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Financial Sector

The Nexus of financial inclusion and stability: Implications for holistic financial policy-making

Martin Melecky's picture

Both financial inclusion and financial stability are high on international policy makers’ agenda. For instance, the G-20 has called for global commitments to both advancing financial inclusion (the Maya Declaration and the Global Partnership for Financial Inclusion) and enhancing financial stability (the Financial Stability Board, Basel III Implementation, and other regulatory reforms). One challenge is that there can be important policy trade-offs between the two objectives.

A rapid increase in financial inclusion in credit, for example, can impair financial stability, because not everyone is creditworthy or can handle credit responsibly—as illustrated in the last decade by the subprime mortgage crisis in the United States and the Andhra Pradesh microfinance crisis in India. In addition, trade-offs between inclusion and stability could arise as an unintended consequence of bad or badly implemented polices.

Establishing payments interoperability: coordination is key

Thomas Lammer's picture



Efficient, accessible and safe retail payment systems and services are necessary to extend access to transaction accounts to the 2 billion people worldwide who are still unserved by regulated financial service providers.
 
Having interoperable payment services addresses several important challenges regarding financial access and broader financial inclusion. This is because interoperability enables people to make payments to anyone else in a convenient, affordable, fast, seamless and secure way via a single transaction account.
 
Establishing payments interoperability is a formidable task. Our experience shows it is important to find the right balance between cooperation and competition when reforming retail payment systems.  Despite the advantages that interoperability brings, not all market participants will necessarily embrace interoperability initiatives, e.g. if they fear to lose their dominant position and/or competitive advantage. In an earlier Blog the role authorities to facilitate interoperability has been discussed. Central banks are a key driving force in any payment system reform, but they cannot – and should not – act alone. Other regulators – such as financial and telecom regulators – are also important to achieving interoperability.

How long is the maturity of corporate borrowing?

Sergio Schmukler's picture

The extent to which firms borrow short versus long term has generated much interest in policy and academic discussions in recent years. For example, concerns of a shortage of long-term investment in the corporate sector have led several institutions to promote policy initiatives aimed at extending the maturity structure of debt, which is often considered to be at the core of sustainable financial development (World Bank, 2015). There is also evidence that more short-term debt increases around financial crises, both as a cause and as a result of financial instability. However, there is little evidence on the actual maturity at which firms borrow around the world.

In a new working paper (Cortina, Didier, and Schmukler, 2016), we study how firms in developed and developing countries have used the expansion in different debt markets (domestic and international bonds and syndicated loans) to obtain finance at different maturities, and how their borrowing maturity evolved during the global financial crisis of 2008–09.

Pensions, power & development performance

Elias Masilela's picture
Woman who works in the daycare kitchen of a local farm in Milnerton, South Africa


The investment of pension fund assets has moved from an obscure topic for actuaries, to an issue which raises political attention at the highest level.

This is for the simple reason that it directly touches the social and economic livelihoods of people.

Since the 2008 global financial crisis, developed economies have been looking for additional sources of long-term capital to fill the gaps which bank and government balance sheets can’t fill. This is a search that has engulfed the developing world for much longer if not for as long as they exist. Younger developing economies are starting to see their pension funds grow, side by side with an increasing awareness of the impact which productively invested assets can have on economic growth both today and tomorrow. If invested for the aligned intensions of social impact and financial return, pension funds can improve people’s lives today and secure their income in future. However, this isn’t a general phenomenon – applying only to larger funds which have invested in the intellectual capacity of their Trustees, and in countries which have understood and embraced the strong relationship between the macroeconomic performance and asset performance.

Redirecting pension investments from short-term assets (government paper, bank deposits) to investments with a long-term impact is key to delivering, not only improved, but sustained returns. Private equity (PE) - equity capital not quoted on a public exchange – is one such asset class. PE investment is increasingly in vogue as such capital is the foundation of all economies, and indeed leads to the development of robust stock markets. If structured with pension investors’ risk-return consideration in mind, it can deliver the diversification benefits which these investors need.  If properly targeted, such investments will be vital in meeting the Sustainable Development Goals, considering that 15 of the 17 SDGs have a focus on growth, development and sustainability (the last two being on implementation and capital resource origination). Active participation in investee companies by shareholders such as pension funds will be vital for ensuring a future sustainable and shared economy. In turn, for this to work optimally, requires conscientious and capable Trustees.

Financial inclusion has a big role to play in reaching the SDGs

Leora Klapper's picture

Scan the United Nations’ 17 Sustainable Development Goals (SDGs). You’ll see inclusive growth, clean water and greater equality, among other objectives. But you won’t see this: Giving people access to savings accounts, loans, insurance and other financial services.

3 hindrances to expanding pensions in Kenya

Rose Kwena's picture



Did you know that in Kenya less than 15% of the population is covered with old age security? This means that many Kenyans are facing a vulnerability of retiring into poverty. But this is not accidental since established factors identified in studies commissioned by Retirement Benefits Authority (RBA) necessitate this situation.  

However, Kenya is starting to tackle some of these factors and to help increase pensions coverage to reach more Kenyans to help reverse the state of affairs.

1. A chief factor limiting pension growth is that the formal sector is creating fewer jobs. Despite the positive economic growth registered in the country, employment growth in the formal sector is slow. For example, only 128,000 out of the 841,600 new jobs created in 2015 were formal. This has a direct effect on the pension services since the structure of the industry is still highly biased towards the formal employment model.
Transactions that facilitate employers and employees to contribute are generally conducted from the pay slip, and formal employers adhere more to the regulations and legislation on the issue compared to those who operate informally. As a result, millions of citizens have been cut off from the pension system.   

Luckily, this gap is slowly being narrowed by Individual Pension schemes that are specifically targeting the informal sector workers. An example of this is the Mbao pension scheme. The Plan is an inventive idea that adapts a savings product to marginal population groups and contributes to their improved social and economic security.

Can developing countries increase pension coverage to prepare for old age?

Gloria M. Grandolini's picture


While many of us work hard to postpone growing old, ageing populations as a whole are inevitable, predictable and something countries can prepare for.

As developing countries prosper, their citizens will live longer and, hopefully, healthier lives. By 2050, the number of people in the world 65 and older will have doubled from 10% to 20%. By then 80% of the world’s elderly –nearly 1.3 billion people - will live in low-income countries.
 
Are these countries set up to care for these forthcoming senior citizens and ensure they have the resources to live in dignity in old age? Will countries be able to ensure fairness between the generations and resources?
 
Current pensions systems leave many pockets of society uncovered:
  • As countries become more urbanized and families have fewer children, traditional family-based care for the elderly is breaking down, without adequate formal mechanisms to replace it.   
  • Traditional employment-based pensions systems don’t cover most informal sector workers in developing economies. In some regions, these workers account for two-thirds or more of the working age population. Even for those with formal sector jobs, pension coverage has been declining for people who’ve entered the workforce since 1990 in terms of years contributed over lifetime, according to World Bank Pensions Database. This has a major impact on the amount of retirement income they will eligible to receive.

The challenge of affordable housing for low-income city-dwellers

Zaigham M. Rizvi's picture



Housing is a numbers game: The more people there are in any city or town, the greater the need is for housing. The number of people living on the planet is rising every second, as the
World Population Clock shows, while the amount of habitable land (what housing specialists call “serviced land”) remains limited.

It is critical that additional affordable, decent dwellings be developed, as today’s world population of about 7.38 billion (increasing by more than 80 million per year, at the current population growth rate of about 1.13 percent per annum) approaches about 9 billion by 2030 and a projected 11 billion by 2050.

Urbanization intensifies the need for city-focused housing: By 2030, nearly two-thirds of the world’s population will be urban – and, even more daunting, nearly half of that urban population will be living in poverty, in substandard housing or in slums. The challenge of providing affordable housing for low-income city-dwellers is universal, with intensifying urban congestion making it an urgent priority in Asia and Africa.


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