GLOBAL FINANCIAL DEVELOPMENT REPORT 2014
FINANCIAL INCLUSION: IMPORTANCE, KEY FACTS, AND DRIVERS
fixed costs of provision, but there is now evidence that some of the costs are associated with underlying distortions (Allen, DemirgüçKunt, and others 2012). Twenty percent of unbanked respondents cited distance as a key reason they did not have a formal account. The frequency with which this barrier was cited increases sharply as one moves down the income level of countries, from 10 percent in high-income economies to 28 percent in low-income economies. Among developing economies, there is a significant relationship between distance as a self-reported barrier and objective measures of providers, such as bank branch penetration. To illustrate this point: Tanzania has a large share of non–account-holders who cite distance as a reason they do not have an account—47 percent—and also ranks near the bottom in bank branch penetration, averaging less than 0.5 bank branches per 1,000 square kilometers. The documentation requirements for opening an account may exclude workers in the rural or informal sector who are less likely to have wage slips or formal proof of residence. There is a significant relationship between subjective and objective measures of documentation requirements as a barrier to account use that holds even after one takes into account GDP per capita (Demirgüç-Kunt and Klapper 2012). Indeed, the Financial Action Task Force, an intergovernmental body aimed at combating money laundering, terrorist financing, and related threats to the integrity of the international financial system, recognized that overly cautious safeguards against money laundering and terrorist financing can have the unintended consequence of excluding legitimate businesses and consumers from financial systems. It has therefore called for such safeguards that also support financial inclusion.20 Distrust in formal financial institutions is a nontrivial barrier to wider financial inclusion and one that is difficult to address in the short term. Thirteen percent of adults without a formal account cite lack of trust in banks as a reason for not having an account. This distrust can stem from cultural norms,
discrimination against certain segments of the population, past episodes of government expropriation of banks, or economic crises and uncertainty. In Europe and Central Asia, 31 percent of non–account-holders cite lack of trust in banks as a reason for not having an account, a share almost three times the share in other regions, on average. About 5 percent of unbanked respondents cite religious reasons for not having a formal account. The proportion is higher in some Middle Eastern and South Asian economies, where the development of financial products compatible with religious beliefs (in particular, Islamic finance) could potentially increase account penetration and the use of various financial services (box 1.4). FINANCIAL SECTOR STRUCTURE, COMPETITION, AND INCLUSION Which type of financial sector structure works best in reaching out to a broad set of individuals and firms? In terms of financial inclusion and economic development, how do financial systems based on banks compare with those based on financial markets? Studies consistently find that what matters for economic growth is the overall development of the financial system, rather than the relative shares of banks and financial markets. In other words, at similar levels of financial development, more highly bank- or market-oriented economies are not associated with greater economic growth rates, industry growth, or the access of firms to external finance (Beck and Levine 2004; Demirgüç-Kunt and Maksimovic 2002; Levine 2002). While the structure of the financial system does not seem to be associated with growth outcomes, Demirgüç-Kunt and Maksimovic (2002) find that this does affect the types of firms and projects that are financed, which has strong implications for financial inclusion. By looking at firm-level data for 40 countries, they conclude that, in economies with more well developed capital markets, the
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