Policy makers facing urgent demands to reform national financial systems
have a key opportunity to help their poorest citizens gain access to useful
financial services. But to seize that opportunity, they need much better
information on the extent of access to services in their countries: Who has
access? What policies can be adopted to achieve this goal?



    "Many countries have a stated policy of broadening access to finance for
their poorest citizens," says Nataliya Mylenko, lead author of CGAP's new
report, Financial Access 2009. "But in the absence of data, it's very
difficult for decision makers to formulate effective policies."



    To address this lack of data, CGAP surveyed financial regulators in 139
countries to produce the first of a new series of annual assessments on the
status of financial access worldwide. Financial Access 2009 finds that formal
banking often targets only the wealthiest people, depriving the poor of
important tools that can help them invest more in their businesses, spend
more on household items, and have the funds to cope with crises.



    "For the first time ever, policy makers have the opportunity to examine
their access to finance efforts within the context of global indicators,"
says Elizabeth Littlefield, CGAP CEO. "Many may be surprised to learn that
only about 30% of people in developing countries have deposit accounts with
regulated financial institutions, compared to 80% in developed countries. For
70% of the population in developing countries who are excluded from the
regulated financial system, basic financial transactions like payments or
savings are simply not available."



    Financial Access 2009 confirms that in most developing countries banks do
not serve low-income populations, instead they focus on richer clients.
Nonbank financial institutions, such as cooperatives, specialized state
financial institutions (e.g., postal and state saving banks), and
microfinance institutions, are more likely to work with poor and rural
clients. But the information available for nonbank financial institutions is
limited-making it difficult to assess the true scale of their operations.



    Highlights



    - Norms for identification (know-your-customer) requirements should be
proportionate to the size of transactions and accounts. Poor people in
developing countries often find it difficult to provide acceptable
identification-many do not have government identification, supporting
documents, or even an address-to satisfy stringent know-your-customer
requirements. Some countries do not have reliable identification issuance
systems. And costs of collecting know-your-customer data, and reporting them
and other transaction data, are large in relation to the small size of
accounts that would be held by poor people.



    - Government transfers to deposit accounts have the potential to make
banks, government, and clients better off. Of the 139 countries surveyed, 40
reported encouraging or mandating conducting government transfers through the
banking system, including 14 high-income countries and 10 countries in Latin
America. Few countries in other regions are promoting such transfers.



    - Regulation should make it easier for banks to establish branches.
Financial Access 2009 reports that 90 of 139 countries (nearly 65 percent)
require formal approval for each new branch. Obtaining approval is a mere
formality in some countries. But in others approval involves undergoing a
long application process, submitting a feasibility study, and obtaining
additional clearances from several government entities. In some cases
multiple clearances and delays result in months of waiting, not to mention
high costs, that can deter banks from setting up branches. When the cost of
complying with the branch approval process is too high, banks might
reconsider building branches that are only marginally profitable-such as
branches in many poor or rural areas.



    - Transparency-ensuring that pricing, terms, and conditions are fully
disclosed in ways clients can understand-is an important part of consumer
protection. Comprehensive credit information bureaus and adequate consumer
protection are important for access to credit. In high-income countries and
Latin America, where retail credit is more developed, more than 90 percent of
countries have consumer protection and disclosure requirements, compared to
only half in South Asia and Africa. Disclosure requirements on loan interest
rates exist in 109 countries. In all, 47 percent of countries have disclosure
requirements rather than usury ceilings, while 30 percent of countries use
both. Financial Access 2009 stresses the importance of regulators and
governments gathering more information about the characteristics and behavior
of their financial systems, to help them design policies that correctly
target barriers to poor people accessing financial services and that
anticipate changes in behavior and financial systems in the future.



    Financial Access 2009 is available at
http://www.cgap.org/financialindicators.



    About CGAP


    CGAP is an independent policy and research center dedicated to advancing
financial access for the world's poor. It is supported by over 30 development
agencies and private foundations who share a common mission to alleviate
poverty. Housed at the World Bank, CGAP provides market intelligence,
promotes standards, develops innovative solutions and offers advisory
services to governments, microfinance providers, donors, and investors. More
at http://www.cgap.org.





Source: CGAP

Una Gallagher Pulizzi, +1-202-473-8869, upulizzi@worldbank.org, or Jim Rosenberg, +1-202-473-1084, jrosenberg@worldbank.org, both of CGAP