1. Access to Financial Services What Do we Know Across Countries? Preliminary Comparisons Finance Forum 2004 Anjali Kumar, Manuela Francisco, Tova Maria Solo, Priya Basu, Niraj Verma, Latin America and the Caribbean Region, Asia Region World Bank With contributions from John Caskey, Swarthmore College, Clemente Durán, Universidad Nacional Autónoma de México, Rosane Mendonça, IPEA, Brazil, Cristine Campos, IPEA and Berkeley, Soumya Chattopadhyay, University of Maryland, Adam Parsons, consultant Pradeep Srivastav, NCAER, Delhi

2. 2 How Do Banking Services Available Vary? GDP per capita Population per branch GDP per branch (US$2001) Area per branch (sq. Km) Brazil3,1529,33129.4470 Colombia2,08510,93122.8273 Mexico4,96911,92459.3236 India44814,8886.744 USA33,0873,568118.0117 Source: Brazil, Access to Financial Services, World Bank, p.18  In terms of conventional services such as bank branches, Bank client countries have only a third or a quarter of the USA’s service level.  But in terms of area per branch countries such as Mexico and Colombia are better served, with half of US levels. India has a denser branch network than the USA  How is area per branch so high in India with its low GDP per branch?

3. 3 How Many People Have a Bank Account? Brazil (11 urban areas) 43.0% Colombia (Bogotá city) 41.2% Mexico(México city) 25.0% Including compulsory savings (AFORES) 48.2% India (UP and AP-rural) 47.5% USA (households) 87% England and Wales (households) 92% Scotland (households) 85%  Less than half the population of these countries have bank accounts  Can obligatory schemes such as the AFORES hugely impact on the number of banked?  How does India rank so high given that its per capita income is the lowest of these countries?

4. 4 USA*MexicoColombiaBrazilIndia  Demand limitations: no need/no savings No awareness  Supply limitations: Bank barriers/ (eg. high costs minimum balances; documentations)  Perceptions of Service/Safety/Mistrust: Lack of documentation Privacy  Inconvenience –Location and hours  Other Reasons 53% 45% 18% 10% 22% 10% 7% 70% 16% 3% 2% 16% 78% 3% n.a. 42% 25% 33% 75% 18% n.a. Why Don ’ t the Unbanked Use Banks?  On the demand side, lack of perceived need may be important for the poorest  On the supply side, bank barriers are also a factor – documentation, cost, and unfriendly service  However questions are not standardized and comparisons are therefore difficult through these surveys *percentage of total sample and not percentage of total reasons

5. 5 What Savings and Deposit Facilities are Used? Distribution of DepositsBrazilIndiaColombiaMexico Banks95% (54% private; 41% public) 90% (30% Rural Regional Banks) 85%96% Cooperatives0%7%14% Post Officen.a.2% Family/Friends4%n.a. Others1% 4% Where do the unbanked save?USAMexico Informal savings – cash, money orders, signed checks, clubs, loans, jewelry etc. 20.5%28% No financial savings68.6%56%  There is a surprisingly high role for the formal financial system in all countries – does this suggest greater confidence?  A high proportion of the unbanked have no financial savings – Mexico and the USA

6. 6 How do People Receive Income? BrazilColombiaMexicoIndia Cash Income in kind Check Deposit in a current account Deposit in a saving account Others 68% 4% 22% 2% 4% 63% 7% 2% 28% 0% 9% 71% 5% 15% 0% 60% 33% n.a.  Most income is received in Cash – except in Mexico?  In the poorest countries (India) income is also received in kind  However the Latin American countries also receive direct bank deposits

7. 7 How Would People Like to Receive Income?  There is a strong cash preference – is this because of the costs associated with formal financial instruments?  Note that in all countries, cash preference exceeds actual receipts in cash  Why do people prefer cash? BrazilColombiaMexico Cash Check Deposit in a current account Deposit in a saving account Others 72% 2% 3% 21% 2% 62% 3% 30% 3% 2% 74% 6% 16% 3% 1%

8. 8 What is the Demand for Credit? Is this Demand Met? What proportion of respondents applied for a loan? BrazilColombiaMexicoIndia Yes No 15% 85% 9% 91% 14% 86% 3% 97% Did the banks award them loans? BrazilColombiaMexicoIndia (formal and informal) Approved Rejected Under evaluation 68% 32% 0% 72% 26% 2% 75% 20% 5% 20% 80% 0%  The percentage “not applying” is very high, especially in India  Only a fifth of loan applications in India were accepted; a marked contrast to two thirds or three quarters in the Latin countries.

9. 9 BrazilColombiaMexicoIndia - No Need - Preference for own resources - Assumed that the application would be rejected Too many requirements Lack of guarantees Don’t have a job Low income - High Interest rates - Others 70% 13% n.a. 17% 27% 14% 35% 8% 2% 9% 16% 5% 19% 37% 34% 19% 7% 1% 4% 7% 4% 6% 56% n.a. n.a Why Don ’ t Persons Apply for Bank Loans?  Lack of necessity is apparently the main reason for not applying for bank loans, in India and Brazil – Why is this not true for Colombia and Mexico?  Non-applicants have a high expectation of rejection (Colombia and Mexico) – what does this imply for ‘unmet’ demand?

10. 10 Why are Loan Requests Refused? (applicants perceptions) BrazilColombiaMexico Lack of enough earnings/steady income/job Lack of guarantees Unfeasible project Others 56% 22% 11% 28% 44% 1% 27% 24% 41% 7% 28%  Lack of income appears to the main perceived reason in Brazil  However the lack of guarantees seems to be important in Colombia and Mexico – can we explore these differences further?

11. 11 What Have We Learned and Where do We Go Next?  The proportion of persons with access to formal financial institutions in poor countries is less than half that of well-to-do countries; they have thrice as many persons per bank branch – but this is despite levels of income of only a fifth or even a tenth of that of advanced comparators  Reasons for this are complex and include limited need, likelihood of refusal, high costs, mistrust and service – better designed demand estimations are needed.  Only a small proportion of persons want credit – between 3% and 15% of the countries surveyed – and in most Latin countries, two thirds to three quarters of applications are successful. Non-application may be at least as interesting to examine as rejection – many perceive that their applications will be refused due to lack of earnings or lack of guarantees (little uniformity in results).  Preference for formal financial institutions is high across all sample countries – this may be the norm, even if there are exceptions. Why is this so?  Cash preference is high; even when non-cash payments methods are available – is this due to cost?  A final word of caution on comparability of the numbers - more standardized analyses are needed.