Biblioteca Digital

This paper provides a comparative summary of secured transactions systems related to the use of movable property as collateral in the MENA region vis a vis international practices in countries with modern secured transactions systems. The paper sets out the importance of introducing reforms in the area of secured transactions with the objective of increasing access to credit for businesses, particularly SMEs. The MENA region clearly lags behind all other regions in the introduction of secured transactions reforms. The paper summarizes many of the weaknesses common across the region. The two main critical areas that need urgent reforms are the creation of modern secured transactions laws and electronic movable collateral registries, and the need to improve enforcement mechanisms for security interests in movable property.

A strong theoretical argument for focusing on access to finance is that financial market imperfections can result in large inefficiencies, as firms with productive investment opportunities underinvest. Lack of access to finance is a frequent complaint of microenterprises, which account for a large share of employment in developing countries. However, assessing the extent to which a lack of capital affects their business profits is complicated by the fact that business investment is likely to be correlated with a host of unmeasured characteristics of the owner and firm, such as entrepreneurial ability and demand shocks. In a randomized experiment that gave cash and in-kind grants to small retail firms, providing an exogenous shock to capital, the shock generated large increases in profits, with the effects concentrated among firms that were more financially constrained. The estimated return to capital was at least 20–33 percent a month—three to five times higher than market interest rates.

This book on micro, small, and medium enterprise (MSME) finance is intended primarily for government policy makers. It presents a policy framework whereby governments can support increased access by MSME to financial services based on empirical evidence and practices. MSME complain that lack of access to finance constrains their growth and competitiveness. Indeed, financial sector policies often work against the ability of commercial financial institutions to serve MSME, albeit often unintentionally. In many countries, lack of competition in the banking sector limits pressure on banks to reach out to MSME client segments. High risk and high transaction costs-real or perceived-associated with bank lending to MSME likewise constrain access. Often, supervisory and capital adequacy requirements penalize banks for lending to enterprises that lack traditional collateral. Attempts by governments to address these constraints and offset the inequalities in financial sector policy generally have not achieved the desired results. This book lays out a market-based policy framework for governments that focuses on delivery of financial services to MSME on commercial terms. The framework guides governments in focusing scarce resources on developing an inclusive financial sector policy; building sound financial institutions; and investing in a supportive information infrastructure...

Increasing access to rural finance is often the last frontier for financial sector development in developing countries. Financial institutions aiming to operate in rural areas in these countries usually have to deal with high transaction costs, low population densities, remote areas, and a heavy focus on agriculture, with related weather and commodity risks. Although Bangladesh is highly vulnerable to natural disasters, its high population density lowers transaction costs considerably. This report seeks to: measure the quantity and quality of access to finance by rural micro, small, and medium-size enterprises (MSMEs) and marginal, small, and medium-size farmesr (MSMFs). In Bangladesh these are also referred to as the missing middle -- a segment not served by banks or microfinance institutions (MFIs). The report also identifies constraints that financial institutions face in serving MSMEs and MSMFs. The institutions analyzed in detail include, Bangladesh Krishi Bank (BKB), Rajshahi Krishi Unnayan Bank (RAKUB), MFIs...

Small and Medium Enterprises (SMEs) play a major role in economic development, particularly in emerging countries, but access to finance remains a key constraint to SME. In the light of the new understanding of the SME finance challenges that this report synthesizes, the Financial Inclusion Experts Group (FIEG) makes key recommendations for the G-20 leaders, in order to achieve a global scale-up of SME access to financial services in the developing world. The G-20 FIEG SME Finance Sub-Group executed a global SME Finance stocktaking exercise with various SME finance models to establish best practices in SME Finance.The report concludes that, given the fragmented SME finance data space, the G-20 has a unique opportunity to lead the collaborative effort on improving the availability and quality of SME finance data globally. This can be achieved through encouraging and coordinating the data collection efforts at regional, national, and global levels conducted by a multitude of sources including national governments/agencies and international organizations and effectively addressing the data collection challenges along the way to ensure continuity of these efforts moving forward.

Financial Access 2009 introduces the latest data from a survey of financial regulators in 139 countries. It presents indicators of access to savings, credit, and payment services in banks, and in regulated nonbank financial institutions. It is intended for a broad audience of policymakers, researchers, practitioners, multilateral and bilateral investors, in order to guide monetary policy, monitor systemic risks, and collect information on the values of deposits and credit. This report reviews three interventions: disclosure requirements, interest rate caps, and methods to address excessive lending that can result in consumer indebtedness. Improved transparency and disclosure allow borrowers to make informed choices and can facilitate competition in financial markets, eventually leading to lower prices and improved products. Policies to restrict interest rates or credit quantity, especially in consumer credit, seem to have limited effect but require further analysis.

The main objective of this study is to identify the major impediments to access to financial services in rural areas, and provide practical recommendations to address the identified problems. The study aims to inform on rural finance policies and innovative instruments by examining both supply and demand sides including an identification of non-financial issues that restrict development of the rural financial sector. Addressing the lack of rural access to financial services in the Niger development process continues to figure prominently on the Government agenda without, however, a systematic action plan and strategy. Adopting ad hoc solutions (such as the creation of an agricultural development bank) without addressing the structural issues that limit access to financial services will, unfortunately, not yield any positive long lasting results.

The first part of the study provides contextual background to the financing gaps and associated barriers, which restrict access to finance for HI start-ups. These barriers are driven by both supply and demand sides of the financing equation. Supply side barriers include: high transaction costs associated with financing; high levels of credit risk associated with HI start-ups; high collateral required by financial institutions; non-conducive legal and regulatory environments for investment in HI start-ups; lack of start-up expertise and dedicated resources by financiers; and finance products that are not tailored to HI start-ups needs and circumstances. Demand side barriers include: reliance by HI start-ups on informal financing sources; lack of awareness on the process to apply for funding from formal financing sources; low levels of financial literacy by HI start-ups; and the fear of losing control by involving external investors. This section also contains a broad overview of the country frameworks governing the start-up sector...

Small and medium enterprises (SMEs) play a major role in economic development, particularly in emerging countries. Access to finance remains a key constraint to SME development in emerging economies. Closing the credit gap for formal SMEs will be less daunting than for informal SMEs. The SME finance gap is the result of a mismatch between the needs of the small firms and the supply of financial services, which typically are easier for larger firms to access. Deficiencies in the enabling environment and residual market failures have motivated government interventions to foster SME access to financing. The stocktaking exercise confirms the rise in various parts of the world of specific business models aimed at providing financial services to SMEs in a cost-effective manner. Effective SME financing models can be implemented in different country and market environments, but greater outreach is achieved in the most developed environments for the financial sector. Although SME banking and microfinance models are successfully being rolled out in an increasing number of countries and regions...

The percentage of smallholders with access to finance is equally difficult to quantify. According to estimates, even promising approaches to expanding smallholder lending, such as value chain finance, are reaching fewer than 10 percent of smallholders, primarily those in well-established value chains dedicated to higher value cash crops. International Finance Corporation (IFC) has been engaged for several years in learning efforts through diverse partnerships to obtain insights into the challenges of agricultural finance. The evidence of microfinance institution (MFI) involvement in financing commercial and semi-commercial smallholders remains anecdotal and lacks specifics on what makes MFI lending to these segments feasible, and what restricts their reach and effectiveness. This IFC study aims to identify and disseminate lessons emerging from the work of MFIs that have implemented agricultural operations targeting agricultural smallholders in Latin America and the Caribbean (LAC) to support replication and expansion of scalable approaches. Through this research...

Using a new and representative data set of Chinese household finance, this paper documents household access to and costs of finance, along with their correlates. As in most developing countries, informal finance is a crucial element of household finance, and wealth tends to be associated with better access to formal and informal finance. Better financial knowledge shifts loan portfolios toward formal sources relative to informal ones. Connections to the Communist Party are associated with significantly better access to finance in rural areas but not in urban areas. A larger social network is positively associated with access to informal finance. Controlling for household characteristics, rural residents pay interest rates on loans similar to urban residents. Younger residents pay higher rates, while households on firmer economic footing face lower rates. Taking financial classes and college education is associated with higher interest rates for urban residents, suggesting perhaps that financial knowledge coincides with greater demand for credit in areas with more economic opportunity. Overall...

The purpose of this paper is to report on the level of access to formal financial services in the Kyrgyz Republic, assess the key obstacles to improving access, and make recommendations to overcome these obstacles. The paper is organized as follows. Sections II to IV examine the supply of financial services. Specifically, section II presents a profile of financial intermediation by banks, focusing their supply of financial services, particularly lending and deposits. Section III presents a profile of lending by Aiyl Bank, a specialized bank with a limited license, which is mandated to lend for agriculture. Section IV presents a profile of lending by non-bank financial institutions (NBFIs), including microfinance organizations (MFOs) and credit unions. Section V examines the demand side for financial services, drawing on enterprise surveys to assess firms' perceptions of their access to finance. Section VI presents a brief analysis of the impact of the events of April 2010 on access to finance. Section VII discusses key obstacles in increasing access to finance from banks and NBFIs. Section VIII concludes with policy recommendations that derive from the preceding analysis.

This paper examines the effects of expanding access to credit on the decisions and welfare of households. It focuses on the entry of Banco Azteca, the first bank in Mexico targeting households from the informal sector. Panel data suggest that informal households in municipalities with Banco Azteca branches experienced several changes in their saving, credit and consumption patterns. In order to estimate the impact of Azteca's entry, the paper develops a dynamic model of household choices in which the bank is endogenously selecting the municipalities for branch openings. The analysis finds that in municipalities in which the bank entered, households were better able to smooth their consumption and accumulate more durable goods even though the overall proportion of households that save went down by 6.6 percent. These results suggest that the use of savings as a buffer on income fluctuations declines once formal credit is available. What is more, these effects vary across households. Among informal households...

Recent empirical evidence highlights that access to basic financial services can make a substantial positive difference in improving poor people's lives. Accordingly, financial sector reforms that promote financial inclusion are increasingly at the core of policymakers agendas. The Consultative Group to Assist the Poor and the World Bank Group, in response, launched the Financial Access project, including a cross-country database on financial inclusion topics and an annual report to inform the policy debate. Using this database, this paper (i) counts the number of unbanked adults around the world at 56 percent, (ii) analyzes the state of access to deposit and loan services as well as the extent of retail networks, and (iii) discusses the state of financial inclusion mandates around the world.

The Middle East and North Africa (MENA) region is at one of the most critical turning points in its modern history. The Arab spring was driven by the desire for economic opportunity and justice in the face of poverty and unemployment. The development of strong economies that enable both women and men to enhance their livelihoods is crucial for the future of the region. The growth and success of women-owned businesses is one of the most profound changes in the business world today. There is no doubt that women are an emerging market force. However, many businesswomen are not accessing commercial credit, an essential driver of business success. Lack of access to finance and financial services is repeatedly identified as the major constraint for women business owners. This report 'ready for growth: solutions to increase access to finance for women-owned business in the Middle East and North Africa', is designed to shed a light on those barriers. It is the result of a unique International Finance Corporation (IFC) partnership with vital voices and the Middle East and North Africa Businesswomen's Network (MENA BWN). Its purpose is to fill a critical gap in our knowledge of what women-owned businesses need in terms of financial products and services. Building on our knowledge of how commercial banks currently reach the women's market...

Using firm-level surveys for up to 73 countries, this paper explores the impact of introducing collateral registries for movable assets on firms' access to bank finance. It compares firms' access to bank finance in seven countries that introduced collateral registries for movable assets against three control groups: firms in all countries that did not introduce a registry, firms in a sample of countries matched by location and income per capita to the countries that introduced registries for movable assets, and firms in countries that undertook other types of collateral reforms but did not set up registries for movable assets. Overall, the analysis finds that introducing collateral registries for movable assets increases firms' access to bank finance. There is also some evidence that this effect is larger among smaller firms.

The Government of Moldova is seeking to change the country's development paradigm and build an export-oriented economy characterized by investment, innovation, and competitiveness, following a decade of 'jobless growth'. This report focuses on improvements that will be needed to move Moldova to the next stage of development as envisioned in the Moldova 2020 strategy; however, reforms over the past decade also deserve acknowledgment. Improving the business environment is an especially important task, given Moldova's low levels of natural resources and small internal market. This study aims to identify the most pressing problems in the business environment that are adversely affecting Moldovan companies' productivity and competitiveness, and to present recommendations that would help remove these obstacles. The analysis is based on a review of existing reports; interviews with government officials, private sector associations, a sample of businesses, and some subject matter experts; as well as original research on access to finance. This study has identified that the following aspects of doing business are the most problematic: customs administration; tax administration; business regulation...

In less-developed economies such as Bangladesh, the farm sector is the major source of employment and income, while the rural nonfarm sector provides as an additional source of income. But the rural nonfarm sector increasingly plays an important role in fostering the development of the rural economy. A significant share of this sector is made up of microenterprise activities, which requires investment and access to adequate funds. This paper investigates the role access to finance plays in promoting the efficiency and growth of microenterprise activities. The findings suggest that households engaged in microenterprise activities, in addition to farm and other nonfarm activities, are much better off (in terms of income, expenditure and poverty) than those not engaged in such activities. Fewer than 10 percent of the enterprises have access to institutional finance (formal banks or microcredit), although the rate of return on microenterprise investments is more than sufficient (36 percent per year) to repay institutional loans. The research suggests that credit constraints may reduce the enterprises' profit margin by as much as 13.6 percent per year. As the returns to microenterprise investment are found to be high...

Agriculture has been a mainstay of the Cambodian economy. It has seen significant growth throughout the 2000s and showed a significant resilience against external shocks during the 2008-09 economic and financial crises. Agribusiness enterprises do not operate in isolation from the rest of the economy. The state of production of agricultural raw materials, the state of the financial sector, and the nature of the financial sector's engagement with the real sector activities, as well as broader issues that affect private sector development all impact the development of the agribusiness sector. The current study seeks to analyze some of these linkages. It focuses specifically on the role the financial sector has played in the growth and development of the agribusiness sector. The study builds on the existing analytical work on agricultural and small and medium enterprise (SME) finance in Cambodia. The study was carried out in three major phases. The first phase was to determine a methodology to gather new information on linkages between agribusinesses and financial institutions. The second phase involved a survey of financial institutions (banks...

This paper studies the use of psychometric tests, which were designed by the Entrepreneurial Finance Lab as a tool to screen out high credit risk and potentially increase access to credit for small business owners in Peru. The analysis uses administrative data covering the period from June 2011 to April 2014 to compare debt accrual and repayment behavior patterns across entrepreneurs who were offered a loan based on the traditional credit-scoring method versus the Entrepreneurial Finance Lab tool. The paper finds that the psychometric test can lower the risk of the loan portfolio when used as a secondary screening mechanism for already banked entrepreneurs—that is, those with a credit history. For unbanked entrepreneurs—those without a credit history—using the Entrepreneurial Finance Lab tool can increase access to credit without increasing portfolio risk.