Can Islamic Microfinance give more people access to the financial services they need to grow their business? (Credit: DFID, Flickr Creative Commons)
Research has shown that financial sector development and the efficiency of financial systems are closely linked to economic growth. Ensuring the provision of financial services to the poor can also address the challenge of poverty alleviation and directly target financing towards economically and socially underprivileged groups. Appropriate financial services, such as savings services, investment, insurance, and payment and money transfer facilities, enable the poor to acquire capital to engage in productive ventures, manage risks, increase their income and savings, and escape poverty.
access to finance
Will improved identification accelerate financial inclusion? ( Credit: Kkalyan, Flickr Creative Commons)
Wherever individuals are excluded from formal financial services the source of the problem is usually a lack of information. Without reliable information about a borrower’s identity or credit history, lenders will compensate for their inability to evaluate risk by raising collateral requirements, charging higher interest rates, or by refusing to lend to certain borrower groups altogether. This leads to financial exclusion, even among otherwise creditworthy borrowers. Technologies that reduce asymmetric information between borrowers and lenders are therefore some of the most powerful tools to reduce financial exclusion. In recent years, much progress has been made to improve credit reporting institutions around the world. But in many countries the challenge is much more basic: much of the world’s population lacks even the most basic identity proof. To address this problem, many countries have experimented with innovative solutions for improved personal identification.
Last April 21, representatives from government, the private sector, and the financial inclusion world came together for Financial Inclusion Pathways for Women and the Poor. Panels covered a range of topics, including financial education, mobile banking and SME finance. But at the heart of all the discussions was the challenge posed by 2.5 billion unbanked people around the world –1.35 billion of them women. What actions can the public and private sector take to give the financially excluded—especially women who have the potential to transform economies-- access to finance?
Financial education is important, yet there is a considerable knowledge gap in determining how best to deliver it. Recently, the literature on careful evaluations of financial education has started to move away from classroom based interventions to more innovative delivery mechanisms such as videos, DVDs, and mainstream media. The advantage of entertainment media – television and radio – is that it offers a broad outreach since nearly every household nowadays has a TV and also a captive audience that establishes emotional connections with the show and closely follows the behavior of their favorite actors. Given that entertainment media has been shown to be successful at improving social behavior in the health and education fields, an interesting research question is whether it can also be used for positively influencing financial knowledge and behavior.
The difficulties faced by Small and Medium-sized Enterprises (SMEs) in getting finance, especially in the developing world, have been well documented. The causes are equally well known. First, traditional bank financing (secured or cash-flow based) is often not available due to the lack of adequate collateral or the opaque modus operandi of many SMEs. Also, financial markets may not be sufficiently well developed to facilitate traditional private equity (PE) financing of SMEs. A typical private equity (PE) firm or fund requires controlling positions in a company it invests. But in Sub-Sahara Africa, most small businesspeople are both owner and operator of lifestyle businesses and have little interest in letting go of control of their company. Another constraint to the traditional PE financing model is the lack of exit channels such as a well-functioning initial public offering (IPO) or merger and acquisition (M&A) market.
Image courtesy of UPU
In October 2012, when the first version of the Global Panorama was published, several news agencies and papers wrote: “UN urges increase in role of financial services across global postal sector” or “Posts must exploit untapped potential for financial inclusion”. The surprise was not in the titles but in the interest generated by reports on the postal sector. The intersection between two things which the general public does not automatically associate: the Post and financial services, especially for the poor, seemed to spark interest.
International Women’s Day is when we celebrate the strides made towards equality, but it also reminds us that gender is a powerful determinant of economic opportunities, particularly in developing countries. Financial inclusion is one of the areas where we observe a gender gap—women in developing economies are still relatively more excluded from the financial sector than men, even after controlling for income and education
For the first time, we can quantify this gap using hard data and evaluate how women around the world save, borrow, make payments and manage risk, both inside and outside the formal financial sector. With the release of the Global Financial Inclusion (Global Findex) data, we now have a comprehensive, individual-level, and publicly-available database that allows for comparisons based on more than 150,000 nationally representative adults in 148 economies in 2011. The dataset includes over 40 indicators, but here we’ll focus on three main categories: account ownership, savings behavior and credit.
Note: This blog post is adapted from a much longer discussion by the author under the same title that was published at Tekedia on January 7, 2013. You can read that blog post here. Small sections of this article are identical to segments of the original article.
The problem in brief
Africa is experiencing a boom in entrepreneurship due to proliferating Internet and mobile computing technologies. Simultaneously African startups face the often life-threatening impediment of inadequate access to seed and early stage venture capital. Fortunately, a number of developments in other parts of the world point to the contours of an approach to solving that problem in a manner that necessarily starts out small, but that can eventually be scaled in a meaningful way.
As World Bank Managing Director Caroline Anstey said in her remarks at last Thursday’s event on women in the private sector, women make up nearly 50 percent of the world’s population. Despite this, they are only 40.8 percent of the formal global labor market. This gap represents a vast economic potential that could have the power to create jobs, drive economic growth and transform the global economy as we currently know it—shaky, stagnant and according to some of the data, in recession.
Empowering women entrepreneurs is good for development and business. Tune in to World Bank Live on October 11, 2012 10:30 a.m JST. to hear Liberia President Ellen Johnson-Sirleaf and World Bank Group President Jim Kim talk #womenbiz at this year's Annual Meetings.
I’m in Tokyo. The changing colours of the autumn leaves, which would normally preoccupy the nation and its visitors, have been replaced – well, in Tokyo anyway – by fluttering street banners announcing the fact that the city is hosting the 2012 IMF/World Bank Group Annual Meetings. There’s a throng of people – 20,000 is the number bandied about – representing government and private sector delegations from around the world, and they are all here to discuss the status of international economic and financial developments for inclusive growth.
As Director, Women’s Markets, Westpac Group and because of our leadership as a corporation and a country in promoting women’s access to finance, I’ve been invited by the IFC, a member of the World Bank Group, to attend a number of events focused on women in the private sector.
In many developing economies, between 30 and 40 percent of the entrepreneurs running small or medium sized businesses are women.
Cultural and legislative barriers, such as preventing married women from opening bank accounts, or restrictions on women’s work, are becoming less overt in many places. However, women entrepreneurs – be it in first, third or the developing world nations - often find it difficult to raise capital to grow their businesses and for all sorts of reasons.