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Building Inclusive Financial Sectors for Development
would gain much of the benefit. Alternatively, the individual banking firms might come together in an industry association and create the infrastructure as a common project, sharing the cost, but perhaps excluding non-members from accessing the information. In some countries, the central bank sees as its prerogative the establishment of credit bureaux, and banks will participate if it is compulsory. …support the establishment of guarantee funds. To the extent that they adjust for an unfair market evaluation of risk, guarantee funds can be considered as a correction for market failure. Credit guarantee schemes can be effective in promoting sustainable changes in lender behaviour. This can lead to financial sector deepening, in particular where necessary conditions for success are present such as an open, competitive banking environment, a dynamic and expanding business sector, and a high degree of transparency among market players. Guarantee funds can also be designed to increase the access of MFIs and other microcredit providers to commercial funds. Such funds can foster lasting partnerships between the providers of microfinance and the financial institutions. Some analysts see guarantee funds that support loans to MFIs as a better instrument than guarantees for retail loans to micro and small entrepreneurs. Guarantee mechanisms best serve as accelerators, not as drivers, of financial sector deepening and, as pointed out above, should be regularly evaluated in terms of their effects on credit quality. They can also be designed based on a decreasing percentage guaranteed until the guarantee is no longer needed. …provide avenues for MFIs to link into the infrastructure serving the major financial institutions. This opens an opportunity for joint public-private initiatives to upgrade and to adopt compatible systems of information and communications technology. It includes access to the payments and settlements system. Inclusion in the mainstream financial sector requires that non-bank financial service providers are recognized as having professional standards compatible with the banking system. …focus more attention on the development of accounting principles and guidelines, public disclosure of information and transparency, and audit standards. These are an important foundation for better internal management and for external assessment. In addition, the assessments of independent rating agencies and credit bureaux are important tools that lenders and investors rely on to provide credible assessments of risk. In addition, the application of supervisory tools is facilitated if the information systems of financial service providers are sound. …set the standards for service provision through the private sector or provide the service through the public sector. Given the range and complexity of financial industry infrastructure, some services are better provided by the public sector and others are more efficiently handled by the private sector or through private-public partnerships where private sector providers follow standards set by the government. Some may require on-going subsidy, particularly those that are considered “public goods,” such as training and capacity building. Others, such as credit bureaux or the development of communications technology, can quickly become self-sustaining on a fee-for-service basis. Most countries have yet to build the range of financial infrastructure required to underpin and render less risky and more efficient the support of financial institutions that focus on increasing the access of poor and low-income people to financial services. In this regard, a forward-looking strategy would seek to