## fdfi

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---

### Overview
- Two-week course outlining the macroeconomic relevance of financial development broadly, and of financial inclusion more specifically.
- Begins with an analytical framework defining the role played by finance in the economy and reviews conceptual and empirical literature on finance’s impact.
- Addresses key policy issues in encouraging financial development (market enabling policies) and limiting destabilizing effects (market harnessing policies).
- Introduces financial inclusion as an integral dimension of financial development and reviews:
  - indicators used to measure financial inclusion,
  - the distinct macroeconomic impact of financial inclusion,
  - main policy strategies pursued.

### Learning objectives
Participants will be able to:
- Measure the level of financial development and inclusion for a country or countries by means of a wide range of standardized indicators, identify their shortcomings as well as the possible need to collect more detailed microeconomic data.
- Use a simple analytical model to predict the likely outcomes from different policy actions.
- Assess policy options and strategies for financial development and inclusion from a macroeconomic perspective by identifying relevant tradeoffs and by formulating and evaluating these questions:
  - Is the policy the most effective use of government resources to achieve the stated goal?
  - Does the policy conflict with other macroeconomic policies or goals?
  - What bottlenecks hindering financial development or inclusion exist in your country?
  - In particular, are there risk gaps that prevent agents (households, firms, or the government) from engaging in certain financial activities that could have a social benefit?
  - What is the appropriate sequencing of financial development and inclusion for a given country?
  - Is more financial development or inclusion necessarily better?
  - Why haven't certain instruments and/or institutions taken off in your country?
  - Why have others (shadow banking, mobile banking, etc.) been able to grow quickly?

### General approach and pedagogy
- No one-size-fits-all policy prescription; equips participants with analytical tools to formulate a macroeconomically coherent policy strategy appropriate for a country’s stage of development.
- Multiple opportunities for participant interaction through classroom discussions, case studies, workshops, and final presentations.
- Mix of lecture hours (typically 1.5 hours per lecture), workshops (durations specified, e.g., 3 hours, 4.5 hours), and case studies (durations specified, e.g., 3 hours).
- Breakout group work used repeatedly to apply models to real-world frictions and to present findings to peers.

### Course structure and unit themes (selected highlights)
- Unit durations are specified in hours for lectures, case studies, and workshops.

- Unit 1: A Framework for Financial Development
  - Lecture (1.5 hours): Functional approach; importance of contracts and contracting; main players and their roles; principal-agent relationships in finance; types of financial contracts: credit, savings, and insurance; types of borrowers: household, agriculture, business.
  - Case Study (3 hours): “Peer-to-Peer Lending and Crowdfunding.”

- Unit 2: Financial Structure
  - Lecture (1.5 hours): Characterization of financial structure: banks vs. nonbank financial intermediaries, financial intermediaries vs. capital markets, debt vs. equity; regional organization of financial markets; financial structure and macroeconomic outcomes; role of asymmetric information and transactions costs.
  - Case Study (1.5 hours): “What can we learn from theory, cross-country regressions and country case studies?”

- Unit 3: Sequencing
  - Part 1: Banks to bonds — Lecture (1.5 hours): Why banks appear first; how and when to introduce fixed income instruments; risk gaps and developing the yield curve; overcoming banks’ resistance to bond market development; intermediate steps: private equity financing, mixes of stock and bond financing.
    - Case Study (1.5 hours): “The case of Indian municipalities.”
  - Part 2: When to Develop the Equity Market — Lecture (1.5 hours): Why equity markets are last to appear; family businesses and equity markets; encouraging firms to go public; intermediating equity through mutual funds, private equity, venture capitalists; importance of institutional investors.
    - Case Study (3 hours): “The hypothetical case of Imaginaria.”
  - Part 3: Secondary Markets and Liquidity Providers — Lecture (1.5 hours): Needs of liquidity providers; types of liquidity providers in bond and stock markets; different types of secondary markets; OTC vs. Exchange Markets.

- Unit 4: Measuring Financial Development
  - Lecture (1.5 hours): Measurement issues: single indicators; broad-based concept of financial development and construction of composite indices; benchmarking; stylized facts across countries and over time.
  - Workshop (4.5 hours): use of Global Financial Development Database and Finstats 2019 to assess financial development in selected countries; three breakout groups present assessments.

- Unit 5: Financial Innovation and Evolution
  - Part 1: Fintech, Cryptocurrency and Financial Development — Lecture (1.5 hours): Defining Fintech; determinants of future Fintech landscape; Distributed Ledger Technology (Blockchain) and Virtual (Crypto-) Currencies.
  - Part 2: Financial Evolution and Financial Crisis — Lecture (1.5 hours): Relationship between financial liberalization and financial crisis; can excessive development be harmful; credit booms — good and bad.
  - Part 3: Shadow Banking — Lecture (1.5 hours): Definition, development drivers, benefits and dangers, and regulation of shadow banking.
  - Shadow Banking Case Study (3 hours): “The case of consumer automobile loans.”

- Unit 6: Financial Regulation
  - Lecture (1.5 hours): Justifications for financial regulation; market imperfections and financial development; macroeconomic and financial stability; regulations that affect banking development; regulations that facilitate innovation.

- Unit 7: Introduction to financial inclusion
  - Lecture (1.5 hours): Definition and distinction from financial development; measurement: supply-side, user-side, enabling environment; inclusion for households and firms; cross-country variation and recent trends; limitations of current measures; recent evidence on macroeconomic effects.

- Unit 8: A Conceptual Framework for Financial Inclusion
  - Lecture (1.5 hours): Financial underdevelopment/exclusion as a series of market frictions; benefits and tradeoffs in removing frictions; contrasting partial with general equilibrium effects.
  - Workshop (3 hours): three breakout groups investigate frictions from Dabla-Norris et al (2015) model and assess macroeconomic impact of policies to reduce them.

- Unit 9: Financial education and capability
  - Lecture (1.5 hours): Definition and assessment of financial capability; financial literacy as a first step; financial capability as a key component of financial inclusion; approaches to enhancing financial capability; meta-analysis of financial capability interventions; case of a large-scale capability intervention; alternative delivery channels for financial education.

- Unit 10: Policies for Financial Inclusion
  - Part 1: SME financing — Lecture (1.5 hours): Opacity of SMEs; SMEs and family business economics; experience to date: what works for SME finance; lending technologies for SMEs: leasing, factoring, equity crowd-funding, peer-to-peer lending.
  - Part 2: State banking — Lecture (1.5 hours): Theories of state role in banking; worldwide experience with state banks; credit guarantees.
  - Part 3: Microfinance — Lecture (1.5 hours): Characterization of microfinance; a model of microcredit; global experience with microcredit.

- Unit 11: Final Debate-Style Presentations: Case studies in financial inclusion — (10.5 hours)
  - Mobile banking in Kenya (M-Pesa) and beyond.
  - Recent financial inclusion strategy in India
  - Banco Azteca in Mexico
  - The U.S. subprime crisis: a case of excessive financial inclusion?
  - Government policies to promote SME financing in Korea

- Unit 12: Review Session—Lecture (1.5 hours): Summary of the main issues and policy messages covered in the course

### Distribution of course hours and key statistics
- Total Hours, Financial Development 28.5
- Total Hours, Financial Inclusion 24.0
- Total Hours, Full Course 52.5

- Units and allocated hours (as listed):
  - Unit 1: A Framework for Financial Development
    - Lecture 1.5
    - Case Study 3.0
  - Unit 2: Financial Structure
    - Lecture 1.5
    - Case Study 1.5
    - Sequencing Banks to Bonds 1.5
    - Case Study: Fixed-Income Market Development 1.5
    - When to Develop the Equity Market 1.5
    - Case Study: Equity Market Development 1.5
    - Secondary markets and Liquidity Providers 1.5
  - Unit 4: Measuring Financial Development
    - Lecture 1.5
    - Workshop 4.5
  - Unit 5: Financial Innovation and Evolution
    - Fintech, Cryptocurrency and Financial Development 1.5
    - Financial Evolution and Financial Crisis 1.5
    - Shadow Banking 1.5
    - Case Study: Shadow Banking 1.5
  - Unit 6: Financial Regulation 1.5
  - Unit 7: Introduction to Financial Inclusion 1.5
  - Unit 8: Conceptual Framework for Financial
    - Lecture 1.5
    - Workshop 3
  - Unit 9: Financial education and Capability 1.5
  - Unit 10: Policies for Financial Inclusion
    - State Banks 1.5
    - Microfinance 1.5
  - Unit 11: SME Lending; Three Case Studies in Financial Inclusion
    - Case Study 1 1.5
    - Case Study 2 3.5
    - Case Study 3 3.5
  - Unit 12: Course Recap and Panel Discussion 1.5

### Bibliographic references and related studies (selected)
- Mian, 2005, “Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market, Quarterly Journal of Economics, Vol. 120, Issue 4, pp. 1371-1411.
- Feler, L., 2015, “State Bank Privatization and Local Economic Activity,” (Washington, DC: SAIS, Johns Hopkins University).
- R. La Porta, F. Lopez-De-Silanes, and A. Shleifer, “Government Ownership of Banks”, Journal of Finance.
- Korner, T and I. Schnabel, 2010, “Public Ownership of Banks and Economic Growth: The Role of Heterogeneity,” CEPR Discussion Paper No. 8138.
- World Bank, 2013, Global Financial Development Report: Rethinking the Role of the State in Finance.
- Banerjee, A. V. (2013), “Microcredit under the Microscope: What Have We Learned in the Past Two Decades and What Do We Need to Know?” Annual Review of Economics, 5: 487-519.

*International Monetary Fund*

### Section 1

### fdfi - Section 1

### Overview
- The course is a two-week course that outlines the macroeconomic relevance of financial development broadly, and of financial inclusion more specifically.
- Begins with an analytical framework defining the role played by finance in the economy and reviews conceptual and empirical literature on finance’s impact.
- Addresses key policy issues in encouraging financial development (market enabling policies) and limiting destabilizing effects (market harnessing policies).
- Introduces financial inclusion as an integral dimension of financial development and reviews:
  - indicators used to measure financial inclusion,
  - the distinct macroeconomic impact of financial inclusion,
  - main policy strategies pursued.

### Learning objectives
Participants will be able to:
- Measure the level of financial development and inclusion for a country or countries by means of a wide range of standardized indicators, identify their shortcomings as well as the possible need to collect more detailed microeconomic data.
- Use a simple analytical model to predict the likely outcomes from different policy actions.
- Assess policy options and strategies for financial development and inclusion from a macroeconomic perspective by identifying relevant tradeoffs. In doing so, participants formulate and evaluate these questions:
  - Is the policy the most effective use of government resources to achieve the stated goal?
  - Does the policy conflict with other macroeconomic policies or goals?
  - What bottlenecks hindering financial development or inclusion exist in your country?
  - In particular, are there risk gaps that prevent agents (households, firms, or the government) from engaging in certain financial activities that could have a social benefit?
  - What is the appropriate sequencing of financial development and inclusion for a given country?
  - Is more financial development or inclusion necessarily better?
  - Why haven't certain instruments and/or institutions taken off in your country?
  - Why have others (shadow banking, mobile banking, etc.) been able to grow quickly?

### General approach and pedagogy
- No one-size-fits-all policy prescription; equips participants with analytical tools to formulate a macroeconomically coherent policy strategy appropriate for a country’s stage of development.
- Multiple opportunities for participant interaction through classroom discussions, case studies, workshops, and final presentations.

### Course structure and unit themes (selected highlights)
- Unit durations are specified in hours for lectures, case studies, and workshops.

Unit 1: A Framework for Financial Development
- Lecture (1.5 hours) topics:
  - Functional approach; importance of contracts and contracting; main players and their roles; principal-agent relationships in finance; types of financial contracts: credit, savings, and insurance; types of borrowers: household, agriculture, business.
- Case Study (3 hours): “Peer-to-Peer Lending and Crowdfunding.”

Unit 2: Financial Structure
- Lecture (1.5 hours) topics:
  - Characterization of financial structure: banks vs. nonbank financial intermediaries, financial intermediaries vs. capital markets, debt vs. equity; regional organization of financial markets; financial structure and macroeconomic outcomes; role of asymmetric information and transactions costs.
- Case Study (1.5 hours): “What can we learn from theory, cross-country regressions and country case studies?”

Unit 3: Sequencing
- Part 1: Banks to bonds — Lecture (1.5 hours)
  - Why banks appear first; how and when to introduce fixed income instruments; risk gaps and developing the yield curve; overcoming banks’ resistance to bond market development; intermediate steps: private equity financing, mixes of stock and bond financing.
  - Case Study (1.5 hours): “The case of Indian municipalities.”
- Part 2: When to Develop the Equity Market — Lecture (1.5 hours)
  - Why equity markets are last to appear; family businesses and equity markets; encouraging firms to go public; intermediating equity through mutual funds, private equity, venture capitalists; importance of institutional investors.
  - Case Study (3 hours): “The hypothetical case of Imaginaria.”
- Part 3: Secondary Markets and Liquidity Providers — Lecture (1.5 hours)
  - Needs of liquidity providers; types of liquidity providers in bond and stock markets; different types of secondary markets; OTC vs. Exchange Markets.

Unit 4: Measuring Financial Development
- Lecture (1.5 hours) topics:
  - Measurement issues: single indicators; broad-based concept of financial development and construction of composite indices; benchmarking; stylized facts across countries and over time.
- Workshop (4.5 hours): use of Global Financial Development Database and Finstats 2019 to assess financial development in selected countries; three breakout groups present assessments.

Unit 5: Financial Innovation and Evolution
- Part 1: Fintech, Cryptocurrency and Financial Development — Lecture (1.5 hours)
  - Defining Fintech; determinants of future Fintech landscape; Distributed Ledger Technology (Blockchain) and Virtual (Crypto-) Currencies.
- Part 2: Financial Evolution and Financial Crisis — Lecture (1.5 hours)
  - Relationship between financial liberalization and financial crisis; can excessive development be harmful; credit booms — good and bad.
- Part 3: Shadow Banking — Lecture (1.5 hours)
  - Definition, development drivers, benefits and dangers, and regulation of shadow banking.
- Shadow Banking Case Study (3 hours): “The case of consumer automobile loans.”

Unit 6: Financial Regulation
- Lecture (1.5 hours) topics:
  - Justifications for financial regulation; market imperfections and financial development; macroeconomic and financial stability; regulations that affect banking development; regulations that facilitate innovation.

Unit 7: Introduction to financial inclusion
- Lecture (1.5 hours) topics:
  - Definition and distinction from financial development; measurement: supply-side, user-side, enabling environment; inclusion for households and firms; cross-country variation and recent trends; limitations of current measures; recent evidence on macroeconomic effects.

Unit 8: A Conceptual Framework for Financial Inclusion
- Lecture (1.5 hours) topics:
  - Financial underdevelopment/exclusion as a series of market frictions; benefits and tradeoffs in removing frictions; contrasting partial with general equilibrium effects.
- Workshop (3 hours): three breakout groups investigate frictions from Dabla-Norris et al (2015) model and assess macroeconomic impact of policies to reduce them.

Unit 9: Financial education and capability
- Lecture (1.5 hours) topics:
  - Definition and assessment of financial capability; financial literacy as a first step; financial capability as a key component of financial inclusion; approaches to enhancing financial capability; meta-analysis of financial capability interventions; case of a large-scale capability intervention; alternative delivery channels for financial education.

Unit 10: Policies for Financial Inclusion
- Part 1: SME financing — Lecture (1.5 hours)
  - Opacity of SMEs; SMEs and family business economics; experience to date: what works for SME finance; lending technologies for SMEs: leasing, factoring, equity crowd-funding, peer-to-peer lending.
- Part 2: State banking — Lecture (1.5 hours)
  - Theories of state role in banking; worldwide experience with state banks; credit guarantees.
- Part 3: Microfinance — Lecture (1.5 hours)
  - Characterization of microfinance; a model of microcredit; global experience with microcredit.

### Pedagogical format and participant engagement
- Mix of lecture hours (typically 1.5 hours per lecture), workshops (durations specified, e.g., 3 hours, 4.5 hours), and case studies (durations specified, e.g., 3 hours).
- Breakout group work used repeatedly to apply models to real-world frictions and to present findings to peers.

*International Monetary Fund*

### Section 2

### fdfi - Section 2

### Bibliographic references and related studies
- Mian, 2005, “Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market, Quarterly Journal of Economics, Vol. 120, Issue 4, pp. 1371-1411.
- Feler, L., 2015, “State Bank Privatization and Local Economic Activity,” (Washington, DC: SAIS, Johns Hopkins University).
- R. La Porta, F. Lopez-De-Silanes, and A. Shleifer, “Government Ownership of Banks”, Journal of Finance, http://onlinelibrary.wiley.com/doi/10.1111/1540- 6261.00422/pdf
- Korner, T and I. Schnabel, 2010, “Public Ownership of Banks and Economic Growth: The Role of Heterogeneity,” CEPR Discussion Paper No. 8138.
- World Bank, 2013, Global Financial Development Report: Rethinking the Role of the State in Finance. (Washington, D.C.: World Bank). (http://siteresources.worldbank.org/EXTGLOBALFINREPORT/Resources/8816096-1346865433023/8827078-1346865457422/Chapter-4.pdf)
- Banerjee, A. V. (2013), “Microcredit under the Microscope: What Have We Learned in the Past Two Decades and What Do We Need to Know?” Annual Review of Economics, 5: 487-519.

### Course units: Final modules on financial inclusion and review
- UNIT 11: Final Debate-Style Presentations: Case studies in financial inclusion — (10.5 hours).
  - Mobile banking in Kenya (M-Pesa) and beyond.
  - Recent financial inclusion strategy in India
  - Banco Azteca in Mexico
  - The U.S. subprime crisis: a case of excessive financial inclusion?
  - Government policies to promote SME financing in Korea
- UNIT 12: Review Session—Lecture (1.5 hours)
  - Summary of the main issues and policy messages covered in the course

### Distribution of course hours (Table 1)
- Total Hours, Financial Development 28.5
- Total Hours, Financial Inclusion 24.0
- Total Hours, Full Course 52.5

- Units and allocated hours (as listed):
  - Unit 1: A Framework for Financial Development
    - Lecture 1.5
    - Case Study 3.0
  - Unit 2: Financial Structure
    - Lecture 1.5
    - Case Study 1.5
    - Sequencing Banks to Bonds 1.5
    - Case Study: Fixed-Income Market Development 1.5
    - When to Develop the Equity Market 1.5
    - Case Study: Equity Market Development 1.5
    - Secondary markets and Liquidity Providers 1.5
  - Unit 4: Measuring Financial Development
    - Lecture 1.5
    - Workshop 4.5
  - Unit 5: Financial Innovation and Evolution
    - Fintech, Cryptocurrency and Financial Development 1.5
    - Financial Evolution and Financial Crisis 1.5
    - Shadow Banking 1.5
    - Case Study: Shadow Banking 1.5
  - Unit 6: Financial Regulation 1.5
  - Unit 7: Introduction to Financial Inclusion 1.5
  - Unit 8: Conceptual Framework for Financial
    - Lecture 1.5
    - Workshop 3
  - Unit 9: Financial education and Capability 1.5
  - Unit 10: Policies for Financial Inclusion
    - State Banks 1.5
    - Microfinance 1.5
  - Unit 11: SME Lending; Three Case Studies in Financial Inclusion
    - Case Study 1 1.5
    - Case Study 2 3.5
    - Case Study 3 3.5
  - Unit 12: Course Recap and Panel Discussion 1.5

---


_Source: https://www.imf.org/-/media/files/icd/fdfi.pdf_