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Financial Sector

Can 'fintech' innovations impact financial inclusion in developing countries?

Margaret Miller's picture
A digital transaction in the Democratic Republic of Congo. Such transactions are made possible in part by FINCA. FINCA's strategy in Africa is to focus operations on underserved markets and groups, namely rural areas and women. Photo: Anna Koblanck/IFC


Financial technology, “fintech,” has been reshaping the financial services industry with the level and speed of innovation that’s simply fascinating.

A month ago, my colleagues and I attended the 5th Annual Lendit USA conference to check out about the latest innovations and thinking in this field and see how we can apply it to our work.

There is growing interest in trying to figure out this new industry and take advantage of the opportunity. Now billed as the largest Fintech industry meeting in the world, Lendit organizers started this event four years ago with about 200 participants. This year’s event attracted more than 5,000 people.

We work on various areas of financial inclusion and are interested in new ways that can help expand access to financial services to hard-to-reach populations and small businesses in developing countries.

We returned with a new appreciation for the magnitude of change that is coming, and how quickly it could occur – and already is in some instances.  Some innovations will help developing countries leapfrog into this new tech era. This could have a significant – and potentially highly positive - impact on financial inclusion, and fundamentally change the nature of financial infrastructure. 

However, these opportunities come with potential risks, such as those related to (un)fair lending practices related to unmonitored use and analysis of big data or increased systemic vulnerabilities due to threats to cybersecurity. 
 

Banking on Myanmar’s financial sector: The road ahead

Nagavalli Annamalai's picture

Myanmar in 2012, when we started our financial sector engagement, and Myanmar today seem like two different worlds. Back then, sim cards cost close to US$500, visitors carried wads of crisp, new dollar bills, Yangon streets were filled with old models of Toyotas and Nissans, while the capital Nay Pyi Taw had only rickety hotels. Now streets lined with old shops have given way to $1 sim cards, brand new car models, international hotel chains and gleaming new shopping malls. ATMs and “We accept Visa and Master Card” signs are now nearly ubiquitous in the country’s cities.

Urban jungles in jeopardy

Ivo Germann's picture
Why the world’s cities are at risk – and what we can do to make them more resilient



We may not know exactly what the world will look like in two decades, but we know this: it is going to be a world of cities.
 
The global population is becoming increasingly urban, and at an astonishing rate. Each year, urban areas are growing by an average of more than 75 million people – more than the population of the world’s 85 smallest countries combined.
 
For the world’s economy, this is great news, since cities produce 80 percent of global GDP, despite currently being home to only 55 percent of the population. But it is a problem for urban infrastructure, which can’t keep up with such fast-paced growth. As a result, cities, already vulnerable, are becoming increasingly susceptible to natural disasters – from flooding and landslides that can decimate informal housing settlements, to earthquakes that can devastate power grids and water systems.
 
These risks could be disastrous for the urban poor, 881 million of whom currently live in slums (up 28 percent since 2000). And climate change – which is increasing the intensity and frequency of natural disasters – will only exacerbate the problem. For this reason, multilateral and government institutions now see resilience and climate adaptation as integral pillars of development.
 
The Swiss State Secretariat for Economic Affairs (SECO), for example, considers low-emission and climate-resilient economies to be key to global competitiveness. A recent report by the World Bank and the Global Facility for Disaster Reduction and Recovery (GFDRR) found that climate change may force up to 77 million urban residents into poverty by 2030 – unless we take action to improve the resilience of cities around the world.

The Citizens’ Charter—a Commitment toward Service Delivery across Afghanistan

Ahmad Shaheer Shahriar's picture
Citizens charter launch in presidential palace
Inaguration of the Citizens’ Charter Afghanistan Project (CCAP) on 25th September, 2016 was attented by the President, the Chief Executive of Afghanistan, cabinet ministers, and over 400 representatives from the donor community, international organizations, and Community Development Councils (CDCs) from all 34 provinces of the country. Photo Credit: Rumi Consultancy / World Bank


Will rural communities in Afghanistan be deprived of development services upon the completion of the National Solidarity Programme (NSP) in the Ministry of Rural Rehabilitation and Development (MRRD)?
 
What will happen to the Community Development Councils (CDCs) established in rural communities to execute people’s development decisions and priorities?
 
Will our country continue to witness reconstruction of civic infrastructure?
 
These were some of the questions that troubled thousands of villagers as the NSP neared its formal closure date - NSP had delivered development services in every province of Afghanistan for 14 years.
 
To address these questions and allay their concerns, the Government of the Islamic Republic of Afghanistan formally launched the Citizens’ Charter Program on September 25, 2016 to sustain the uninterrupted development and reconstruction in Afghanistan.

Managing PPP risks with a new guide on guarantees

Victoria Rigby Delmon's picture



Just two years ago, Ghana was experiencing unstable commodity prices and a deteriorating macroeconomic situation. Yet, through a unique combination of World Bank guarantees nearly $8 billion in private investment was mobilized for the Sankofa Gas Project—the biggest foreign direct investment in Ghana’s history. The transformational project helped address serious energy shortages and put the country on a path to economic growth.
 
This is just one example illustrating how risk mitigation products play out in practice to encourage private sector investment and improve people’s lives.

Can foreign banks bridge the information gap to boost exports?

Shawn W. Tan's picture

Foreign banks can play an important role in facilitating international trade. They can provide trade financing, enforce contracts, and reduce information asymmetries. Studies have shown that trade financing is an important channel to boost exports. For example, Claessens and others (2015) show that sectors that are more dependent on external finance have more bilateral exports when a foreign bank from that trade partner is present in the country. Much like immigrant networks and colonial ties (Rauch 1999), foreign banks can play a role in reducing information asymmetries for exporting firms, especially in countries where there are fewer financing constraints. Foreign banks have strong ties with their parent country, and are better placed to assess the profitability of a given product in that market and provide information about export market conditions.

Bank supports launch of certificate course on contractual dispute resolution in India

Shanker Lal's picture
Powerlines in Mumbai. Photo: Simone D. McCourtie / World Bank


India is the fastest-growing major economy in the world with significant Government investments in infrastructure. According to estimates by WTO and OECD, as quoted in a report from the United Nations Office on Drugs and Crime, India: Probity in Public Procurement, the estimated public procurement in India is between 20 and 30 percent of GDP. 

This translates to Indian government agencies issuing contracts worth an estimated US$ 419 billion to US$ 628 billion each year for various aspects of infrastructure projects. Ideally, in contractual agreements no disputes would arise and both sides would benefit from the outcome. However, unexpected events occur and many contracts end in dispute. Contractual legal disputes devoid project benefits to the public as time and resources are spent in expensive arbitration and litigation. As a result, India’s development goals are impacted.

The hidden costs of index investing in foreign markets

Alvaro Enrique Pedraza Morales's picture

Cross-border portfolio investments are increasingly important in global markets. Since 2001, the share of equity holdings by foreign investors grew from 19 percent of the world's stock market capitalization to more than 35 percent by the end of 2015 (IMF, 2016). Much of this recent growth has been in foreign index funds, that is, in funds that replicate the return of an index by buying and holding all (or almost all) index stocks in the official index proportions (Cremers et al., 2016).  Notwithstanding their popularity among investors, little is known about how managers of these funds trade to accommodate flows, and how their performance compares to domestic funds with similar management style.

Connecting pension funds with emerging market infrastructure

Joaquim Levy's picture

It might sound improbable to hear a CFO say this, but I consider one of my roles since joining the World Bank Group to be that of matchmaker. Let me explain.

As I have noted in other blogs over recent months, the world’s emerging market and developing economies—EMDEs for short—face an enormous gap in infrastructure investment. Certainly it is not the only big financing challenge that countries face as they work to reduce poverty and extend prosperity to more of their citizens. But infrastructure underpins many aspects of economic growth, getting people to jobs and schools, connecting goods to markets, reducing the isolation of the poorest areas in many countries.  And by some estimates, the sector’s funding gap is as high as a trillion dollars. 

Sovereign wealth funds: the catalyst for climate finance?

Juergen Braunstein's picture



Following the Paris deal on international climate change, governments are beginning to explore new financing mechanisms for investing in the growing low carbon economy. Over the next decade sovereign wealth funds (SWFs) could become an important game changer in green investing. Recognizing the untapped potential of SWFs, two key questions emerge: how can SWFs increase their exposure to green asset classes? And what are the constraints?
 
Investors and financial institutions are becoming increasingly aware of the risks associated with fossil fuel projects and are showing growing interest in green bonds and other financing tools that facilitate investment in low-carbon energy solutions.
 
Being patient investors, with longer term investment horizons than many others in the financial services sector, SWFs could become catalysts for implementing the December 2015 Paris Climate Agreement. In the November 2016 annual meeting of the International Forum of Sovereign Wealth Funds in Auckland, participants highlighted that SWFs are particularly well-positioned to become trailblazers in green investment. The majority of members are oil-based SWFs which are looking to economic diversification of their finite carbon wealth into industries and sectors that would yield broader societal, economic and financial benefits.


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