It is in the popular perception that technological availability and regulation are the two most important factors in promoting mobile banking, defined here as the usage of mobile phones to send/receive money and to make payments. Two cases, however, defy this common perception and bring forth interesting questions as to what are the main driving factors for mobile banking. Let’s take a brief look at Russia and Somalia.
There has been an ongoing debate regarding the consequences of foreign ownership in the banking sector in Mexico. Some participants in the public discourse argue that foreign ownership earnings leave the country in the form of dividends, leaving little, if any, for reinvestment. Another argument claims that foreigners are not interested in economic development in the country and thus restrict credit, especially to small and medium-size companies.
In this study (read Spanish version), we first analyze the theoretical underpinnings. According to Becker’s theory of discrimination, if one entity were to discriminate, the competition would take advantage of the money left on the table and would eventually take the discriminating entity out of the market or, at least, the entity would show subpar performance. In other words, discrimination in giving credit in the country would go against the best interests of the foreign-owned bank.
Credit information sharing has been shown to have several benefits for the financial system. Reliable credit information can address the fundamental problem of asymmetric information between borrowers and lenders, it can alter borrowers’ behavior countering moral hazard, and improving repayment rates, and it can place banks in a better position to assess default risk, counter adverse selection, and monitor institutional exposures to credit risk. Perhaps most importantly, credit reporting can allow borrowers to build a credit history and to use a documented track record of responsible borrowing and repayment as "reputational collateral" to access credit outside established lending relationships. In addition, financial regulators can draw on credit reporting systems to understand the credit risk faced by financial institutions and systemically important borrowers, to define capital provisioning requirements, and to conduct essential oversight functions.
Despite the numerous benefits of information sharing for credit market efficiency, credit reporting institutions do not always emerge spontaneously. The Doing Business dataset shows that 26 percent of countries do not have any credit reporting institution at all (figure 1). Low and middle income countries have a relatively higher presence of credit registries while credit bureaus are more common in high income countries.
The spectacular expansion of microcredit programs in Bangladesh, including a growing number of borrowers availing credit from multiple microfinance institutions (MFIs), have brought recent concerns that MFI competition might be taking a toll on the industry in terms of reduced rates of loan repayment and a higher incidence of overlapping debt. Microfinance programs have been running in Bangladesh for more than two decades, reaching more than 10 million households, nearly half the rural population. By 2008, the annual disbursement of microfinance programs was close to US$1.8 billion with an outstanding balance of US$1.5 billion. The country’s wholesale microcredit agency, the Palli Karma Shahayak Foundation (PKSF), with support of the World Bank has orchestrated microfinance penetration through a wide network of small but highly competitive partner organizations.
Among the most notable developments in the global economy over the past 20 years has been the rise of China and India as world economic powers. Along with high overall growth in these economies has come an increase in their financial activity. But how much have different types of firms used capital markets and benefited from their expansion?
In a new study and VoxEU column, we argue that the expansion of financing to the private sector in China and India has been much more subdued than the aggregate measures of financial depth suggest. Although capital raising activity in equity and bond markets expanded substantially in 2005–10, it remained small as a percentage of GDP. Importantly, this expansion was not associated with widespread use of capital markets by firms. Not only have few firms made recurrent use of equity and bond markets; even fewer firms have captured the bulk of the capital market financing. Moreover, firms that use equity or bond markets are very different from—and behave differently than—those that do not do so. While non-issuing firms in both China and India grew at about the same rate as the overall economy, issuing firms grew twice as fast in 2004–11.
The year 1994 saw the birth of the SOFOLs in Mexico. These societies are non-bank financial institutions (NBFIs). One feature of these institutions is that the financial resources they supply must be exclusively directed to funding a market niche, e.g. consumption credit, commercial credit, mortgages, or credit cards. Moreover, SOFOLs are not allowed to take deposits from the public. During 2000-2010, these institutions placed a significant amount of financial funds in almost every market niche, and many of them consolidated over time.
The stronger growth and best performance was registered by the SOFOLs that granted mortgages (mortgage SOFOLs). By the end of 2005 the financial resources granted by these institutions accounted for over 60% of the credit balance of all SOFOLs in México. However, their good performance did not last long: their funding flows and the number of societies began to decline in 2006. The global financial crisis of 2008 also affected their financial performance. See graph below.
More than 1.3 billion women are excluded from the formal financial system. These women – the overwhelming majority of whom reside in developing countries – lack the basic financial tools critical to asset ownership and economic empowerment. Even something as simple as a deposit account provides a safe place to save and creates a reliable payment connection with family members, an employer, or the government. A formal account can also open up channels to formal credit critical to investing in education or in a business. Yet women are 15 percent less likely than men to be financially included. Why?
In a new study and summary companion note we document and analyze gender differences in the use of financial service using new data from the Global Financial Inclusion (Global Findex) Database. Our analysis is based on almost 100,000 interviews with adults in 98 developing economies in 2011. We also combine the Global Findex data with cross-country data on legal discrimination against women from the World Bank’s Women and Law Database and on cultural norms from the OECD’s Gender, Institutions, and Development database to examine their relationship with financial inclusion. Because the later country-level variables show no variation across high income economies, our econometric analysis focuses on a sample of up to 98 developing countries.
Financial illiteracy remains a pressing problem in the developing world and a myriad of financial literacy programs are now underway to educate and help poor individuals make informed financial decisions. Research on the effectiveness of such programs lags considerably behind implementation, but several evaluations are now underway to understand mechanisms of impact.
But even the best designed, most attractive education tools may fail to reach everyone in a cost-effective manner; and not everyone in the target audience may be interested in taking time out of their daily lives to attend such sessions.
In recent research in South Africa, a colleague of mine, Gunhild Berg, and I tested the idea of taking financial education to the masses without disrupting their daily routines, and without incurring exorbitant production and delivery costs. And we did it, of course, by turning to television!
Group identity in the form of family, ethnicity, or gender is a powerful predictor of social preferences, as shown by theory and empirical work. In particular, people generally favor in-group over out-group members. Such favoritism can have positive or negative repercussions. On the one hand, it can lead to inefficient transactions and lost opportunities. On the other hand, group identity may also entail trust, reciprocity, and efficiency due to shared norms and understandings. In recent research with Patrick Behr and Andreas Madestam, we gauge these opposing hypotheses, examining one important form of group identity, gender, and the consequences of own-gender preferences for outcomes in the credit market. We use microcredit transactions as they are an ideal ground to test these different hypotheses, relying heavily on transaction between loan officers and borrowers.
During the last decade the literature on factors affecting corporate default increased exponentially. However, surprisingly little is known about what happens to firms after they default on their bank loans. How many firms are able to overcome the financial distress that led to the default on bank loans? Do these firms regain access to credit? How fast is this process? Which firms have more difficulty in regaining access? In this article, we shed some light on these important questions.
We take the occurrence of defaults as given and analyze what happens to the ability of firms to access credit markets after an episode of financial distress. This is a relevant question, as not all the firms that default on their debts are economically unviable. In many cases, firms default on their liabilities due to unexpected events which do not compromise their economic viability. This question relates closely to the literature on default recoveries but it goes one step further and asks about the ability to borrow again after an episode of financial distress.1