Building Inclusive Financial Systems

Building Inclusive Financial Systems: A Framework for Financial Access

MICHAEL S. BARR
ANJALI KUMAR
ROBERT E. LITAN
Copyright Date: 2007
Pages: 198
https://www.jstor.org/stable/10.7864/j.ctt12624b
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  • Book Info
    Building Inclusive Financial Systems
    Book Description:

    Broad-based and inclusive financial systems significantly raise growth, alleviate poverty, and expand economic opportunity. Households, small enterprises, and the rural poor often have difficulty obtaining financial services for a multitude of reasons, including transaction costs, perceived risk, inadequate infrastructure, and information barriers. Yet many financial institutions are now making profitable inroads into underserved markets through formal banking, investment in equities, venture capital, postal banks, and microfinance. Access to Finance addresses the challenges of making financial systems more inclusive, emulating successful ventures in new markets, and utilizing technologies and government policies to support the expansion of financial access. The contributors examine many dimensions of financial access, including: • Measuring financial access • Understanding the impact of expanded access • Examining alternative institutional models • Exploring new technologies and information infrastructure • Evaluating government policies toward outreach.

    eISBN: 978-0-8157-0840-7
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Acknowledgments
    (pp. vii-viii)
  4. 1 Introduction
    (pp. 1-6)
    MICHAEL S. BARR, ANJALI KUMAR and ROBERT E. LITAN

    Microfinance—the extension of loans of small sums and other financial services to the poor—is a hot topic. The founder of the field, Muhammad Yunus, won the Nobel Prize in 2006 for his pioneering work in launching Grameen Bank in Bangladesh. The United Nations designated the previous year, 2005, the International Year of Microcredit. More than $1 billion in microcredit loans, made to nearly 30 million people, are outstanding. For-profit lenders have discovered the potential profitability in microfinance, and they are now competing with the nonprofits that launched the field.

    It is an opportune time, therefore, to take stock...

  5. 2 Measuring Financial Access
    (pp. 7-32)
    ANJALI KUMAR, MUKTA JOSHI, LORAINE RONCHI and KONSTANTINOS TZIOUMIS

    There is growing recognition that increasing access to formal financial services has both private and social benefits, through growth as well as poverty alleviation. It is by improving the access of households and enterprises to financing, mobilizing savings, allocating credit, managing risks, and providing payment services that deeper and broader financial systems can promote growth and reduce income inequality.¹ The United Nations designated 2005 the International Year of Microcredit, affirming that the “greatest challenge before us is to address the constraints that exclude people from full participation in the financial sector” and formally adopting the goal of building inclusive financial...

  6. 3 Why Does Access Matter? Impact on Growth and Poverty
    (pp. 33-56)
    XAVIER GINE

    The efficiency with which financial markets and institutions overcome market frictions depends on the macroeconomic environment, market structure, and overall contractual and informational environment. Market frictions, namely transaction costs, agency problems, and uncertainty, are the key reason why institutions and organizations exist;¹ institutions offer financial contracts that take those frictions into consideration. In the case of credit, for example, lenders solve the problem of asymmetric information by resorting to different mechanisms, such as reducing the loan amount (credit rationing) and requiring collateral (for signaling and monitoring purposes) and certain types of information (for risk assessment).

    The basic services offered by...

  7. 4 Microfinance Institutions and Financial Access: The Double Bottom Line
    (pp. 57-88)
    STEPHEN PEACHEY

    This chapter gives an overview of the financial institutions that provide the bulk of accessible finance in developing and transition economies. Evocatively nameddouble bottom line institutionsby Richard Rosenberg, one of the contributors to the conference session that this chapter summarizes, in an earlier paper with colleagues at the Consultative Group to Assist the Poor (CGAP), these institutions serve in total some 1.5 billion accessible account relationships across the developing and transition world.¹ The chapter starts by broadening the concept of accessible finance from a narrow focus on microfinance to include access provided by all institutions that combine a...

  8. 5 Commercial Banks and Financial Access
    (pp. 89-116)
    AJAI NAIR and J. D. VON PISCHKE

    In recent years, there has been a paradigm shift in the concept and practice of providing financial services to traditionally underserved segments of the population such as low-income individuals, microenterprises, and small enterprises. Once the exclusive domain of development banks, special programs, and nonprofit organizations, accessible finance increasingly is becoming the domain of private commercial banks and for-profit financial institutions. First, several nonprofit microfinance institutions (MFIs) have converted to banks and nonbank finance companies; more than thirty-nine such MFIs had converted to banks by 2003. Second, many commercial banks have started providing services that take the character of microfinance. By...

  9. 6 Financial Infrastructure and Financial Access
    (pp. 117-142)
    DAVID PORTEOUS

    If unbanked people are to have greater access, two key aspects of the delivery of financial services must be addressed: providers must be able to manage and price for the risk of each product and they must be able to distribute products cost effectively to convenient locations.

    Information and communications technology (ICT) has provided the infrastructure that has supported innovation in risk management and in the distribution of products in the financial sector over the past fifty years. ICT applications enable a constant flow both of information, allowing better risk management, and of payment instructions, reducing the cost of transactions...

  10. 7 Government Policies to Expand Financial Access
    (pp. 143-174)
    MICHAEL S. BARR

    This conference brought together a wide range of experts on promoting financial access, including through nongovernmental organizations, the for-profit sector, and governments. This chapter provides a systematic framework for understanding government policy. In doing so, it draws in part on presentations from two panels at the conference, made by academic experts, nonprofit practitioners, representatives of international organizations, and government policymakers.¹ Given the breadth of the topic area and the number of presentations, the chapter does not extensively summarize each paper, but it does refer to the presentations in the course of discussing government strategies. The central theme of the chapter...

  11. 8 Conclusion
    (pp. 175-182)
    MICHAEL S. BARR, ANJALI KUMAR and ROBERT E. LITAN

    The conference papers on which this volume is based and the discussions that took place during the conference explored seven central themes concerning financial inclusion:

    —Building financial access is a process of gradually establishing meaningful inclusion; it cannot be achieved in a single dimension or measured in simple terms of “having” or “not having” access.

    —Work toward building an appropriate spectrum of indicators of access has increased rapidly in recent years, but meaningful multicountry and multidimensional measures that have more direct policy relevance still need to be developed.

    —Research is making it increasingly clear that expanded financial access can increase...

  12. Contributors
    (pp. 183-186)
  13. Index
    (pp. 187-198)