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Asli Demirgüç-Kunt's blog

Updated Global Findex: 62% of adults have an account; 2 billion still unbanked

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Today we release our new research paper and the 2014 Global Findex dataset, an updated edition of the world’s most comprehensive gauge of global progress on financial inclusion. It’s based on interviews with almost 150,000 adults in more than 140 countries worldwide.

We have plenty to celebrate:

  • Account penetration is deepening in every region. Sixty-two percent of the world’s adult population has an account, up from 51 percent in 2011, when the Global Financial Inclusion database (as it’s known formally) was launched.
  • The ranks of the unbanked are shrinking Worldwide, the number of adults without an account tumbled by 20 percent, to 2 billion.
  • Mobile money accounts — accessed via mobile phone — is powering Sub-Saharan Africa’s march toward financial inclusion. While just 1 percent of adults globally use a mobile account and nothing else, 12 percent of adults in Sub-Saharan Africa have a mobile account — versus just 2 percent worldwide. Of those adults in Sub-Saharan Africa with a mobile account, 45 percent rely on that account exclusively.

The 2014 Global Findex

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The Little Data Book on Financial Inclusion I’m thrilled to announce the April 15 launch of the 2014 Global Findex database, the world’s most comprehensive gauge of global financial inclusion. Drawing on interviews with almost 150,000 adults in over 140 countries, the Global Findex tracks worldwide changes in account ownership and explores how adults save, borrow, make payments, and manage risk. Financial inclusion, measured by the Global Findex as having an account that allows adults to store money and make and receive electronic payments, is critical to ending global poverty. Studies show that broader access to, and participation in, the financial system can boost job creation, increase investments in education, and directly help poor people manage risk and absorb financial shocks.

Our research updates the first Global Findex database, which the World Bank launched in 2011 in partnership with Gallup, Inc. and with funding from the Bill & Melinda Gates Foundation. Their continued support made it possible to add new features to the second edition of the database, including more nuanced questions on mobile banking and an extended module on domestic payments. The 2014 Findex for the first time sheds light on how adults use accounts — and what can be done to have people become more active users of the financial system.

There is much good news to report…. But to learn the details, you’ll need to follow our data launch during the annual World Bank-IMF Spring Meetings.

Call for Papers for the IMF / CFD conference: Financing for Development

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The Financing for Development conference, organized by the IMF and the CFD, will take place at the Graduate Institute, Geneva, on April 16-17, 2015. The objective of the conference is to discuss new and enduring questions in development finance for Low-Income Developing Countries. The conference will include paper presentations, a policy panel, and a keynote address by Professor Jeffrey Sachs (The Earth Institute, Columbia University). A selection of papers will be published in a special issue of the Oxford Review of Economic Policy. Read more about the call for papers and the conference.

How does financial development affect firm lifecycle?

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In a new paper, we address this question using detailed manufacturing census data from India. India offers an ideal laboratory for testing the role of institutions on firm lifecycle given the large persistent differences in institutions, business environment, and income across different regions. Specifically, we examine the relationship between plant size, age, and growth and ask: how does local financial development influence the size-age relationship? Are there differences in the size-age relationship across different industry characteristics and between the formal and informal manufacturing sector and does this vary with the extent of local financial development? Does the role of local financial development on firm lifecycle vary with major regulation changes in India such as financial liberalization, changes in labor regulation, and industry de-licensing?

Deposit Insurance Database — newly updated!

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In a recent paper with Luc Laeven and Ed Kane, we have now updated our database of deposit insurance arrangements around the world through 2013.  Our starting point was the World Bank’s survey on regulation and supervision conducted in 2010.  This survey asked national officials for information on capital requirements, ownership and governance, activity restrictions, bank supervision, as well as on the specifics of their deposit insurance arrangements. We combined this data with the deposit insurance surveys conducted by the International Association of Deposit Insurers in 2008, 2010, and 2011, and in the case of European countries with detailed information on deposit insurance arrangements obtained from the European Commission (2011). Finally we checked discrepancies and data gaps against national sources, including deposit insurance laws and regulations, and IMF staff reports. Following Demirguc-Kunt, Kane, and Laeven (2008), we assume any country that lacks an explicit deposit insurance scheme has implicit deposit insurance given the widespread governmental pressures to provide relief in the event of a widespread banking insolvency.

Do firms in developing countries grow as they age?

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The answer is yes, but not as fast.  In the U.S. for example, we know that new businesses start small, and if they survive, grow fast as they age. An average 40 year old US plant employs over seven times as many workers as the typical plant five years or younger. In a new paper, my co-authors Meghana Ayyagari, Vojislav Maksimovic and I focus on developing countries and look at what happens to firms in the formal sector as they age. We focus on formal firms because informal firms look very different from formal firms in terms of size, productivity and education level of managers and there is little evidence that growth occurs by informal firms eventually becoming large formal establishments. We see that there the average 40 year old plant employs almost five times as many workers as the average plant that is five years or younger.

Deposit Insurance and the Global Financial Crisis

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How does deposit insurance affect bank stability?  This is a question that has been around for a while but has come up again after the global financial crisis.  In response to the crisis, a number of countries substantially increased the coverage of their safety nets in order to restore market confidence and to avert potential contagious runs on their banking sectors.  Critiques worry that such actions are likely to further undermine market discipline, causing more instability down the line. My earlier research on this issue suggests that on average deposit insurance can exacerbate moral hazard problems in bank lending, making systems more fragile.  In other words, particularly in institutionally under-developed countries, banks have a tendency to exploit the availability of insured deposits and increase their risk, making the financial system more crises prone.  This is ironic since deposit insurance is supposed to make the systems more stable, not less.

But what if the impact of deposit insurance on stability varies depending on the economic conditions? Does deposit insurance help stabilize banking systems by enhancing depositor confidence during turbulent times?

What financial products do Muslim adults want?

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"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.

Financial Inclusion and Legal Discrimination against Women: Evidence from Developing Economies

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More than 1.3 billion women are excluded from the formal financial system. These women – the overwhelming majority of whom reside in developing countries – lack the basic financial tools critical to asset ownership and economic empowerment. Even something as simple as a deposit account provides a safe place to save and creates a reliable payment connection with family members, an employer, or the government. A formal account can also open up channels to formal credit critical to investing in education or in a business. Yet women are 15 percent less likely than men to be financially included.  Why?

In a new study and summary companion note we document and analyze gender differences in the use of financial service using new data from the Global Financial Inclusion (Global Findex) Database. Our analysis is based on almost 100,000 interviews with adults in 98 developing economies in 2011. We also combine the Global Findex data with cross-country data on legal discrimination against women from the World Bank’s Women and Law Database and on cultural norms from the OECD’s Gender, Institutions, and Development database to examine their relationship with financial inclusion. Because the later country-level variables show no variation across high income economies, our econometric analysis focuses on a sample of up to 98 developing countries.

Cyprus Bank Bailout – Should Depositors Pay the Bill?

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The Cypriot banking system is insolvent and desperately in need of a bailout. Like Ireland, this island banking system has expanded rapidly over the years and currently has assets equal to almost 7 times its GDP, making the system too big to fail, but also "too big to save." Funding needed to recapitalize the banks is currently estimated to be around 17B euros (almost 100 percent of Cypriot GDP) making it impossible for Cyprus to resolve its crisis alone. A 10B euro rescue package was recently negotiated, but the bailout package proposed by the Troika — made up of the IMF, the EU and the ECB — still leaves Cypriots to come up with a sizable sum. The question is what to do.

The recent bailout plan proposed by the government (yet rejected by the Cypriot parliament) sparked significant controversy globally because it required a depositor levy to "bail in" all depositors to help pay for the bailout. On the one hand, the proposal is seen as violating the deposit guarantee and risk leading to bank runs elsewhere in the Euro Area and beyond. On the other hand, the Cypriot government felt the need to turn to depositors because a full bailout is out of the question given their debt burden will already reach unsustainable limits even with the partial bailout; most of their sovereign debt is under English law and cannot be restructured; their banks have few bonds to be written down; and about half of their depositors are rich Russian depositors attracted by their favorable tax system.

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