FINANCIAL INCLUSION AND POVERTY
Joao Pedro Azevedo Senior Economist, The World Bank
June 3, 2014
Part 1:
WHY SHOULD WE CARE?
ECONOMIC MOBILITY
Turkey has had a positive performance on economic mobility in the recent years….
3
0
10
20
30
40
50
60
70
80
90
100
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
MIDDLE CLASS
VULNERABLE
POOR
Source: Azevedo and Atamanov (2014)
… and poverty reduction has been driven by labor markets (in Turkey as well as other developing countries)
– labor markets is mostly a quality of jobs story (better earnings)
– Social protection matter to reduce poverty depth/severity
4
-3.3
-7.1
-11.6
-3.3
-7.1
0.1
-0.1
1.3
-14
-12
-10
-8
-6
-4
-2
0
2
shar
e o
f ad
ult
s
shar
e o
f e
mp
loye
d
wag
es
soci
al a
ssis
tan
ce
pen
sio
ns
rem
itta
nce
s
agri
cult
ura
l in
com
e
oth
er in
com
e
po
vert
y re
du
ctio
n, p
erce
nta
ge p
oin
ts
5 USD/PPP 2005
Source: Azevedo and Atamanov (2014)
But success in poverty reduction is not just about moving people out, but also preventing those that are out of poverty from
falling back in (protecting the vulnerable group)
5
Origin (In 2002)
Percentage moving to 2011
Poor Vulnerable Middle Class
Poor 43 58 41 0 100
Vulnerable 37 1 58 40 100
Middle class 20 0 2 98 100
Total 100 22 38 40 100
Source: Azevedo and Atamanov (2014) calculations based on ECAPOV data . Notes: transition matrix is based on synthetic panel for 2002-2011. Welfare aggregate is consumption (+health, +durables) per capita and poverty line is 5 and 10 USD PPP 2005. Rsq for consumption model is 0.36. Explanatory variables include year of birth cohort, number of children, education of the head of household, rural/urban dummy and different interactions between these variables. Sample: head of households 25-55 years of age. Values based on lower bound estimates.
Part 2:
WHAT DO WE KNOW?
Financial sector development and inclusiveness can strengthen labor markets and help the poor and vulnerable to mitigate
shocks
• A large literature exists on the role of access to finance to towards growth generation and reducing inequality (see Beck and Demirguc-Kunt, 2008 for a literature review). – Beck, Demirguc-Kunt, and Levine (2007) find that 60
percent of the income growth of the poorest quintile is due to financial development’s impact on the economy.
– Claessens and Perotti (2007) offer an explanation of how financial development can be related to inequality, theorizing that in unequal societies, unequal financial access is a result of skewed political influence and regulatory capture.
7
BANKING CHALLENGES TO THE POOR
• Many poor lack a safe and secure place to store cash
• Bank fees and fines are restrictive
• Informal financing may be more unreliable and have higher interest rates
• Lack of collateral for loans
• Low loan to deposit ratios perpetuate a cycle of low lending
8
BY REGIONS
9
Account Use across Income Quintiles (2011) Adults with an account at a formal financial institution (%)
Source: FINDEX
0102030405060708090
100
Turkey BRIC Rest ofDeveloping
World
DevelopedWorld
Rest of ECA
Lowest quintile q2 q3 q4 top quintile
10
Turkey has a high proportion of formally banked adults, but account penetration varies across
individual characteristics such as gender, income, and education.
GAPS IN ACCESS, by gender and B40/T60
Access to financial institutions in Turkey across gender, % of population +15
Access to financial institutions in Turkey across groups with different level of income, % of
population +15
11
Source: Findex. Azevedo and Atamanov (2014). Pathways to the middle class in Turkey: How have reducing poverty and boosting shared prosperity helped? World Bank.
0
10
20
30
40
50
60
70
80
90
Account Loan
% o
f p
op
ula
tio
n, a
ge 1
5+
female
male
0
10
20
30
40
50
60
70
Account Loan
% o
f p
op
ula
tio
n, a
ge 1
5+
bottom 40
top 40
WITHIN TURKEY, THERE IS LARGE VARIATION IN THE RATE OF BANKED ADULTS BY GENDER…
12
Account Use by Gender Adults with an account at a formal financial institution (%)
Source: FINDEX
0102030405060708090
100
Turkey BRIC Rest ofDeveloping World
Developed World Rest of ECA
Pe
rce
nt
Male Female
…AND BY EDUCATION & AGE
13
Account Use by Individual Characteristics (2011) Adults with an account at a formal financial institution (%)
Source: FINDEX
51 39 18
71
22
58 56 35
86
37
100 70 62
94
61
0
50
100
150
Turkey BRIC Rest of DevelopingWorld
Developed World Rest of ECA
Pe
rce
nt
Primary Secondary Tertiary
44 36
19
71
24
62 50
33
89
42
67
37 26
83
33
0
20
40
60
80
100
Turkey BRIC Rest of DevelopingWorld
Developed World Rest of ECA
Pe
rce
nt
15-24 25-64 65+
LACK OF MONEY AND TRUST ARE TOP REASONS FOR NOT HAVING AN ACCOUNT
14
Non-account holders reporting of reasons behind not having an account (%)
Note: Multiple responses allowed. Source: FINDEX
27
21
29
22
20
27
14
18
17
24
50
66
72
54
70
0 20 40 60 80 100 120 140 160 180 200
Turkey
BRIC
Rest of Developing World
Developed World
Rest of ECA
Too Far Away Too Expensive Lack Documentation
Lack Trust Lack of Money Religious Reasons
Family Member Already Has One
Part 3:
HOW CAN THIS CHANGE?
DEPOSITS & POVERTY
16
• Awareness and behavior is critical • Programs of financial literacy are gaining much momentum, but much
of its demonstrated success seem to be skewed towards the youth • Education is an important channel
• Legislation needs to be changed so a missing middle can grow • From Microcredit to Microfinance • Legal framework and Regulation
• Innovation is often required • Mobile banking • Deposit-collection services: Deposit-collection services result in a
substantial increase in savings for those offered the service • Access: Providing collection boxes, drop-off sites
DEPOSITS & POVERTY
17
• Integration with social programs • Bolsa Familia (Brasil) 3 million beneficiaries receive their transfer
through a simplified account • Self-exclusion still a challenge
• it is not just about deposits • Intermediation & savings commitment: Experiment in Sri Lanka, workers
had direct deposits but can only withdraw at a bank (Mel, McIntosh, Woodruff)
• It is important to add value : payment systems; savings; credit
RECAP: DEPOSITS FOR THE POOR
• It matters!
• Existing coverage is heterogeneous – Low account use among females, less educated, and the young
– Lack of money and trust are common reasons for not holding a formal account
– Low savings for all
– Formal borrowing is uncommon, informal lending is very high
• The solution requires working form multiple fronts – Supply and Demand factors
– Behavior and awareness
– Legislation (legal framework and regulation)
– Integration with other efforts (social sector)
18
FINANCIAL INCLUSION DATA
• Analysis in this section is conducting using data from The World Bank’s FINDEX 2011 database.
• The data provides indicators on the access and utilization of financial services for the population of individual 15 years and older.
• 147 countries: in most countries, the sample size is 1,000 individuals
20
ANNEX:
SAVINGS & CREDIT
22
Source: FINDEX
LOW SAVINGS % of Population (15+) that has saved money in
the past 12 months
0
10
20
30
40
50
60
70
Turkey BRIC Rest of DevelopingWorld
Developed World Rest of ECA
Lowest quintile q2 q3 q4 Highest quintile
METHOD OF SAVING
23
Formal and Informal Savings (2011) Adults who reported saving any money in the past year (%)
Source: FINDEX
0
10
20
30
40
50
60
Turkey BRIC Rest of DevelopingWorld
Developed World Rest of ECA
Saved at Financial Institution Saved using savings club
DEBIT & CREDIT CARD USE
Has Debit Card Has a Credit Card
24 Source: FINDEX
0
10
20
30
40
50
60
70
80
Turkey BRIC Rest ofDeveloping
World
DevelopedWorld
Rest of ECA
0
10
20
30
40
50
60
70
Turkey BRIC Rest ofDeveloping
World
DevelopedWorld
Rest of ECA
Lowest quintile q2 q3 q4 top quintile
25
Source: FINDEX
TURKISH DEPOSITORS HAVE HIGH ATM USE
69.5
17.8
12.1
28.5
17.6
29.7
79.1
83.4
66.6
77.6
Turkey
BRIC
Rest of Developing
Developed
Rest of ECA
At an ATM At a Bank At a retail location Via another person
Most frequent mode of cash deposit
26
Source: FINDEX
FORMAL BORROWING UNCOMMON
Adults borrowing from formal or informal sources in the past year (%)
0
5
10
15
20
25
30
35
40
45
50
Financial Institution Store Credit Family/Friends Past Employer Other
Turkey BRIC Rest of Developing World Developed World Rest of ECA