Published on All About Finance

Understanding Banks in Emerging Markets: Observing, Asking, or Experimenting?

This page in:

Empirical banking research stands and falls with high-quality data. The recent years have seen a large number of new data sources and empirical methodologies being applied to understand how banks operate in the often challenging environment of emerging and developing economies.

A recent conference at the EBRD, jointly organized with the European Banking Center at Tilburg University, the Review of Finance, and the Centre for Economic Policy Research in London, brought together researchers using three types of data sources asking a variety of important questions. Vox has now published an eBook that provides an overview of the different topics discussed during the conference. The studies presented at the conference and in the eBook use data from existing data repositories such as credit registries ('observing'); from large-scale surveys of bank CEOs and bank clients ('asking'); and from randomized experiments ('experimenting'). All three methods try to prise open the banking 'black box' in different ways — each with their own advantages and disadvantages. Using these different data sources allows researchers to address relevant policy questions, and also to better understand the micro-mechanisms of financial contracting and the supply- and demand-side constraints that (potential) borrowers in emerging markets face on a daily basis.

I will not be able to give justice to all the papers presented, so let me just give some highlights.

Observing banks

Using bank-, firm-, or loan-level data for hypothesis testing has become a prominent tool in the empirical banking literature. Access to credit registry data or proprietary loan data from specific banks allows researchers to drill deeper into the details of financial service provision and to gauge the effects of specific policies. The papers in this section covered diverse countries, including Hungary, Vietnam, and Korea as well data from two banks that operate across a number of emerging markets. The papers gauged the effect of bank taxation (still a hot topic in Europe), the importance of the financial sector for resource allocation, the use of collateral as commitment device vs. use as hedging tool, the role of political connections and the effects of an expansion of a microfinance institution on access to finance by low-income household.


Randomized controlled trials have become increasingly popular in the economics profession over the past year. As also reported on this blog, there has been a large array of randomized controlled trials assessing the impact of access to financial services on the poor, as well as the effectiveness of specific products – many of which have taken place in low-income countries. More recently, the focus has broadened to the demand side, exploring constraints related to a lack of financial literacy that prevent both the uptake and the efficient use of formal financial services. One interesting paper by Miriam Bruhn, Gabriel Lara Ibarra and David McKenzie explores the reasons for the persistently low participation in financial literacy courses with an experiment in Mexico City.

Asking banks

While asking (potential) borrowers has been popular for quite some time (e.g., through Enterprise Surveys), asking banks about their strategies and customers is a more recent phenomenon. The EBRD has undertaken two rounds of the Banking Environment and Performance Survey — the first one in 2006 and the second in 2012, in cooperation with the European Banking Center at Tilburg University. As part of this survey, face-to-face interviews were conducted with the CEOs of over 600 banks across 32 countries in Central and Eastern Europe and Central Asia. In addition, detailed information was collected on the exact geographical location of over 135,000 bank branches across these countries. Several papers in the conference and the eBook use these data to test existing and new hypotheses on banks' behavior, including to test the relationship between access to credit and firms' innovative behavior and to construct new measures of competition.


The papers presented in the conference and summarised in this eBook point the way towards an exciting research agenda. First, more detailed micro-level data help researchers and also practitioners better understand the impact of innovative products, lending techniques, and delivery channels. Second, micro-level data allow a more careful analysis of the impact of specific financial-sector policies on banks and customers. A third important area is that of demand- and supply-side constraints on entrepreneurs in accessing external finance. Applying lessons from behavioral economics will be critical here.


Thorsten Beck

Professor of Banking and Finance, Cass Business School

Join the Conversation

The content of this field is kept private and will not be shown publicly
Remaining characters: 1000