Bangladesh was born on December 16 1971, following a devastating war that cost the lives of 3,000,000 people. They were victorious in their fight for independence, yet the prospects of the Bangladeshi people living in the 70’s were disheartening, earning it the now rather infamous connotation of a basket case, as Henry Kissinger called it back in 1971. Emerging from the rubbles left by the war, the resilient Bangladeshis began the rebuilding of their newly established nation. Economic growth was slow to take off, and it rebounded to the pre-war level about twenty years later, in the 90’s. Yet, it was after the 90’s that the country began to attain palpable progress and only over the 2000-2010 decade that the country achieved great poverty reduction. The depth-of-poverty MDG target of 8 percent was attained five years ahead of schedule, and Bangladesh was set in the right path for achieving the first MDG goal of halving the poverty headcount to 28.5 percent by 2015.
South Asia is the least integrated region in the world. Intra-regional trade in South Asia is less than 2% of GDP compared to over 20% in East Asia. Labor mobility and regional travel is minimal, with few exceptions. Even remote communication is low – only 7% of international telephone calls in South Asia are to countries within the region, compared to 71% for East Asia. The case for closer integration has remained strong for a while now, and it is refreshing to see that some movement, albeit watchful, in addressing some of the region's deep rooted political economy issues, particularly between India and Pakistan.
The discussions around closer integration have centered on energy, trade, connectivity and stability. All of these offer strong potential to enhance growth in the region. However, financial sector integration overall, and access to finance in particular, hardly ever make it to the agenda of regional integration forums and deliberations. This is unfortunate, because the region has a long way to go in providing adequate access to financial services and insurance products, especially to the vulnerable segments of the population. Given that South Asia is home to more than half a billion of the world’s poor, this becomes a poverty reduction goal as much as a financial inclusion goal.
The world’s population by 2030 is projected to be 8.1 billion, 2 billion more than in 2000. A full 95 percent of the increase over this 30 year period will take place in the developing world, nearly all of it concentrated in urban areas. There is a relentless process of urbanization under way all over the world which, for instance, has transformed China’s landscape and has contributed to that country’s rapid pace of economic growth. Whereas in 1980 less than 20 percent of China’s total population of close to 1 billion was living in urban areas, by 2000 this share had risen to 33 percent. The urban population during this period expanded from about 190 million to over 420 million, and is projected to reach 1 billion by 2030. Well before 2030 China will have several megacities, with the population of Shanghai likely to exceed 25 million.
‘Imagine you have a lot of mangoes on your farm and your neighbor has lots of tomatoes. You make a bargain and he says he will give you three tomatoes for every mango you give him. If you give him fourteen mangoes, how many tomatoes do you expect him to give back to you?’
This question, amongst others, has been asked in the 2009 and 2011 Kenya FinAccess surveys. If you got the answer to this question right (see end of the blog for the correct answer), congratulations! It may be an indication that you are financially literate. Or would you rather be financially capable? ‘Financial Literacy’ and ‘Financial Capability’ are two terms many have heard about and usually they are used interchangeably. However, in a recent World Bank publication, which tries to ‘Make Sense of Financial Capability Surveys around the World’, the authors (Perotti, Zottel, Iarossi, and Bolaji-Adio) reviewed key approaches to measure financial literacy and capability. In doing so, they identified Financial Literacy to be often associated with financial knowledge.
From 2006 to 2009, growth of bank deposits dropped by over 12 percentage points globally. The most affected by the 2008 global crisis were upper middle income countries that experienced a drop of 15 percentage points on average. Individual countries such as Azerbaijan, Botswana, Iceland, and Montenegro switched from deposit growth of 58 percent, 31 percent, 57 percent, and 94 percent in 2007 to deposit declines (or a complete stop in deposit growth) of -2 percent, 1 percent, -1 percent, -8 percent in 2009, respectively.
In times of financial stress, depositors get anxious, can run on banks, and withdraw their deposits (Diamond and Dybvig, 1983). Large depositors are usually the first ones to run (Huang and Ratnovski, 2011). By the law of large numbers, correlated deposit withdrawals could be mitigated if bank deposits are more diversified. Greater diversification of deposits could be achieved by enabling a broader access to and use of bank deposits, i.e. involving a greater share of adult population in the use of bank deposits (financial inclusion). Based on this assumption, broader financial inclusion in bank deposits could significantly improve resilience of banking sector funding and thus overall financial stability (Cull et al., 2012).
I landed in Chisinau on a short flight from Frankfurt a mere two years ago. I immediately liked this vibrant and cosmopolitan city built with white limestone and awash with greenery, and remember thinking that it has the potential to attract scores of tourists. But tickets to fly into Chisinau were expensive in 2011.
I also recall so vividly my first trip through the Moldovan countryside shortly after. An amalgam of bright green leaves on walnut trees contrasted the yellow of the sunflowers that grow in fields with some of the most fertile soil in the world. I was immediately struck by the immense potential that Moldova holds in agriculture.
Good things have happened since then.
Since the launch in 2008, the World Bank’s green bonds have grown quickly and reached an important milestone in August. Earlier, this month, the World Bank launched a US$550 million green bond bumping the total amount of World Bank green bonds issued to over $4 billion dollars since the green bond program began. This milestone prompted us to pause and take stock of the program and the new market it helped start.
As countries move toward a low-carbon, climate resilient future, the appetite for innovative climate finance is growing. One way to fill this financing need is through the capital markets. The World Bank’s green bonds, first launched in 2008, have been recognized as a catalyst for the growing market of climate bonds. This market is on its way to becoming an important source of funding for countries looking to grow in a clean and sustainable manner. A sampling of expected project results – over 165,000 tons of carbon dioxide equivalent emission reduction benefits per year in Belarus, and 800,000 tons per year in China, reducing vulnerability to climate-related flooding and water scarcity flood events for about 500,000 farmer households in Indonesia, and producing 6MWhs of electricity out of a landfill in Jordan – highlights the crucial role green bonds and other innovative funding mechanisms could play in financing the fight against climate change.
The World Bank started issuing green bonds in 2008, responding to a group of Scandinavian pension funds interested in supporting activities that address mitigation and adaptation to climate. Skandinaviska Enskilda Banken (SEB) was the lead manager of this inaugural green bond.
The Middle East and North Africa (MENA) region is home to about 70 million of the world’s poor (living on less than two dollars per day) and 20 million of the world’s extremely poor (living on less than US$1.25 per day). According to a recent Gallup survey, 95 percent of the adults residing in MENA define themselves as religiously observant. The combination of these two facts has produced a growing interest in Islamic finance as a possible tool for reducing poverty through financial inclusion among the region’s religiously conscious Muslim population (see Mohieldin et al. 2011).
Uneven access to financial services and instruments that are compliant with Shari’ah, or Islamic law, could be one of the contributing reasons for the low number of bank accounts in the MENA region. A mere 18 percent of adults (above the age of 15) have accounts in formal financial institutions, the lowest in the world (Figure 1). There is ample evidence that, if done correctly, increasing access to and the use of various financial services can help both reduce poverty and its severity (for example see Burgess and Pande 2005 and Beck, Demirgüç-Kunt and Levine 2007 among many). With no access to financial services, many of the poor in MENA will continue to be trapped in poverty with little to no chance of escaping it in the foreseeable future.
(Photo by Chico Ferreira, available under a Creative Commons license - CC-BY-2.0)
- Cayman Islands
- Bahamas, The
- Antigua and Barbuda
- Trinidad and Tobago
- St. Kitts and Nevis
- St. Lucia
- St. Vincent and the Grenadines
- Virgin Islands, British
- Latin America & Caribbean
- Financial Sector
- Law and Regulation
- CReCER conference
- The Croods
- Small and Medium Sized Entities
- small states