MICROFINANCE PAPER WRAP-UP: Half the World is Unbanked, by Alberto Chaia, Aparna Dalal, Tony Goland, Maria Jose Gonzalez, Johnathan Morduch, and Robert Schiff

Written by Alberto Chaia, Aparna Dalal, Tony Goland, Maria Jose Gonzalez, Johnathan Morduch, and Robert Schiff, Published by the Financial Access Initiative in October 2009, available at: http://financialaccess.org/sites/default/files/110109%20HalfUnbanked_0.pdf

This paper uses improved data on financial usage, socioeconomic, and demographics to construct an accurate estimate of how many adults (older than 15 years) in the world do not use formal financial services. The data sources included the estimates of 2003 access to formal and semi-formal financial services (using data from banks, microfinance institutions (MFIs), and household surveys) from Patrick Honohan’s 2008 paper “”Cross-country variation in household access to financial services,” 2005 population, per capita income and urbanization data from the United Nation’s Human Development Index, and poverty data from the World Bank’s PovcalNet [1,2,3]. The authors specifically study “usage” of financial services as opposed to “financial access.”

The main findings here are as follows:

• “2.5 billion adults, just over half of world’s adult population, do not use
formal financial services to save or borrow.”
• “2.2 billion of these unserved adults live in Africa, Asia, Latin America,
and the Middle East.”
• “Of the 1.2 billion adults who use formal financial services in Africa,
Asia, and the Middle East, at least two-thirds, a little more than 800
million, live on less than $5 per day.”
• In Sub-Saharan Africa 80% of the adult population, 325 million people, remains unserved, as compared to only 8% in high income OECD countries.

Additionally, the authors studied the “drivers” of financial usage. This portion of the study was performed using only countries from Africa, Arab states, Asia and Latin America so as to focus on low-income countries. Per capita income had a “moderate to strong” positive relationship with financial usage. Some countries, however, such as Thailand and India, did not fit this correlation as they have high financial usage relative to their per capita incomes. This is evidence that factors such as “effective regulatory and policy environments and enabling the actions of individual financial services providers” can have an large impact on financial usage. The fact that urbanization had only a “weak” positive relationship with financial usage is further evidence for this assertion.

Lastly, the authors speculate on ways in which the data could be improved. For one, Patrick Honohan’s data is from 2003, which could lead to under-reporting because of the rapid increase in financial inclusion since then. Additionally, as Mr. Honohan’s data only accounts for about 2 billion people, extrapolation was necessary. However, the authors state that the difference made by an improvement in these two areas would not be great, relatively speaking. Therefore, they believe that the estimates are still valid.

By Christopher Maggio, Research Assistant

Bibliography

[1] Honohan, Patrick (2008). “Cross-country variation in household access to financial services.”
Journal of Banking and Finance 32, May: 2493-2500.: http://siteresources.worldbank.org/INTFR/Resources/Cross_Country_Variation_In_Household_Access.pdf
[2] 2007/2008 U.N. Human Development Report: http://hdr.undp.org/en/reports/global/hdr2007-2008/
[3] Povcal Net: http://web.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/EXTPROGRAMS/EXTPOVRES/EXTPOVCALNET/0,,contentMDK:21867101~pagePK:64168427~piPK:64168435~theSitePK:5280443,00.html

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