FinScope – supporting strategies for market-led financial inclusion Mark Napier FinMark Trust 23 September 2008 Livingstone
Dec 18, 2015
FinScope – supporting strategies for market-led
financial inclusion
Mark NapierFinMark Trust
23 September 2008Livingstone
Structure
FinScope – some comparative dataRural/urban povertyRural/urban savings behaviour
How FinScope should be used with other researchZambia’s supply side study
Access policy – what can governments do To direct or not to direct?
Addressing market failure
“The problems [ie market failure] that arise spring …..not from the existence of markets per se ..[but from] …such concerns as inadequate preparedness to make use of market transactions, unconstrained concealment of information or unregulated use of activities that allow the powerful to capitalise on their symmetric advantage.
These have to be dealt with not by suppressing the markets, but by allowing them to function better and with greater fairness, and with adequate supplementation. The overall achievements of the market are deeply contingent on political and social arrangements.” – Sen (Development as Freedom)
What is FinScopeTM?
FinScopeTM, a FinMark Trust initiative, is a nationally representative study of
consumers' perceptions on financial services and issues, which creates insight to how
consumers source their income and manage their financial lives. The sample covers the
entire adult population, rich and poor, urban and rural, in order to create a segmentation,
or continuum, of the entire market and to lend perspective to the various market
segments.
Financial sector development in Africa – FinScope playing
its part
Zambia
South Africa
Namibia
Botswana
Kenya
Tanzania
Uganda
Ghana
Malawi
Morocco
Mozambique
Nigeria
Rwanda
Access strand compared
Comparative access strands
7
Source: FinScope Namibia 2007
Namibia - significant differences between rural and urban residents in their
experience of poverty and deprivation
Namibia - significant differences between rural and urban residents in their
experience of poverty and deprivation
56%
50%
42%
33%29%
23%18%
8%13%
5%
19%
33%
24%29%
19%25%
0%
10%
20%
30%
40%
50%
60%
Gone withoutcash income
Gone withoutelectricity inyour home(apart frompowercuts)
Gone withoutenough food
to eat
Gone withoutmedicine or
medicaltreatment thatwas needed
Gone withoutclean water todrink or cook
with
Felt unsafefrom crime inyour home
Gone withoutfuel to heat
your home orcook yourfood (apartfrom fuelshortages)
Gone withoutshelter
Rural Urban
Experience of poverty: In the last 12 months has your household…(Often/ sometimes)
Ad
ult
s (
%)
South Africa:Rural 56%Urban 29%
South Africa:Rural 40%Urban 38%
South Africa:Rural 44%Urban 19%
South Africa:Rural 31%Urban 5%
8
Source: FinScope Uganda 2006
Uganda - there are significant differences between rural and urban
adults in basic living standards
Uganda - there are significant differences between rural and urban
adults in basic living standards
42%40%
17%16%
20%
6%
0%
15%
30%
45%
Household members have at least onepair of shoes?
Every child in the household (under 18years) have a blanket?
Household members have at least twosets of clothes?
Rural Urban
Answered “No” to…A
du
lts (
%)
9
Source: FinScope Tanzania 2004
Tanzania - formal savings penetration is low for both urban and rural adults but the way people
save is largely the same in urban and rural areas
Tanzania - formal savings penetration is low for both urban and rural adults but the way people
save is largely the same in urban and rural areas
45%
32%
8.5%4.7% 3.2% 2.3% 1.6% 1.0% 0.8% 0.7%
0%
10%
20%
30%
40%
50%
Savings inkind eg
livestock,bicycle, radio,
agristock
Keep in asecret hiding
place
Given to afamily or
friend to keep
Merry -go-round
Savingsaccount at
SACCO
Complusorysavings exNSSF/ZSSF
Saving it witha
businessmanfor
safekeeping
Microfinanceinstitution
Group at myworkplace
(not aworkplaceSACCO)
ASCA
Top 10 savings products(Rural)
Ad
ult
s (
%)
Ad
ult
s (
%)
Top 10 savings products(Urban)
28% 28%
12% 9.2% 6.3% 3.9% 3.3% 2.6% 2.4% 2.1%0%
10%
20%
30%
40%
50%
Keep in asecret hiding
place
Savings inkind eg
livestock,bicycle, radio,
agristock
Merry -go-round
Given to afamily or
friend to keep
Complusorysavings exNSSF/ZSSF
microfinanceinstitution
Savingsaccount at
SACCO
Insuranceschemes
Employersavingsschemes
ASCA
Uganda 51%
Uganda 7.1%
10
Source: FinScope Zambia 2005
Zambia - noticeable differences in savings / investment vehicles used by rural and urban adults but generally a
poor savings culture
Zambia - noticeable differences in savings / investment vehicles used by rural and urban adults but generally a
poor savings culture
13%10% 9.5% 8.9% 6.7% 4.5%
1.9% 1.7% 1.1%0%
20%
40%
Investment inland for
agriculturalusage
Investment incattle orlivestock
Investment inagriculturalequipment
SavingsAccount
Investment inyour ownexistingbusiness
Life insurance Investment in aplot of vacant
land ûresidential orcommercial
Investment inanother house/ flat / propertythat you rent
out
Pension /NAPSA
Top 10 savings/investment products(Rural)
Ad
ult
s (
%)
Ad
ult
s (
%)
Top 10 savings/investment products(Urban)
22%
13%8.3% 6.1% 5.9% 5.7% 3.8% 3.0% 2.2% 1.9%
0%
20%
40%
SavingsAccount
Investment inyour ownexistingbusiness
Pension /NAPSA
Investment inland for
agriculturalusage
Investment inanother
house / flat /property thatyou rent out
Life insurance Investment ina plot of
vacant land ûresidential orcommercial
Investment incattle orlivestock
Fixed DepositAccount
Improvingyour home
Zambia - supply side project complements the demand side
Demand side offered insights into constraints to access
Supply side perspective needed to complete the picture
it maps the supply of finance by institutional type it identifies the scope and scale of accessible supplyit looks for gaps in the platform for accessible supplyit looks also for obstacles to expanded accessible
supplyand it recommends practical options for improvement
. . . at Kw 60,000 a month to run the average bank account is far too expensive for mass rural
use . . .
K 0 thou
K 100 thou
K 200 thou
K 300 thou
K 400 thou
K 500 thou
K 600 thou
K 700 thou
0%
25%
50%
75%
100%
125%
150%
175%
Household income (Kwacha thousand per month) Income relative to average for all rural households
At this level a typical bank account would cost around 10% of monthly cash income to run
Rural population is particularly excluded from banking because of affordability
Lower priced accounts might open up banking to the top 40% of urban
households
K 0 thou
K 500 thou
K 1000 thou
K 1500 thou
K 2000 thou
K 2500 thou
K 3000 thou
K 3500 thou
K 4000 thou
0%
50%
100%
150%
200%
250%
300%
350%
400%
Household income (Kwacha thousand per month) Income relative to average for all urban households
At this level most Zambian bank accounts would cost around 3 % of income
But a few might even
be affordable here
Light Blue = Other banksDark Blue = Legacy banks
5% cost ratio
10% cost ratio 20% ratio40% ratio80% ratio KEY: Bubble size denotes number of branches
0
50
100
150
200
250
300
350
400
450
0 500 1000 1500 2000 2500 3000 3500 4000 4500Average income earning assets per employee (2005, Kwacha million)
Op
erat
ing
co
st p
er e
mp
loye
e (2
005,
K m
n)
A few commercial banks have the potential to position themselves to do more mass-market
business
Individual Zambian banks plotted by assets and costs per employee
Local banks follow smaller
balance / lower cost model
but cru
cial v
ery lo
w
balance
segm
ent
not yet r
eached
International banks follow high
balance / high cost m
odel
About half of the poorer, less densely populated districts have no financial
institution outlet at all
OUTLET NUMBERS BY TYPE AT DISTRICT LEVEL BY POPULATION DENSITY / POVERTY RATIO
<=
= M
ed
ian
– |
M
ed
ian
+ =
=>
<== Lusaka
HIGH DENSITY LOW POVERTY
HIGH DENSITY HIGH POVERTY
<= Higher Density – => <= Median + | Median – =>
LOW DENSITY LOW POVERTY
25
35
45
55
65
75
85
95
110100100010000100000
Population Density (population per Km2)
Poverty
ratio
(pro
portio
n o
f pop
ula
tion
belo
w p
overty
line)
LEGEND:Bubble size showsnumber of branches per district:
1 branch only
10 branches
20 branches
100 branches
`
State Private FIs banks/BS
MFIs
25
35
45
55
65
75
85
95
110100100010000100000
Spatial data (eg FinScope) can help banks’ rollout strategies by identifying population groups with
particular characteristics
Access frontier
Redistribution
Development
EnablementCurrent market
Already use Have access but
do not use
Could have access
but do not
Unlikely to ever
have access
Current frontier
Market potential
“supra market
zone”
“Pro-market activism”
or
“market-led coercion”
“Laissez-faire” State intervention
The progression of state action in the market
State provision
Moral suasion“stick”
Incentives“carrot”
Market structureand conduct
Provision ofmarket information
State owned banks
Directed lending
Interest rate regulation
Coercion (stick)
Moral suasion/Charters
Tax incentives
Market structure/conduct
Levies
“Quid pro quo” for licences
Infrastructure provision
Competition enquiries
Enabling environment
Privatisation
Liberalisation
Deregulation
See “Innovative Experiences in Access to Finance: Market Friendly Roles for the Visible Hand?” - de la Torre, Gozzi, Schmukler (2006)
Examples of “market friendly coercion”
Mexico – Law of Transparency and Management of Financial Services, 2007
Basic bank accounts to be offered for freeGeneral price controls – BoM can object to interest rates and feesDisclosure of standardised fees and rates
Brazil – Law 10735, 2003
Banks to allocate 2% of deposits towards productive microlending – capped interest ratesBanks required to employ “direct relationship methodologies” in SME lending
Colombia Banca de la Oportunidades ($220m)Targeted subsidies (or other incentives) to existing MF providersDesigns and promotes regulatory reformsFunds research, collects and disseminates data
Pakistan For every 5 new branches, banks must open 1 in an “underbanked” areaBasic bank accounts to be offered on a “non-remunerative” basisFiscal incentives to stimulate housing finance
Parallel processes in support of access in SA –
coordination?
Policy and regulatory Financial Sector CharterAccess Cooperative Banks Act Dedicated Banks Bill (?) Reviews of anti-competitive behaviour in banking and insurance Social security reform Still no national policy on financial literacy
Access 60% bank account usage (up from 46% in 2003) – impact of Mzansi 44% bank account usage in LSM1-5 vs 80% target of “effective access” in Charter Very limited actual usage of bank accounts Low penetration of insurance Access now much more mainstream
Market conduct eg. provision of financial advice, home loans disclosures
Targeted investments Success in housing finance and SME but not (yet) in infrastructure and agri
Consumer protection – National Credit Act
Charter Council/Executive administratively weak negative consequences of politicisation
State-owned DFIs 3rd review just concluded State to intervene directly in SME and housing finance
The future? Unresolved issues over ownership of industry Interpretation of targets in 2008 Where will the momentum carry?
“Mzansi” basic bank account – powerful contributor to incidence
of bank usage
Banking status(Adults aged 18 or more)
Nu
mb
er
of
ad
ult
s (
18
+)
Source: FinScope 2003 – 2007According to FinScope 2007 31% of those in LSMs 1-5 with an Mzansi account bank at the Postbank. Within that market 48% of those with an account at the Postbank have an Mzansi account
LSM 1 - 5 LSM 6 - 10
Bank account – not Mzansi Any Postbank account incl. MzansiBank Mzansi (not Postbank) Unbanked
32% 30% 28% 28% 30%
4% 4%2% 5%
64% 66% 67% 63%56%
4% 4% 5%8%
0%
20%
40%
60%
80%
100%
120%
2003 2004 2005 2006 2007
76% 75% 70% 72%
3% 4%6% 7%
21% 24% 27%20% 17%
72%
2%2%
2%
1%
0%
20%
40%
60%
80%
100%
120%
2003 2004 2005 2006 2007
Why an access policy matters
Vision justifies the actions – coherenceShould emphasise the underlying purpose
rather than simply technical solution Government accountability Government policy harmonisation Clear statement of guiding principles makes it
easier to modify (accelerate?) market reforms in the future
Possible structure of inclusion policy
POLICIES
VISION
PRINCIPLES
GOALS
“That, by 2015, x% of … will…”
“In respect of financial markets, Government will: catalyse intervene enable subsidise…etc...” “To:
develop appropiate legal framework
support diversity of supply
etc…”Establish deposit insurance scheme
Enact national financial literacy policy
Liberalise e-money issuance etc. etc.
Conclusions
Key questionsWhat does the financial access landscape
look like?What is our vision for financial inclusion?What indicators should we use to track our
progress towards that vision?What role should government be playing in
the financial sector (ie. guiding principles – interventionist vs laissez-faire)?
What are our overarching goals?What are our specific policy objectives?
Thank you
www.finmarktrust.org.
za
Effective policy choices - Asia
INDIA PAKISTAN THAILAND PHILIPPINES
ACCESS TO BANKING
Central Bank asks banks to provide basic bank accounts.Banks asked to consider introducing General Purpose Credit Card.
Central Bank requires commercial banks with 100 branches to open at least 20% of new branches in underserved areas.Central Bank requires all commercial banks to offer basic bank accounts.
Umbrella apex organization to support community savings and microfinance groups.As a regulatory incentive, lower risk weights are attached to loans for the underserved.
National MicrofinanceStrategy being implemented to improve enabling environment for microfinance.
HOUSING FINANCE
National Housing Bank (NHB) transfers government support through lower-cost loans. NHB launching a pilot issue of mortgage backed securities.Tax incentives to housing finance borrowers.
Fiscal incentives for banks to lend and prospective home owners to borrow.Liberalisation of credit regime for housing loans. Rationalisation of stamp duties, registration fees and property taxes.
Government Housing Bank provides better services for poorer customers. A National Real Estate Information Centre supplies financial institutions with data on the demand and supply of real estate.
Guarantee scheme to encourage banks to channel resources into home building.Loans to community associations in depressed areas for housing development. Subsidy to provide amortisation support to low income groups.Loans to low-cost housing developers.
FINANCIAL LITERACY
Central Bank has launched financial literacy program including animated stories.
New Government led financial literacy program.Nationwide financial literacy campaign by Microfinance bank.
Stock Exchange runs road shows to educate households on effective saving strategies.
Central Bank recently embarked on broad-based financial literacy campaign.
Prepared for FinMark Trust by Karen Ellis and Rohit Singh, Overseas Development Institute
Effective policy choices - Americas
USA Brazil Mexico Colombia% population banked
91% 43% 25% 41%
GNI/capita (current $)
$44,970 $4,730 $7,870 $2,740
Name of measure Community Reinvestment Act
Law 10,735 Law of Transparency…
Banca de las Oportunidades
Date of measure 1977 2003 2007 2006
Nature of measure Requires banks to serve areas from which they draw
resources
Requires banks to make certain
amount of portfolio available for microcredit
Gives power to cap prices;
requires banks to issue low-cost
basic bank accounts
Funding pool promoting regulatory
reforms, related subsidies and
other initiatives
Penalty for non-compliance
Deny expansion requests; public pressure from
public disclosure
Set aside applicable amount and prevent any return on that
capital
Unclear N/A(Incentives only)
Impact to date Positive; but diminishing as US
banking sector evolves
No study yet available
No study yet available
No study yet available
Prepared for FinMark Trust by David Porteous and Jeff Abrams, Bankable Frontier Associates