Syndicate content

Asli Demirgüç-Kunt's blog

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.

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

Asli Demirgüç-Kunt's picture

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?

Asli Demirgüç-Kunt's picture

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.

Financial Inclusion in Fragile and Conflict-Affected States

Asli Demirgüç-Kunt's picture

Those who live in fragile and conflict-affected states face limitations that most of us simply cannot comprehend. Not only do the larger cycles of conflict and insecurity often lie beyond the control of individual adults, but the weak institutions that characterize these economies also severely restrict the opportunities for adults to manage their risks and improve their own lives. Amartya Sen has written that the central aspect of well-being is 'functioning,' defined as the freedom of choice and control over one's life. For adults living in fragile and conflict-affected states, the inability to smooth consumption and make investments through formal savings and credit systems is one of many restrictions on their 'functioning'.

Just 15 percent of adults in these economies have an account at a formal financial institution, compared to 24 percent, on average, in low-income countries and 43 percent in the rest of the developing world. This is the cruel paradox of financial inclusion in fragile and conflict-affected states: it is in precisely these countries that having a safe place to save or a reliable method to receive remittances is most important, yet access to and usage of basic financial services remains incredibly low.


New, Individual-Level Data on Financial Inclusion Shows What Drives Ownership and Use of Financial Inclusion

Asli Demirgüç-Kunt's picture

Who uses formal financial services? What policies are associated with greater use of accounts among the poor and rural residents? And why do certain segments of the population remain unbanked? Is it by choice or is it due to barriers such as high costs or large distances to the nearest bank branch? In a new paper we co-authored with Franklin Allen and Sole Martinez Peria, we explore these questions using an exciting new micro-dataset from the Global Financial Inclusion (Global Findex) database. This dataset, based on interviews with over 150,000 adults in 148 countries, lets us identify account ownership, the use of an account to save, and whether an account is used frequently, defined as three of more withdrawals per month. (For a detailed description of the data, see our earlier paper, Demirguc-Kunt and Klapper, 2012). Figure 1 shows summary statistics of our financial inclusion measures.

This Just In: The 2013 Global Financial Development Report

Asli Demirgüç-Kunt's picture

The failure of the investment banking giant Lehman Brothers on September 15, 2008 marked the onset of the largest global economic meltdown since the Great Depression. The crisis has prompted many people to reassess state interventions in financial systems, from regulation and supervision of financial institutions and markets, to competition policy, to state guarantees and state ownership of banks, and to enhancements in financial infrastructure. But the crisis does not necessarily negate the considerable body of evidence on these topics accumulated over the past few decades. It is important to use the crisis experience to examine what went wrong and how to fix it. This is the motivation of the World Bank’s Global Financial Development Report, released this week, on the fourth anniversary of the Lehman failure.

Small Steps Towards Closing The Gender Data Gap

Asli Demirgüç-Kunt's picture

Today, Gallup hosted a conference on “Evidence and Impact: Closing the Gender Data Gap” where Secretary of State Hillary Clinton , World Bank President Jim Kim, and other leaders emphasized the importance and relative lack of gender-sensitive data to support policies for improving the lives of women and girls. Secretary Clinton remarked to a packed house that “data not only measures progress, it inspires it.” She asked participants, national governments, and the international community at large to invest in gender-sensitive data collection, use, and publication. Jim Clifton, the CEO of Gallup, spoke about the danger of creating policy simply based on our perceptions of what women want and need.

Nick Kristof on microfinance, banking access and a way out of poverty

Asli Demirgüç-Kunt's picture

In today’s New York Times, Nicholas Kristof gives the example of a family in Malawi that improved their lives as the result of a village savings group.  We know that access to banks, cooperatives, and microfinance institutions has allowed many adults like the Nasoni family to safely save for the future, invest in an education or insure against risk, but just how widespread is the use of formal financial products worldwide? How do the barriers to access vary across regions? And how do the unbanked manage their finances?

In the past, the view of financial inclusion around the world had been incomplete. With the release of the Global Financial Inclusion (Global Findex) Database we now have a comprehensive, individual-level, and publicly-available database that allows for comparisons across 148 economies of how adults around the world manage save, borrow, make payments and manage risk. As cited in the article, the Global Findex data shows that more than 2.5 billion adults around the world don’t have a bank account.

The Global Findex: The first database tracking how adults use financial services around the world

Asli Demirgüç-Kunt's picture

The facts are in. 50 percent of adults worldwide have an account at a formal financial institution. 21 percent of women save using a formal account. 16 percent of adults in Sub-Saharan Africa use mobile money. These are just a few of the thousands of data points now available in the Global Financial Inclusion (Global Findex) database, the first of its kind to measure people’s use of financial products across economies and over time.

Thankfully, researchers and policymakers no longer have to rely on a patchwork of incompatible household surveys and aggregated central bank data for a comprehensive view of the financial inclusion landscape. The publically  accessible Global Findex provides comparable individual-level data that facilitate detailed analyses of how adults save, borrow, make payments, and manage risk in 148 economies. The data are based on more than 150,000 interviews with adults representing over 97 percent of the world’s population and was carried by Gallup Inc. as a component of its 2011 World Poll.

Is Bank Competition a Threat to Financial Stability?

Asli Demirgüç-Kunt's picture

The global financial crisis reignited the interest of policymakers and academics in assessing the impact of bank competition on stability and rethinking the role of the state in shaping competition policies. Competition in the financial sector has a long list of obvious benefits: greater efficiency in the production of financial services, higher quality financial products and more innovation. When financial systems become more open and contestable, generally this results in greater product differentiation, a lowering of the cost of financial intermediation and more access to financial services. But when we turn to the issue of financial stability, it is no longer so obvious whether competition is beneficial or not, with a continuing debate among academics and policymakers alike. Some believe that increasing financial innovation and competition in certain markets like sub-prime lending contributed to the recent financial turmoil. Others worry that as a result of the crisis and the actions of governments in support of the largest banks, concentration in banking increased, reducing the competitiveness of the sector and potentially contributing to future instability as a result of moral hazard problems associated with “too big to fail” institutions.