By Patrick Honohan (Oct, 2004)
http://www1.worldbank.org/finance/assets/images/Honohan_Paper_2004.pdf
Abstract
The author presents a case for measuring access to finance by low-income households in a way that can be comparable across countries and that provides relevant information for policy makers and providers. Available cross-country data does not allow to answer questions such as: What percentage of households have a savings or deposit account? Or What percentage of low-income households hold loans? And what interest rates are they being charged?
The author proposes a conceptual framework to collect the relevant data to answer the questions above. The key issues to be considered are:
The conceptual framework should contribute to understand the demand as well as the supply of finance to low-income people.
Information from the demand-side is relevant for policymakers to measure the impact of public policy and to providers to know about the willingness to pay of potential clients.
Supply-side information is relevant to measure cost-conditions and barriers to access, both of these elements are relevant for efficient product and policy design.
Collection should come from four complementary sources: providers, households, enterprises and experts (ie. World Bank, CGAP, etc)
Summary
Financial services keep very accurate statistics, but irrelevant for measuring penetration, such as how many households are being served. This is mainly because regulating agencies or Central Banks find it irrelevant for their objectives.
However, financial institutions and policy-makers and increasingly interested in knowing more about who has access to financial services, the types of services available and their prices. So far, there are scattered attempts that provide useful but limited information about such issues and there no cross-country standards that could make the information available comparable with other countries.
Like other international systems of data collection, such as the System of National Accounts or the IMFs monetary and financial statistics, a conceptual framework is needed. This will help to cut through the inessential and superficial differences in national concepts by defining some basic concepts and providing guidelines on how to measure them.
The author explains that measuring access to finance is not enough, understanding it is crucial and thus considers splitting the question into the demand and supply side.
On the demand-side or benefits of access, he considers that financial service providers and policy-makers have an interest to measure how much households measure access to finance. The governmentis approach is related to increasing well being and finance contributes to increase the level and stability of income, which is related to what the provider is interested in, their willingness to pay.
On the supply side, what hinders access is a more debated issue. But there are three areas that the literature have identified as the main determinants to access: Price, Information and Product design barriers.
There is a need for several sources of information. Providers, users (households and microenterprises) and experts must all contribute to get a complete picture. So far, there have been important attempts from different independent actors that show the limitations and strengths of household surveys, business surveys, information gathered from regulators or experts. Overall, these efforts have been quite deficient and uncoordinated, but utilizing these resource to create a systematic way to collect information would increase awareness and access.
A set of 20 national basic financial indicators is proposed by the author based on the 5 primary functions of the financial system:
- payments (inland and international remittances)
- savings mobilization (depositary services)
- allocation of capital funds (conditions for access to credit)
- monitoring users of funds (mechanisms for access to credit)
- transforming risk (insurance, etc.)
The specific indicator for savings mobilization / deposit usage proposed by the author is:
- % of households with savings accounts, total number of deposit accounts