1. Financial Services and Financial Access Indicators
Thorsten Beck

2. Overview Introduction Financial intermediaries Financial markets
Contractual savings and insurance
Access to financial services
Compiling data – an on-going effort

3. Functions of financial markets
Ease the exchange of goods and services
Payment services
Mobilize and pool savings
Savings services
Produce information ex ante about possible investments and allocate capital
Credit services
Monitor investments and exert corporate governance after providing finance
Facilitate the trading, diversification and management of risk

4. Financial institutions and markets
Financial intermediaries
Collect savings and intermediate in the form of debt, collect proprietary information about debtors and monitor them directly
Financial markets
Attract savings in the form of debt or equity instruments to provide resources for firms; information collection and dissemination through price mechanism
Contractual savings and insurance
Mobilize savings through contingent contracts, offer risk management services, provide investment resources in different forms (institutional investors)

5. Financial intermediaries or markets?
Financial system structure varies widely across countries
Financial structure (importance of banks and markets) has no impact on economic development
The provision of financial services (by whoever) is important for economic development

6. How to measure provision of financial services
While emphasis on financial service provision as opposed to specific institutional structure, available data are organized by institutions not by services
Careful in interpretation (example US: most credit is not through banks, but other financial intermediaries)
Mix of cross-country comparisons and country-specific data, anecdotal and qualitative evidence
Here, we focus on quantitative measures

7. Structure of the Financial System
Number
Total assets
Depository institutions
Commercial banks
Mortgage finance companies
Building Societies
Non-depository institutions
Insurance companies
Pension funds
Securities firms
Finance companies

8. Financial institutions and markets – some initial thoughts
Stocks vs. flows
Are all assets equal?
Depth vs. breadth
Limitations of quantitative indicators

9. How to compare across countries
Income group
Regional group
Other countries in the region
Countries of the same size (region or elsewhere)
Countries with similar export structure

10. Overview Introduction Financial intermediaries Financial markets
Contractual savings and insurance
Access to financial services
Compiling data – an on-going effort

11. Financial intermediary development
Deposit money banks (offer demand deposits)
Other bank-like institutions (postal banks etc., finance through non-demand deposits)
Non-bank financial institutions (finance through non-deposit sources): leasing companies etc.

12. Financial intermediary development
Credit (IFS 22) Deposits
Private sector (22d) Demand deposits (24)
Public sector (22a,b) Savings/time deposits (25)
Inter-bank (22f)

13. Financial intermediary development
Source: International Financial Statistics (IFS)
Liquid Liabilities (currency plus demand and interest-bearing liabilities of FI)/GDP
IFS lines 55l/99b
Bank deposits/GDP
IFS lines (24+25)/99b
Bank Credit/GDP
IFS lines (22d)/99b
Private Credit/GDP
IFS lines (22d+42d)/99b

14. Financial intermediary development: A note on deflating
Private Credit in Brazil 1990 (inflation = 3,000%)
37.5% %

15. Financial intermediary development across countries

16. How to interpret financial intermediary development
Countries with higher levels of financial intermediary development enjoy higher GDP per capita growth rates.
Rapid growth in financial intermediary development is a good banking crisis predictor.
Financial intermediary development has to be based on fundamentals
Legal system efficiency
Transparency
Monetary stability
Focus on effectiveness, not size

17. Financial intermediary development – a caveat
Cross-country comparisons limited to institutions that report to regulators and thus indirectly to IFS.
In most countries, this does not cover semi-formal financial institutions (coops), informal finance and micro-finance
Recent data collection on micro-finance penetration

18. Financial intermediary development - Efficiency
Source: Bankscope
Overhead costs/total assets
Average for all banks or weighted by size?
Interest rate margins = net interest revenue/interest bearing assets
Alternatively, as ratio to total assets
Interest rate spread = lending rate – deposit rate (Source: IFS, country-specific)

19. Financial intermediary development - market structure
Number of institutions
Concentration ratio, Herfindahl index etc
Ownership structure (government and foreign ownership)
More on this later

20. Overview Introduction Financial intermediaries Financial markets
Contractual savings and insurance
Access to financial services
Compiling data – an on-going effort

21. Financial market development
Equity market
Debt market
Other markets
Data availability: best for equity, less for debt, few for other markets
Sources: Emerging Market Database, BIS

22. Financial market development
Primary markets
Number of issues
Issue volume/GDP
Problems:
Debt issues: refinance?
Might vary a lot over the years

23. Financial market development
Secondary market:
Market size
Market capitalization/GDP
Number of listed firms (debt or equity)/GDP
Problem: how much is widely held and traded
Problem: comparison over time and across countries made difficult due to price element
Market activity
Value traded/GDP
Turnover = value traded/market capitalization

24. Overview Introduction Financial intermediaries Financial markets
Contractual savings and insurance
Access to financial services

25. Contractual savings and insurance
Source: SIGMA
Insurance penetration (premium volume/GDP)
Insurance Density (premium volume per capita in USD)
Problem: price*quantity
Outstanding assets/GDP
Range of products
Contractual savings:
Source: country-specific
Total assets of funded pension programs
Total expense for PAYG pension systems

26. Overview Introduction Financial intermediaries Financial markets
Contractual savings and insurance
Access to financial services
Compiling data – an on-going effort

27. Access to financial services – How to define access
Geographic: deficient access to branches and outlets
Problems: population density, underdeveloped rural areas (e.g., physical infrastructure), security
Socio-economic: deficient access for some population segments
Problems: high minimum deposits and administrative burden, lack of formality, low educational levels, discrimination
Opportunity: reliance on past record and real estate collateral (instead of on expected future performance)
Problems: credit services limited to entrepreneurs with credit history, connections, or immovable collateral

28. Access to financial services – Access vs. usage
Usage much easier to measure, but access most likely wider
Understanding usage requires information on both demand and supply
Distinguishing between:
Access to financial services
Physical access
Affordability
Voluntary self-exclusion
Cultural barriers and financial illiteracy
Inadequacy of product
Involuntary self-exclusion
Involuntary exclusion

29. Access to financial services – defining the problem properly
Payment/savings services
Constrained optimum too low, due to state variables (contractual framework, infrastructure, security, market size etc.)
Equilibrium below constrained optimum, due to regulatory inefficiency, market structure
Credit services
Constrained prudent optimum too low, due to (i) macroeconomic volatility, (ii) deficiencies in contractual and informational framework and (iii) lack of possibilities to diversify risk
Equilibrium below constrained prudent optimum, due to regulatory inefficiency, market structure
Imprudent excess access, beyond constrained optimum

30. How to measure access: Geographic/physical access
Indicators:
Branch/outlet/ATM penetration (legal definition)
Compare penetration in urban/rural areas
Availability and use of phone and e-finance
Alternative providers
Use of indicators:
Comparison across geographic units within countries
Relative to GDP, population, area
Pitfalls:
Relate to other country characteristics
Are more branches better? (Overbranching?)
Policies and regulations on branching

31. How to measure access: Socio-economic
Indicators
Number of clients
Deposit and loan size distribution, SME lending
Fees and minimum balances for deposits
Cost and time of payment services
Informal finance
Firm-level and household surveys
Use of indicators:
Cross-country comparisons on firms’ financing patterns and obstacles
Characteristics that can explains firms’ and households’ access to financial services
Identify main impediments to access/participation to finance (economic, legal, social, infrastructure etc.)
Pitfalls:
“70% of population do not have access” – define access problem
Control for household and firm characteristics when assessing access and participation

32. How to measure access – Opportunity
Closely linked to socio-economic segmentation
Mostly anecdotal evidence
What collateral is accepted by banks?
What information requirements do banks have?
What are criteria in lending process?
Indirectly inferable from infrastructure
Contractual environment
Credit information systems
Possible areas to be explored with expert surveys
Time and cost to apply for loan
Infer size of eligible borrower segment from collateral, information, minimum loan etc. requirements (provider surveys) and firm/household surveys

33. Access to Financial Services – Cross-Country Data
Few data are available
Recent data compilation effort by World Bank (Beck, Demirguc-Kunt and Martinez Peria, 2005) on branch/ATM penetration and use of loan and deposit accounts
On-going effort to compile data on barriers to banking (cost, requirements etc.)
Going forward: standardized household surveys to measure access to and use of financial services
Already existing: firm-level surveys
Going forward: expert surveys on costs of specific products

34. Branch penetration across countries

35. Number of Deposits per 1,000 Population
99th Percentile
Austria
3,119.95
Greece
2,417.64
Mauritius
1,585.99
75th Percentile
Thailand
1,423.12
Trinidad and Tobago
1,073.48
Guyana
571.03
50th Percentile
Venezuela
486.74
Bosnia
429.40
Philippines
302.05
25th Percentile
Honduras
287.27
Papua New Guinea
119.77
Armenia
111.38
1st Percentile
Madagascar
14.46

36. Share of households with bank accounts – predicted vs. actual

37. Barriers to Banking

38. Barriers to Banking

39. Overview Introduction Financial intermediaries Financial markets
Contractual savings and insurance
Access to financial services
Compiling data – an on-going effort

40. Compiling data - an on-going effort
Good data on banks
Good aggregate data on equity markets and contractual savings
Fewer data on cost and efficiency of financial markets
Very few data on service provision and access

41. Compiling data – the tasks of IFI and countries
IFIs’ task:
Compile cross-country databases
Develop and regularly update indicators of financial services and access
Countries’ task:
Collect and process data
Develop “within-country databases”

42. World Bank Questionnaire on Access to Financial Services
Collect data on credit, deposit and payment services across countries for
Cross-country comparisons
To study the impact of access on poverty and growth
19 Questions
Data will be made public and accessible