Syndicate content

access to finance

Which Households Use Banks? And Does Bank Privatization Make a Difference?

Thorsten Beck's picture

Access to banking services is viewed as a key determinant of economic well-being for households, especially in low-income countries. Savings and credit products make it easier for households to align income and expenditure patterns across time, to insure themselves against income and expenditure shocks, as well as to undertake investments in human or physical capital. Up to now, however, there is little cross-country evidence which documents how the use of financial services differs across households and, in particular, how cross-country variation in the structure of the financial sector affects the types of households which are banked. In a recent paper with Martin Brown, we use survey data from 28 transition economies and Turkey to:

  1. document the use of formal banking services (bank accounts, bank cards and mortgages) across these 29 countries in 2006 and 2010,
  2. relate this use to an array of household characteristics,
  3. gauge the relationship between changes in bank ownership and the financial infrastructure (deposit insurance and creditor protection) over time within a country and changes in the use of banking services, and
  4. assess how cross-country variation in bank ownership structures, deposit insurance and creditor protection affect the composition of the banked population.
     

Kiev's Insane Housing Market

David Lawrence's picture

Svetlana Nikolaevna had never seen so much cash in her life. It was her family’s life savings, a huge stack of $100 bills, totaling $250,000. The girl behind the glass was counting it, verifying the authenticity of each bill with a scanner that beeped its approval if everything looked OK. Then, just to be sure, the girl examined each note under an ultraviolet light.

Bringing mobile money to the world

Editor's Note: Michael Joseph is the World Bank Group's first fellow and was previously the CEO of Safaricom.

Mobile money has gone viral. In Kenya there are now more than 15 million mobile money users, which is equivalent to three in four adults. The company I was heading until last November, Safaricom has developed the world’s largest mobile money platform M-Pesa, which is being used by more than 14 million Kenyans. Over the last three years the growth of mobile money has been exponential. In December we reached a new threshold when the equivalent of US$ 1 billion was transferred. This is more than Western Union has transferred in all of 2010 globally! This has changed the lives of Kenyans—it created new jobs, new businesses and new opportunities for millions of people.

New data posted – household surveys for Burkina Faso, Kenya, Nigeria, Senegal, South Africa, and Uganda

Sonia Plaza's picture

We invite you to use open and free access to data collected through the Migration and Remittances Household Surveys conducted for the Africa Migration Project. Please access the household data here. We present the methodological apects and main finidngs of the surveys in our paper, Migration and Remittances Household Surveys: Methodological Issues and New Findings from Sub-Saharan Africa. For information on the report “Leveraging Migration for Africa: Remittances, Skills, and Investments” please visit our website.

As part of the Africa Migration Project, we conducted six Migration and Remittances Household Surveys in Burkina Faso, Kenya, Nigeria, Senegal, South Africa, and Uganda. The surveys used a standardized methodology developed by the Migration and Remittances Unit of the World Bank and were conducted by primarily country-based researchers and institutions during 2009 and 2010.

Should State Banks Continue to Play a Role in the Middle East and North Africa?

Roberto Rocha's picture

In the past three decades the role of state-owned banks has been sharply reduced in most emerging economies. This reflects a general disappointment with their financial performance and contribution to financial and economic development, especially in countries where they dominated the banking system. But despite their loss of market share, state banks still play a substantial role in many regions, especially in East Asia, the Middle East and North Africa, and South Asia (figure 1).

Figure 1 Share of state banks in total assets by region, various years, 1970–2005
(percent)

 

The arguments put forward to justify the continuing presence of state banks have included market failures (resulting from asymmetric information and poor enforcement of contracts) that restrict access to credit; the provision of essential financial services in remote areas (where supply may be restricted by large fixed costs); and the provision of countercyclical finance to prevent an excessive contraction of credit during a financial crisis. These arguments may well justify policy interventions in many countries, although it does not necessarily follow that state banks are the optimal intervention. Moreover, even where the presence of state banks may be justified, policy makers still face the challenge of ensuring clear mandates and sound governance structures in order to minimize political interference and avoid large financial losses.

Microcredit, microsavings…but what about micropayments?

Ignacio Mas's picture

Why is the term microfinance still used by so many as if it were synonymous with microcredit? Credit is only one form of finance. All the more thoughtful commentators on the Andhra Pradesh crisis agree that debt should not be the only financing option available to poor people.

In a recent blog post, my colleague Jake Kendall and I explained how the Financial Services for the Poor team at the Bill & Melinda Gates Foundation focuses on savings because it’s an option that everyone should have and because we felt donors have neglected it in the past.

But there is another service that has received even less attention from the microfinance community: payments. When is the last time you were at a microfinance conference and someone mentioned the payment needs of the poor with any degree of passion? And why do academic researchers devote so little attention to it?

Lending to Bank Insiders: Crony Capitalism or a Fast Track to Financial Development?

Bob Cull's picture

Bankers often extend credit to firms owned by their close business associates, members of their own families or clans, or businesses that they themselves own. On the one hand, this allows banks to overcome information asymmetries and creates mechanisms for bankers to monitor borrowers. But on the other hand, related lending makes it possible for insiders—bank directors—to expropriate value from outsiders, be they minority shareholders, depositors, or taxpayers (when there is under-funded deposit insurance). The evidence suggests that during an economic crisis insiders have strong incentives to loot the resources of the bank to rescue their other enterprises, thereby expropriating value from outsiders. In a crisis, loan repayment by unrelated parties worsens, and banks thus find it more difficult to reimburse depositors and continue operations. Consequently, insiders perform a bit of self-interested triage: they make loans to themselves, and then default on those loans in order to save their non-bank enterprises. Outsiders, of course, know that they may be expropriated, and therefore behave accordingly: they refrain from investing their wealth in banks, either as shareholders or depositors. The combination of tunneling by directors, the resulting instability of the banking system, and the reluctance of outsiders to entrust their wealth in banks results in a small banking system.

And yet, the economic histories of many developed countries (the United States, Germany, and Japan) indicate strongly that related lending had a positive effect on the development of banking systems. If related lending is pernicious, why then did it characterize the banking systems of advanced industrial countries during their periods of rapid growth? In fact, related lending is still widespread in those same countries.

The AAF Virtual Debates: Charles Calomiris's Response on State-Owned Banks

Charles Calomiris's picture

I have to admit, I am a bit puzzled by my friend Franklin Allen’s first entry in this debate. There simply is no evidence—none—in support of his statement that mixed systems of state and private banking tend to be a good idea. And his mention of China is doubly puzzling. China’s state-owned banks have been a disaster, fiscally, allocatively, and socially. They cost the Chinese people hundreds of billions of dollars in bailout costs a decade ago, and, according to most informed observers, may very well soon repeat a similar magnitude of losses. Allocatively, they are famously wasteful of resources, as they have been a political tool for propping up the unproductive state-owned sector, which explains their continuing huge losses (recognized and unrecognized). The internal corporate governance of these unwieldy institutions is a nightmare. The financing arrangements that have succeeded in attracting private capital are well understood to be a political deal between global banks and the Chinese government; global banks invest in the state-owned sector as part of the price they must pay for entry into the Chinese market. And these banks are the central nexus of corruption and influence peddling in Chinese society. China’s growth has occurred in spite of these banks’ distorted lending policies, not because of them.

Some observers have wondered how it was possible for China to grow despite the lack of a deep private formal lending sector. The answer is simple: If a country’s basic economic development is constrained for centuries, then when economic liberalization finally occurs, the marginal product of capital is huge and high returns can be generated from almost any reasonably well-managed enterprise. If retained earnings can reliably earn high annual returns irrespective of how they are invested, growth will be rapid even without a banking system. But that initial bank-independent growth is not sustainable. The Chinese government’s recent financial policy initiatives show that it is well aware that China’s continuing growth is highly dependent on its ability to develop the legal, political, and institutional foundations that will support increasingly selective, private, arms-length lending for productive investments. That transformation of the Chinese banking system is a future prospect, not a current reality, and it is by no means a certainty (see, for example, Minxin Pei’s book, China’s Trapped Transition, or the contributions to my edited volume, China’s Financial Transition at the Crossroads).

The AAF Virtual Debates: Franklin Allen's Response on State-Owned Banks

Franklin Allen's picture

Charlie and Nachiket Mor raise very good points about the problems posed by public banks. India illustrates many of these difficulties—there is much too much political interference, regulations are designed to help state banks, and so forth. But India’s mix of banks is about four-fifths state-owned and only one-fifth privately owned. I’m suggesting precisely the inverse: about one-fifth of the banking sector would be state-owned and four-fifths would be privately owned. Reducing the share of state-owned banks to this minimal level should help alleviate many of the political economy issues. The state-owned commercial banks would need to compete with private banks in normal times as discussed in the blog and this should also act as a constraint on the problems.

The real advantage would come when there is a crisis. Rather than having central banks intervene in commercial credit markets where they have little expertise, the state-owned commercial bank can temporarily expand its role both in terms of assets and loans. This should considerably improve the functioning of the economy and overcome some of the credit crunch problems that Charlie has identified in his research and discusses in his post. The government should also find it easier to avoid bailouts and allow private banks to fail, which is an issue that recurs with every financial crisis. The most recent crisis is a clear case in point: at the moment large banks are not really privately owned. Large banks are privately owned until they get into trouble, at which point the state takes over ownership.


Pages