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financial inclusion

Households’ use of long-term finance

Claudia Ruiz's picture

This post is part of a series highlighting the key findings of the Global Financial Development Report 2015 | 2016: Long-Term Finance. You can view the entire series at gfdr2015.

The second part of Chapter 2 of the 2015 Global Financial Development Report examines the use of long-term finance by households. The section first discusses the main reasons that households use long-term finance products, while highlighting the risks inherent to their use. Making use of recent data initiatives, it then shows how usage of long-term finance varies substantially both across and within countries, and then outlines a set of policy recommendations that can help develop and promote long-term finance markets.

Why would households use long-term finance? And what are the risks they can incur?

Long-term finance offers households various tools to achieve their changing objectives throughout their life-cycle. Products such as pensions, insurance, or annuities can help households prepare for retirement, smooth their life cycle income, and insure against various life cycle risks. Student loans or mortgages can make lumpy but potentially high-yield investments affordable to households. Long-term savings instruments can allow households to accumulate and reap term premiums.

Weekly wire: The global forum

Roxanne Bauer's picture

World of NewsThese are some of the views and reports relevant to our readers that caught our attention this week.

What Future For Emerging Markets?
Foreign Policy
Long before the current market debacle, I was confronted with a fundamental question about emerging markets. As I was finishing off my course at the Yale School of Management on “The Future of Global Finance” this past May, a student came up to me. “You have gone to great lengths to emphasize the role of emerging markets in a changing monetary system, “ he said, “ but everything I have been reading says that the era of the Brazils, the Indias, the Turkeys, the Indonesias as up-and-comers is history. Even China seems to have lost its luster. Have you been looking backwards and not forward?”

How Africa can benefit from the data revolution
The Guardian
The UN has estimated that across the world more people have access to mobile phones than to toilets. It is of course distressing to imagine what this means for many people’s exposure to disease and access to clean water, but the choice of mobile phone for the comparative statistic actually offers a great deal of hope. The mobile phone is part of a phenomenon where a new infrastructure is emerging, one that could bring the economic changes that enable those toilets to be built.  Our modern infrastructure is based on information. Since the 1950s, investment in data storage and distribution by companies and countries has been massive. Historically, data was centralised a single database. Perhaps one for representing the health of a nation, and another database for monitoring social security. However, the advent of the internet is showing that many of our existing data systems are no longer fit for purpose.

Financial inclusion in Asia – time for disruption?

Nataliya Mylenko's picture

More than half of the world’s population lives in Asia and its robust growth is supporting the world economy.  After weathering well the 2008 crisis Asia is now in the spotlight with currencies depreciating and capital markets in retreat.  One widely voiced concern is rapid expansion of credit in the past decade fueled by abundant liquidity.  Globally, and in Asia, regulatory response to the 2008 crisis has been to strengthen financial regulation and de-risk financial intermediation.  Yet the reality of credit markets in most Asian economies is quite different from that in high income economies.  While domestic credit by financial sector represented on average over 100% of GDP for high income OECD countries, emerging Asia’s average in 2014 stood at 60%. The differences across countries are substantial in this diverse region, but in two thirds of Asian economies domestic credit is less than 60% of GDP.  The reality for most economies in Asia is that of limited and often inefficient financial markets which do not serve fully their growth needs. Low level of financial inclusion is a major contributing factor and a major challenge.

Unleashing the power of women entrepreneurs around the world: The smartest investment to unlock global growth

Jin-Yong Cai's picture
Jacqueline Mavinga, entrepreneur, Democratic Republic of Congo.  © John McNally/World Bank Group

​Since childhood, Gircilene Gilca de Castro dreamed of owning her own business, but struggled to get it off the ground. Her fledgling food service company in Brazil had only two employees and one client when she realized she needed deeper knowledge about what it takes to grow a business. To take her business to that next level, she found the right education and mentoring opportunities and accessed new business and management tools.

New tools to accommodate old financial habits: key for digital financial services usage

Ignacio Mas's picture

When it comes to understanding the needs and behaviors of low-income people, the financial inclusion literature is full of contradictions. Experts celebrate poor people for their complex, active financial lives, but then seek to educate them financially.  Researchers document how resilient and purposeful their informal practices are, but then investigate ways to protect them against their own financial habits. Giving the poor a wide range of financial choices is an admirable goal, but do we really need to “nudge” them to change behaviors, as if the choice had already been made for them?

Building financial capability in Rwanda

Douglas Randall's picture

Rwanda’s level of financial inclusion is fast increasing, propelled forward by ambitious targets and innovative policy and regulatory approaches. The 2008 and 2012 FinScope surveys showed that financial inclusion had doubled from 21 to 42 percent and the 2015 iteration is expected to show continued progress. But with such a large and rapid movement of adults into the formal financial sector, ensuring that the ‘newly banked’ are able to effectively and responsibly select and use financial products is critical.

'Model Law for Best Practice in Financial Consumer Protection': An important driver for Universal Financial Access

Ros Grady's picture

The Client Protection Principles: Model Law and Commentary for Financial Consumer Protection (the "Model Law"), recently launched by the Microfinance CEO Working Group, has the potential to be a useful resource for the many developing and emerging economies that are seeking to design and implement international best practices in financial consumer protection, having recognized that consumer protection is a critical element in building and maintaining trust in the financial sector and achieving financial inclusion targets.

The Model Law was prepared on a pro-bono basis by the international law firm DLA Piper on the basis of the 7 Client Protection Principles of the Smart Campaign. The project, which took place over a 15-month period and was managed by Accion on behalf of the Council of Microfinance Counsels, included consultations with financial inclusion stakeholders and legal experts, who undertook a review of existing legal frameworks in various countries. Reference was also made to international best practices and principles such as the World Bank’s Good Practices on Financial Consumer Protection and the G20 High Level Principles on Financial Consumer Protection.
The Model Law is a high-level, activities-based law that is intended to apply equally to all financial-services providers. This includes “banks, credit unions, microfinance institutions, money lenders and digital financial-service providers.” The apparent aim is to ensure an equal level of protection for all consumers and a level playing field. The consumers concerned may be an individual or a micro-, small or medium-sized business, and so the law will apply equally to consumption and small-business facilities. Many of the provisions are framed in terms of principles, the detail of which would need to be filled out in related legislation.

The framework of the Model Law follows the Smart Campaign’s 7 Client Protection Principles, and so it covers the topics of appropriate product design and delivery; prevention of overindebtedness; transparency; responsible pricing; fair and respectful treatment of clients; privacy of client data; and mechanisms for complaint resolution. There is also a section covering the establishment of a dedicated supervisory authority with broad functions relating to the regulation, supervision and registration of financial-services providers, market monitoring and enforcement.

Weekly wire: The global forum

Roxanne Bauer's picture
World of NewsThese are some of the views and reports relevant to our readers that caught our attention this week.

Why don’t voters demand more redistribution?
The Washington Post
If you believe economic inequality is a political problem, these are trying times. As economic inequality increases in many of the world’s wealthy democracies, so does the disproportionate political influence of the rich. As a recent Monkey Cage post explained, even though economic inequality is on the rise, politicians around the world have grown increasingly attentive to the demands of the “1 percent” — and less responsive to the less well-off.  If you believe inequality is a bad thing, this trend is worrisome. The power of the rich to mute everyone else’s political voices could push economic inequality even higher, as the wealthy erect ever-higher barriers to policies that might work to reduce poverty and/or inequality.

Why Technology Hasn’t Delivered More Democracy
Foreign Policy
The current moment confronts us with a paradox. The first fifteen years of this century have been a time of astonishing advances in communications and information technology, including digitalization, mass-accessible video platforms, smart phones, social media, billions of people gaining internet access, and much else. These revolutionary changes all imply a profound empowerment of individuals through exponentially greater access to information, tremendous ease of communication and data-sharing, and formidable tools for networking. Yet despite these changes, democracy — a political system based on the idea of the empowerment of individuals — has in these same years become stagnant in the world.

Forging the link between inclusion and integrity in Ethiopia

Emily Rose Adeleke's picture

How can financial inclusion and financial integrity policies complement each other? That question was addressed in a report recently released looking at the state of Ethiopia’s anti-money laundering/combating the financing of terrorism (AML/CFT) framework.
The assessment was conducted by a World Bank Group team of experts and published by the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG). This is the first assessment of a developing country to be published that uses the revised 2012 Financial Action Task Force (FATF) standards.
Ethiopia’s compliance with the international standards on AML/CFT had never been assessed before, and this report sheds light on the functioning of a unique and vibrant economy in Africa. In addition, this is the first AML/CFT assessment to highlight the connection between financial inclusion and financial integrity policies.
As noted in an earlier blog post, entitled "The Royal Stamp of Inclusion," the FATF has confirmed that financial inclusion and financial integrity are mutually reinforcing public-policy objectives. The revised FATF standards have a more explicit focus on the risk-based approach in implementing an AML/CFT framework. This approach allows for the identification of lower risk scenarios and the application of simplified AML/CFT measures in certain areas (primarily customer due diligence, or CDD).
The Ethiopia assessment notes that only about 28 percent of the population is served by the formal financial system – leaving 72 percent of the population dependent on cash or informal financial service providers. The Ethiopian government has identified the expansion of formal financial services as a national priority, through its “Growth and Transformation Plan” and the “Ethiopian Financial Inclusion Project.”
The assessment makes suggestions as to how the Ethiopian authorities can “link up” the policies of inclusion and integrity – for example, by allowing for simplified customer due diligence processes, and by providing guidance to financial institutions on the issue.