Financial Inclusion and Development: Recent Impact Evidence
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Transcript of Financial Inclusion and Development: Recent Impact Evidence
Financial Inclusion and Development:Recent Impact Evidence
Bob Cull, Tilman Ehrbeck and Nina Holle
June 2, 2014
2
1. A Vast Majority of Poor Households Live and Work
in the Informal Economy
2. Increasingly Robust Evidence of Beneficial
Economic Impact
• Microeconomic Level
• Local Economic Activity
• Macroeconomic Level
3. Additional Indirect Benefits
Agenda/ Outline of the paper
3
50+%w/out formal
financialaccount
~50-60% with
informal jobs
40+%below $2/day
A Vast Majority of Poor Households Live and Work in the Informal Economy
4
Microeconomic Level: CreditBusinesses benefit from access to credit, linkage to broader welfare less clear
Mongolia (2010):• Household Welfare: ++• Business outcomes: ++
India/Spandana (2009/2013):• Household Welfare: 0• Business Outcomes: +
SA/Consumer Credit (2010):• Household Welfare: ++• Business outcomes: +
Mexico/Compartamos (2013):• Household Welfare: +• Business outcomes: ++
Bosnia (2012):• Household Welfare: -• Business outcomes: ++
Phillipines (2011)• Household Welfare: 0• Business Outcomes: +
Morocco (2012):• Household Welfare: 0• Business outcomes: +
5
Business investments of women (Kenya)*
Health savings and investments (Kenya)**
* Dupas, Pascaline et al. (2012a). Savings constraints and microenterprise development: evidence from a field experiment in Kenya. AEJ: Applied Economics. Forthcoming.** Dupas, Pascaline et al. (2012b). Why don’t the poor save more? Evidence from health savings experiments, NBER Working Paper.*** Brune, Lasse et al. (2013): Commitments to save. A field experiment in rural Malawi. Working Paper.
Averag
e dail
y busin
ess...
Food ex
penditu
res
Private
expen
ditures
0
100
+ 38%
+ 13%
+ 37%
0
100
200
+ 138%
+ 66% + 75%
Agricultural activity (Malawi)***
Agricultural input
Crop output Expenditures0
100
+ 27% + 28% + 17%
Without access to c. savings With access to c. savings
Without access to savings With access to savings
Without access to savings With access to savings
Microeconomic Level: SavingsSavings help manage cash flow spikes, smooth consumption and build working capital
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Agricultural activities (Ghana) * Protection against negative impact of natural disasters (Kenya) **
* Karlan, Dean et al. 2012. Agricultural Decisions after relaxing credit and risk constraint, NBER Working Paper.** Janzen, Sarah and Carter, Michael. 2012. The impact of microinsurance on asset accumulation and human capital investments: Evidence from a drought in Kenya. Working Paper.
0
100+ 13%
+ 24%+ 13%
Without access to insurance With access to insurance Without access to insurance With access to insurance
- 43%- 18% - 11%
Asset sales Reduction of meals Dependency on food aid0
100
Microeconomic Level: InsuranceAccess to insurance increases risk appetite and protects livelihoods
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• Sharing risk in Kenya (Jack/Suri 2014)
• M-Pesa users were able to fully absorb negative income shocks through increase in remittances
• Consumption of households without access to M-Pesa fell on average 7%
• Reducing transaction costs in Niger (Aker et al. 2010)
• Reductions in costs of cash transfer programs (both for implementing agency and recipient)
• Recipients’ cost savings resulted in diversification of expenditures (including food)
Microeconomic Level: PaymentsMobile money reduces households’ transaction costs and improves ability to share risk
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• Opening bank branches in unbanked locations reduced rural poverty in India (Burgess and Pande 2005)
• Opening Banco Azteca branches in retail stores had a significant impact on regional economy in Mexico (Bruhn and Love 2013, Ruiz 2013)
• 7% increase in overall income levels
• Households were better able to smooth consumption and accumulated more durable goods
Local Economic ActivityFinancial access improves the local economy
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GDP Growth Rates and Financial Depth 1980-2003
Source: Honohan, Patrick, and Thorsten Beck. 2007. Making Finance Work for Africa. Washington, D.C.: World Bank Group.
Macroeconomic LevelPositive correlation between financial depth and growth
Correlation less clear if:
− Economies with weak institutional framework
− High inflation environments
− Very low and very high levels of financial intermediation
− Short time horizon
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ARG
AUS
AUT
BEL
BGD
BOL
BRA
CAN
CHE
CHL
CIV
CMR
COLCRIDNK
DOM
ECU
EGYESP
ETH
FIN FRA
GBR
GHA
GRC
GTM
HKG
HND
HUN IDNIND
IRL
IRN
ITA
JAMJOR
JPN
KORLKA
LSO
LUX
MDGMEX
MUS
MYS
NER
NGA
NLD
NOR
NPL
NZL
PAK
PAN
PER
PHL
PRT
ROM
SEN
SGP
SLE
SLV
SWE
THATTO
TUN
TURTZA
UGA
URY USA
VEN
ZMB
-0.03
-0.02
-0.01
0
0.01
0.02
0.03
-3 -2 -1 0 1 2
Change in Gini coefficient
Private credit to GDP
Source: Beck, Thorsten, Aslı Demirgüç-Kunt ,and Ross Levine. 2007. “Finance, Inequality, and the Poor,” Journal of Economic Growth, Vol. 12 (1).
Access to credit and income equality
Private credit to GDP
Change in Gini coefficient
Macroeconomic LevelFinancial deepening reduces inequality
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• More effective and efficient execution of other
social policies• Payment of CCTs (e.g. Bolsa Familia reduced transaction
costs from 14.7% to 2.6%)
• Enabling new private-sector business models that
help address development priorities
• E.g. Microleasing for off-grid solar power,
community-based water stations (Kenya, Tanzania)
Additional indirect benefits
Advancing financial inclusion to improve the lives of the poor
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