Over on the All About Finance blog, Bilal Zia provides a comprehensive roundup of what we know about the impact of financial literacy programs. As Zia points out, there are a lot of reasons to believe that financial literacy is important, but evaluations of financial literacy programs have so far produced lackluster results.
access to finance
More than 3 billion people in the world today don’t have access to savings accounts. Many of these 3 billion fall below the less-than-$2-per-day benchmark of the world’s poorest people. Why are banks not doing a better job to help them manage their financial lives?
The problem is largely one of cost. Providing financial services to the poor is prohibitively expensive for banks. Each time a client stands in front a of a teller’s window it costs most banks from $1 to $3. If poor clients make transactions of $1 or $2, or even less, banks won’t be able to support the costs.
It’s also too costly for the poor. Most poor people, especially those in rural areas, live far away from bank branches. Let me give one example of a woman in Kenya. The nearest branch may be 10 kilometers away, but it takes her almost an hour to get there by foot and bus because she doesn’t have her own wheels. With waiting times at the branch, that’s a round-trip of two hours – a quarter or so of her working day gone. While the bus fare is only 50 cents, that’s maybe one fifth of what she makes on an average day. So each banking transaction costs her the equivalent of almost half a day’s wages.
Apparently, Freedom from Hunger, the non-profit behind the End4Hunger campaign, didn't get the memo about making over-the-top claims on behalf of microcredit (let alone any type of aid). The ad below appeared in my Gmail account just a few hours ago.
It is well established that financial development is necessary for the efficient allocation of capital and firm growth, yet firm-level surveys have repeatedly found access to finance to be among the biggest hurdles to starting and growing a new business. For instance, in the World Bank’s Enterprise Surveys standardized dataset for 2006-2009, 31% of firm owners around the world report access to finance as a major constraint to current operations of the firm, while this figure is 40% for firms under three years of age.
In a recent paper with Larry Chavis and Inessa Love we address two types of questions: (1) What is the relationship between firm age and sources of external financing? and (2) Is there a differential impact of the business environment on access to financing by young versus old firms?
To summarize, we find systematic differences in the use of different financing sources for new and older firms. We find that in all countries younger firms rely less on bank financing and more on informal financing. However, we also find that young firms have relatively better access to bank finance in countries with stronger rule of law and better credit information and that the reliance of young firms on informal finance decreases with the availability of credit information.
Usually, the term 'G20' induces images of interminable meetings and high-minded but vaguely worded communiques. But the G20 is trying to get hip. It is sponsoring a competition to crowdsource ideas for one of the perennial problems of development (and one greatly exacerbated by the financial crisis) -- access to finance by SMEs. Here are the details: