Syndicate content

October 2015

5 ways to make finance fairer for all

Ceyla Pazarbasioglu's picture
The catastrophic effect of the 2008 financial crisis on growth, trade and jobs across the globe exposed fundamental weaknesses in the financial sector. It also provided the impetus for a major overhaul. Are we making the most of this opportunity to fix the system? Are we building a financial system that is ethical and serves society, and not the other way round?
What’s the good side of finance? 
Financial systems play a key role in facilitating shared prosperity. Just about any important activity requires finance, be it personal health, owning a home, investing in education, starting up and growing a business, or taking care of the elderly. Many financial products – such as installment loans or mortgages – are particularly important for low and middle-income people, and help them smooth and increase their lifetime income.
In a functioning market, money flows freely, information is broadly shared and investors get adequate returns for the risks they take through equity or debt instruments, capital flows to profitable companies, projects and investment opportunities. In an ideal world, the financial system helps society allocate resources and manage risks. Finance works.

Stronger laws can help protect women from domestic violence

Paula Tavares's picture

Would it surprise you to know that one in three women worldwide have experienced physical or sexual violence from their intimate partner? Or that as many as 38% of women who are murdered globally are killed by their partners? It is a sad reality, but those are the facts.

Globally, the most common form of violence against women is from an intimate partner. The statistics are shocking. And while these numbers are widely disseminated, the facts persist. The stories repeat themselves, affecting girls and women around the world regardless of race, nationality, social status or income level.

This sad reality was the cause of Nahr Ibrahim Valley’s death in Lebanon, just months after the country's new law on domestic violence was finally passed. The new law came after several cases sparked campaigns and protests in the Lebanese capital surrounding International Women’s Day last year. Unfortunately, it was not enough to save her life, but it can be the hope for thousands of women in the country, who previously had no legal protection against this type of crime.

The World Bank Group’s Women, Business and the Law project studies where countries have enacted laws protecting women from domestic violence. The fourth report in the series, Women, Business and the Law 2016: Getting to Equal, finds that more than 1 out of 4 countries covered around the world have not yet adopted such legislation. The effects of this form of violence are multifold. It can lead to lower productivity, increase absenteeism and drive up health-care costs. Moreover, where laws do not protect women from domestic violence, women are likely to have shorter life spans. 



Domestic violence, also viewed as gender-specific violence, commonly directed against women, which occurs in the family and in interpersonal relationships, can take different forms. Abuse can be physical, emotional, sexual or economic. The 2016 edition of Women, Business and the Law shows that, even where laws do exist, in only 3 out of 5 economies do they cover all four of those types of violence. Subjecting women to economic violence, which can keep them financially dependent, is only addressed in about half of the economies covered worldwide.

The reforms behind the Doing Business rankings

Cecile Fruman's picture



In Mozambique in 2003, it took an entrepreneur 168 days to start a business. Today, it takes only 19 days. That kind of transformation has major implications for ambitious men and women who are seeking to make a mark in business, or, as is often the case in Africa, seeking to move beyond a life in agriculture. In economies with sensible, streamlined regulations, all it takes is a good idea, and a couple of weeks, and an entrepreneur is in business.

This week, the World Bank Group launched its annual Doing Business 2016 report, which benchmarks countries based on their progress undertaking business reforms that make it easier for local businesses to start up and operate.

For the second straight year, Singapore topped the list, with New Zealand, Denmark, the Republic of Korea, and Hong Kong SAR, China, coming in closely behind.

In the developing world, standouts included Kenya and Costa Rica, both of which rose 21 positions; Mauritius, Sub-Saharan Africa’s top-ranked economy; Kazakhstan, which moved up 12 places to rank 41st among all countries; and Bhutan, which topped South Asia’s list of reformers. In the Middle East and North Africa, 11 of the region’s 20 economies achieved 21 reforms despite the challenges caused by a number of civil and interstate conflicts.
 
The reforms tracked by Doing Business are implemented by governments, but the results show up most in the private sector, which is critical to driving a country’s competitiveness and to creating jobs. Ensuring an enabling environment in which the private sector can operate effectively is an important marker of how well an economy is positioned to compete globally. 
 
For those of us working with governments to help improve their investment climates – and to create a policy environment in which business regulatory costs are reasonable, access to finance is open, technology is shared, and trade flows within and across borders – the real work begins long before the Doing Business rankings are published.

In the World Bank Group’s Trade and Competitiveness Global Practice (T&C), our mandate is to work with developing countries to unleash the power of their private sector for growth. Much of this work involves reforms in the very areas measured in the Doing Business report: starting a business, dealing with construction formalities, or trading across borders, among other factors.

Our experience working with clients confirms one of this year’s key findings: Regulatory efficiency and quality go hand-in-hand. A good investment climate requires well-designed regulations that protect property rights and facilitate business operations while safeguarding other people’s rights as well as their health, their safety and the environment.

Shutting doors on women: How countries are legally preventing half their population from reaching their full economic potential

Katrin Schulz's picture
When Niloufar Ardalan, a 30-year-old professional athlete and the captain of the Iranian women’s indoor soccer team, recently got the opportunity to represent her country and play in the Asia Cup, she and her teammates must have been thrilled. But to play in the prestigious championship, Ardalan faced a major legal hurdle — one that you might not expect: It came not from immigration law or employment law, but from family law.

Iranian law prevents married women from traveling outside the country without the permission of their husbands. Ardalan’s husband — a well-known sports journalist — wanted Ardalan to be present for their son’s first day of school so he acted within the bounds of the country’s laws. He prohibited Ardalan from traveling to Malaysia with the rest of her teammates, sparking a frenzy on Twitter and Facebook and sending shockwaves through international media. Legally, there was nothing Ardalan or her team could do. She was forced stay behind. 

Such a legal restriction is hardly unique to Iran. In many countries around the world, a woman’s gender — often coupled with her marital status — can legally prevent her from taking actions she otherwise could take if she were a man. Women, Business and the Law 2016: Getting to Equal, a new World Bank Group report launched around the same time Ardalan was denied the opportunity to play in the Asia Cup, tracks such restrictions in 173 economies worldwide. 
 
Getting To Equal: Women, Business and the Law

 

The report found that in six of 173 economies covered, including the Islamic Republic of Iran, a married woman cannot travel outside the country in the same way as a married man. In 30 economies, married women cannot be head of household in the same way as married men. In 32 countries, wives cannot apply for a passport in the same way as their husbands. Countries such as Spain and Switzerland had laws on the books as recent as 1978 and 1984 that required married women to obtain their husbands permission to work outside the home.

Five steps to closing the $2 trillion credit gap

Peer Stein's picture

Dignity factory workers producing shirts for overseas clients, in Accra, Ghana
Dignity factory workers producing shirts for overseas clients, in Accra, Ghana. Photo © Dominic Chavez/World Bank.

Everyone needs financial services – the poor, the middle class, and the wealthy. But if you are poor, access to quality finance is harder to come by, and much more expensive. Unfortunately, the same is still true for small businesses around the world.

Compared to large companies, small and medium-sized enterprises (SMEs) face severe credit constraints. Two-hundred million businesses globally are unable to get the credit they need, both for working capital and for investments. The estimated global credit gap exceeds $2 trillion. These credit constraints are most acute in low-income countries, where nearly half of small businesses cite lack of access to finance as a major barrier to growth.

This SME finance gap is often described as the “Missing Middle”: microfinance institutions provide capital for microenterprises with fewer than five employees and commercial banks or private equity firms serve large corporations and multinationals. Small and medium-sized companies, usually defined as companies with up to 250 employees, are stuck in the middle. This is an enormous problem, because the vast majority of all firms world-wide are SMEs – up to 95%, according to some definitions.

Bad news for cartels, good news for the poor in Latin America

Martha Martinez Licetti's picture

Milk, sugar, poultry transport, energy and medicine make up between 15 percent and 20 percent of the expenditure of the average household in Latin America. But consumers are receiving fewer of these essential goods and services for their money than they should.

Why? Because, in some parts of Latin America, firms supplying these markets agree not to compete, choosing instead to jointly fix higher prices, restrict total production or obstruct the entry of new competitors – that is, to create economic cartels.

Over just the past four months, competition authorities in Latin America have opened investigations of, or have detected, many cartel agreements:
 

  • In Colombia, sugar mills, a trade association and trading companies coordinated to obstruct sugar imports from entering the market in order to keep domestic sugar prices artificially high.
  • In Brazil, three firms appear to have agreed not to reduce the price of milk that is consumed by poorer households.
  • In Honduras, the association of chemical pharmacists enforced minimum-distance rules between pharmacies, creating local monopolies.
  • In Peru, five gas suppliers for domestic gas use allegedly raised prices simultaneously by $14 to $17 per metric tonne.
  • In Mexico, bus companies agreed to fix prices and restrict their supply of services over four years.


Are these isolated cases? No. According to new data compiled by the World Bank Group (WBG) and the Regional Competition Center of Latin America, Latin American economies since 2008 have been affected at least 100 times by such harmful agreements, based only on the cartel cases that have already been sanctioned and fined. Empirical data suggests that these cartels charge on average 30 percent higher prices. A forthcoming WBG study shows that, in Latin America, firms create cartels mostly in non-tradable goods and in the services markets. Almost half of the cartels in services involved some means of transportation, and 60 percent of the cartels in goods markets targeted food products.

Cartel agreements are not a new development. Consumers in Peru have overpaid for chicken and flour in the 1990s, for accident insurance in the 2000s, and apparently for cooking gas nowadays. In Mexico, an inhabitant of Chiapas will have overpaid, in the first decade of this century, for tortillas, chicken, telephone services, refrigerators and passenger transport.

This matters, because cartels harm the poorest. The alleged cartel agreement in Brazil was on a milk product that is mostly consumed by lower-income households, or “a guy from a humble family,” as one of the cartel members acknowledged, according to the authority. About 80 percent of Peruvian households that use gas as their primary source of energy allegedly paid more because gas suppliers colluded to keep prices high. The Mexican bus cartel was active in 13 municipalities in the state of Chiapas, where nearly 1 million people live in moderate to extreme poverty. The bus cartel, on a single route, forced consumers to pay a total of $2.5 million more.

Making cities competitive – What will it take?

Megha Mukim's picture



Cities are the future. They are where people live and work. They are where growth happens and where innovation takes place. But they are also poles of poverty and, much too often, centers of unemployment.

How can we unleash the potential of cities? How do we make them more competitive? These are urgent questions. Questions, as it turns out, with complex answers – that could potentially have huge returns for job creation and poverty reduction.

Cities vary enormously when it comes to their economic performance. While 72 percent of cities grow faster than their countries, these benefits do not happen uniformly across all cities. The top 10 percent of cities increase GDP almost three times more than the remaining 90 percent. They create jobs four to five times faster. Their residents enjoy higher incomes and productivity, and they are magnets for external investment.
 
We’re not just talking about the “household names”among global cities: Competitive cities are often secondary cities, many of them exhibiting success amidst adversity – some landlocked and in lagging regions within their countries. For instance, Saltillo (Mexico), Meknes (Morocco), Coimbatore (India), Gaziantep (Turkey), Bucaramanga (Colombia), and Onitsha (Nigeria) are a few examples of cities that have been competitive in the last decade.
 
So how do cities become competitive? We define competitive cities as those that successfully help firms and industries create jobs, raise productivity and increase the incomes of citizens. A team at the World Bank Group spent the last 18 months investigating, creating and updating our knowledge base for the benefit of WBG’s clients. In our forthcoming report, “Competitive Cities for Jobs and Growth,”* we find that the recipe includes several basic ingredients.

In the long term, cities moving up the income ladder will transform their economies, changing from “market towns” to “production centers” to “financial and creative centers,” increasing efficiencies and productivity at each stage. But economic data clearly shows there are large gains to be had even without full-scale economic transformation: Cities can move from $2,500 to $20,000 in per capita income while still remaining a “production center.”  In such cases, cities become more competitive at what they already do, finding niche products and markets in tradable goods and services. Competitive cities are those that manage to attract new firms and investors, while still nurturing established businesses and longtime residents. 
 
What sort of policies do competitive cities use? We find that leading cities focus their energies on leveraging both economy-wide and sector-specific policies. In practice, we see how successful cities create a favorable business climate and target individual sectors for pro-active economic development initiatives. They use a combination of policies focused on cross-cutting issues such as land, capital markets and infrastructure, while not losing focus on the needs of different industries and firms. The crucial factor is consultation, collaboration and partnerships with the private sector. In fact, success also involves building coalitions for growth with neighbors and other tiers of government.

Islamic finance: Strong standards of corporate governance are a 'sine qua non'

Nihat Gumus's picture



Proper corporate governance practices in financial institutions should provide added value by enhancing the protection of depositor and investor rights, facilitating access to finance, reducing the cost of capital, improving operational performance, and increasing institutions’ soundness against external shocks. Ensuring strong corporate governance standards is thus essential to the stability and health of all financial institutions, worldwide.
 
Good governance is an important priority for Islamic finance, an aspect of international finance that has enjoyed a stage of significant growth over the past decade. The volume of financial assets that are managed according to Islamic principles has a value of around $2 trillion, having experienced a cumulative average annual growth rate of about 16 percent since 2009 (Graph 1).

Graph 1: The Size of Islamic Finance Assets (USD Billion)


 
Banking has traditionally been the leading sector in the realm of Islamic finance, but the share of other products and institutions within the total realm of Islamic financial assets has been steadily increasing,  as well (Graph 2). For instance, the Sukuk sector – which focuses on securitized asset-based securities – has seen considerable growth over the past six years and, as of 2014, amounted to more than $300 billion. Similar momentum is driving the growth of the Islamic Funds and Takaful (Islamic insurance) sectors. From 2009 to 2014, the assets under management of Islamic Funds has increased from about $40 billion to about $60 billion, while the amount of total gross contribution to Islamic insurance has surged from $7 billion to more than $14 billion.

Graph 2: The Size of Islamic Finance Assets by Sector 2014 YE (%)


 

Why wait? Insurers, take steps to reach the women’s market

M. Esther Dassanou's picture

In most developed nations, when dealing with the aftermath of a natural catastrophe, an accident, a divorce – or even retirement – women know they can buy and rely on insurance to handle the damages, give them access to long-term savings or, at a minimum, cover a portion of their lost assets. 

In emerging and developing markets, on the other hand, this is usually not the case. Working at IFC in Washington and staying in touch with my family at home in Senegal, I’ve heard countless stories of men and women living in terrible conditions after a natural disaster.

These are not only people with lower incomes. I’ve met women who have lost everything following their spouse’s death or divorce because customary practices and inheritance laws did not give them access to the family assets. (In fact, in 20 percent of economies around the world, women do not have the same inheritance rights as men.) Worse, there are women whose children have died because the public hospital was too full and too busy to accommodate them at the time they needed medical help, and because they did not have the means to afford private health care. 



These are sobering and, sadly, true stories that very seldom make headlines. Yet if we look at families’ needs and at how women tend to be more affected by death, disaster and family illness, the answer seems simple: insurance.

It’s only when something bad happens that, all of a sudden, people – especially women, who tend to be more risk-aware – wish that they had planned better to deal with the situation at hand. What tends to keep women from choosing insurance as the solution to their risk-mitigation needs are misperceptions, affordability, lack of awareness, lack of bank accounts or access, and the stories of people with insurance policies that do not seem to cover any claims.