bank CEOs and bank clients ('asking'); and from randomized experiments ('experimenting'). All three methods try to prise open the banking 'black box' in different ways — each with their own advantages and disadvantages. Using these different data sources allows researchers to address relevant policy questions, and also to better understand the micro-mechanisms of financial contracting and the supply- and demand-side constraints that (potential) borrowers in emerging markets face on a daily basis.

What financial products do Muslim adults want?

Asli Demirgüç-Kunt's picture

"Islamic finance" is a phrase that you hear a lot in development circles these days. Indeed, many policymakers are interested in the potential of Sharia-compliant financial services to expand financial inclusion among Muslims adults. Our colleagues down the street are no exception:  earlier this year the International Finance Corporation (IFC) announced its first partnership with an Islamic finance institution in Sub-Saharan Africa, a $5 million equity investment with Gulf African Bank in Kenya with the explicit goal of expanding Sharia-compliant banking products and services to small and medium businesses.

Yet little is actually known about the degree to which individual Muslims are not accessing conventional financial institutions, and even less about how much they demand and use Sharia-compliant financial products, particularly within the realm of household finance. In an attempt to add some empirical rigor to the Islamic finance conversation, we recently published a Working Paper and Findex Note that explore these questions using Findex and Gallup World Poll data.

Fresh off the Press: Global Financial Development Report 2014

Martin Cihak's picture

Global Financial Development Report 2014Today, the World Bank Group is issuing Global Financial Development Report 2014: Financial Inclusion. The report is the second in a new series on global financial development. It follows up on last year’s inaugural issue, which focused on rethinking the state’s role in finance.

Financial inclusion is a logical choice for the report’s theme. Access to financial services is crucial for reducing poverty and boosting shared prosperity, as demonstrated by recently available data and evidence showcased in the report. At the same time, real-world financial systems are far from inclusive. Globally, 2.5 billion people—more than a half of the world’s adult population—have no bank accounts, lacking efficient mechanisms to save money and pay bills. A vast majority of the “unbanked” live in the developing world (figure 1).
The report comes at a propitious time, because financial inclusion has become a subject of heightened interest. Over 50 countries have recently committed to formal targets and goals for financial inclusion. And last month, during the World Bank-IMF Annual Meetings, President Jim Yong Kim put the issue into spotlight by calling for universal financial access for all working-age adults by 2020.

Will hard cash go the way of the compact disk?

Ignacio Mas's picture

Hard cash certainly has its drawbacks. Poor people mired in a cash economy find it difficult, in times of need, to support or seek support from distant relatives and friends. The size of the market they can sell their products and wares into or source their inputs from is limited by how far they can easily and securely transport cash. They are captive to local financial organizations and moneylenders, because more distant financial institutions don’t find it cost effective to go collect their saved-up cash and have no visibility of their prior cash-based financial histories on which they might otherwise grant credit.

Finance, Growth, and Fragility: What Role for Government?

Thorsten Beck's picture

When I was invited to give the Maxwell Fry Global Finance Lecture in Birmingham last year, I decided to stay in the tradition of Maxwell Fry (1988) and focus on the role of government in the financial sector, a continuously controversial issue. Maxwell Fry was one of the first economists drawing the attention to the importance of the financial sector for economic development, well before the empirical finance and growth literature took off in the 1990s, while at the same time documenting the negative effect of excessive government intervention into financial markets, also referred to as financial repression.

Financial development has been identified as a key policy area for economic development, while at the same time rapid credit expansion often results in systemic fragility and economic crisis. The critical issue has been the question of what explains the variation in financial sector development (both shallow markets in some, but also over-expanding markets in other countries and periods). Economists have provided three different kinds of answer. In the following I will refer to them as the (i) policy approach, (ii) political approach and (iii) historical approach. While these three views are not incompatible with each other, they imply very different views on the nature and role of government within the financial system.

Avoiding the “Planning Paradox”: The New World Bank Strategy Must Take Risk and Uncertainty into Account

Norman Loayza's picture

While effective risk management is essential for development, countries and institutions tend to ignore risks and uncertainty when planning ahead. A recent blog from Norman Loayza discusses the importance of strengthening the integrated assessment of various types of risks at regional and national levels. Norman’s blog can be accessed in this link.

How to Bring Financial Services to the Poor: Go Digital

Jason Lamb's picture

Most of us in the developed world don’t think twice about how we conduct our financial lives. Our paychecks appear automatically in our checking accounts; bills are paid with the tap of a few keys; we swipe our debit card and a barista hands us a cup of coffee. Simple. Convenient. Low cost. Digital. For people in the developing world, it’s another story. It’s much more complicated. It’s hardly ever convenient. And rarely digital.

I’m speaking at the Alliance for Financial Inclusion’s Global Policy Forum today to share the results of a new report from the Gates Foundation and McKinsey & Company, Fighting Poverty, Profitably: Transforming the economics of payments to build sustainable, inclusive financial systems, completed about payment systems around the world. We wanted to learn more about the costs associated with current payment systems and find ways to provide poor people in developing countries with affordable, efficient and secure ways to send and receive money.

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