CGAP Report Finds Access to Financial Services Still a Challenge

Oct 2009
Washington D.C., United States, October, 13 2009 - In seeking to give poor people access to critical financial services, policy makers around the world are often hampered by the lack of information they need to tackle this challenge. There often is little data available to answer basic, but important, questions: Who has access to savings or loan accounts? What kind of institutions do these customers use? Which policies actually help to bring financial services to poor people? How does branchless / mobile banking (including cell phone banking) increase the reach of services?

A new CGAP report, Financial Access 2009, provides, for the first time, global indicators and a range of policy recommendations that can help policy makers and regulators broaden access to financial services for poor people. It draws on information provided by financial regulators in 139 countries and identifies barriers that keep formal banking services restricted to the wealthiest people around the world.

The report found that people in emerging markets on average have one quarter the deposits and loans of those in developed countries. This means that many poor people do not have important tools that can help them invest in their businesses, spend more on household items, or have the funds to cope with crises.

In addition to confirming the vast gulf in the number of savings and loan accounts between rich and poor countries, the report also notes that remarkably few countries collect comprehensive data relating to financial access, outside the value of accounts in their financial systems. 

For example, only 30 of the 139 countries surveyed have data on the number of depositors in their regulated financial systems, and just 27 have data on the number of borrowers.

“A lot of countries are considering financial sector reforms in the wake of the global crisis. This can be a great opportunity to also consider policies to broaden financial access to poor people,” says Nataliya Mylenko, lead author of Financial Access 2009. “But without the kind of data in this survey, policy makers would find it extremely challenging to tailor policies to their country’s needs.”

Financial Access 2009, drawing on a range of estimates and survey results, puts the number of bank accounts worldwide at 6.2 billion, or more than one account for every person on the planet. However, as expected, most of these accounts reside in the world’s wealthiest nations; 70% of adults in developing countries do not use formal financial services, compared to 20% of those in developed countries.

Banking sectors in developing countries often target only the wealthiest in the population, according to the report. Poor people often lack the official forms of identification, credit history, or even physical address to secure the most basic financial services.

Governments can address obstacles these “know your customer” requirements pose by ensuring the level of requirements is proportionate to the size of the accounts and transactions of the poor people in their countries.

They can also facilitate access by channeling more payments to poor people directly to bank accounts, potentially benefiting banks, governments, and clients. But out of the 139 countries surveyed, only 40 reported that they encourage or mandate government transfers through the banking system; 14 of these are high-income countries and 10 countries in Latin America. Few countries in other regions are promoting such transfers

Banks in some countries are increasingly using agents to deliver some services—predominantly services that allow customers to pay utility bills or make loan repayments or deposits. In Brazil, for example, the number of agents handling financial activities is 10 times the number of actual bank branches. Governments can further promote financial access by removing hurdles financial institutions (including microfinance institutions) face when they want to establish new branches or develop agent networks. On the credit side, borrowers in developing countries rely heavily on unregulated lenders or regulated nonbank financial institutions rather than banks, which once again tend to focus on the wealthier segments of society. Financial Access 2009 argues that governments need to address consumer protections and balance them against costs borne by the financial institutions themselves to encourage lenders to make credit available to lower income borrowers.

Governments should throw their support behind the establishment of comprehensive credit information bureaus and adequate consumer protection. In high-income countries and Latin America, where retail credit is more developed, more than 90% of countries have consumer protection and disclosure requirements, compared to only half of the countries in South Asia and Africa. Of the countries surveyed, 109 have disclosure requirements on loan interest rates. In all, 47% of countries have disclosure requirements rather than usury ceilings, while 30% of countries use both.

Financial Access 2009 stresses that it is important for regulators and governments to gather more information about the characteristics and behavior of their financial systems. This information will help them design policies that correctly target barriers to poor people accessing financial services and that anticipate future changes in behavior and financial systems.

Finally, governments also need to examine ways to prevent over-indebtedness among borrowers. As some countries consider capping loan interest rates and, in some cases, actual loan amounts, further analysis is needed to assess the effectiveness of these policies.

Source : CGAP

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