The More the Merrier? What Happens When More People Use Financial Services
IMF Blog, September 15, 2015
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Bibliographic details
- Authors: Ratna Sahay, Martin Cihak, Papa NDiaye, Adolfo Barajas, Srobona Mitra
- Published: September 15, 2015
Overview
- Publication: The More the Merrier? What Happens When More People Use Financial Services
- Authors: Ratna Sahay, Martin Cihak, Papa N’Diaye, Adolfo Barajas, Srobona Mitra
- Date: September 15, 2015
- Core message: Financial inclusion delivers tangible macroeconomic benefits up to a point, but broadening access to credit requires high quality banking supervision to avoid compromising financial stability.
Tangible benefits from inclusion
- Greater access to financial services is associated with higher GDP growth.
- Financial inclusion provides an additional growth boost beyond that from increasing financial depth.
- The benefits of inclusion diminish as both financial access and financial depth become large.
Mind the gap (coverage and usage)
- More than 60 countries have adopted national financial inclusion targets and strategies.
- The percentage of adults with bank accounts increased from 50 to about 60 percent worldwide between 2011 and 2014.
- Some two billion adults remain “unbanked”.
- Out of the banked population, almost 40 percent do not effectively use their accounts.
- Regional and sectoral disparities:
- Organization for Economic Cooperation and Development countries: banked population over 90 percent.
- Developing countries: banked population 54 percent.
- Inclusion is particularly low in South Asia and the Middle East.
- Gender and firm-size gaps:
- Worldwide, men are five percent more likely to own accounts than women.
- In developing countries, men are nine percent more likely to own accounts than women.
- Small firms are about ten percentage points more likely to feel credit-constrained than large firms.
- Leadership and supervision gender gaps:
- Women hold less than 20 percent of bank board seats.
- Women represent less than two percent of bank CEOs.
- Share of women in banking supervisory boards is about 17 percent on average.
Impacts on growth, stability, and inequality
- Growth:
- Various types of access—accounts, credit, infrastructure, women users, low-income—improve economic growth, but up to a point.
- The growth benefits from inclusion are additional to those from financial depth.
- The benefits fall as both financial access and depth become large.
- Stability:
- Effects of broadening access to credit on financial stability depend on the quality of financial supervision.
- When supervision quality is high (assessed by Basel Core Principles via IMF-World Bank Financial Sector Assessment Programs), broadening credit access leads to an increase in financial stability as banks build up capital and profit buffers.
- When supervision quality is low, these buffers decline as credit access broadens, compromising stability.
- Supervisory quality tends to be deficient in countries where financial inclusion is most lacking, creating a dual challenge.
- Other forms of financial inclusion (access to bank accounts, branches, and ATMs) do not significantly deteriorate financial stability and can be expanded without impeding stability.
- Inequality:
- Gaps in financial inclusion are associated with economic inequality, but the association appears relatively weak.
Policy implications and recommended priorities
- Expand access to bank accounts, branches, and ATMs to increase inclusion without materially harming financial stability.
- Prioritize strengthening banking supervision before or alongside broadening access to credit:
- High quality supervision helps ensure that expanded credit access builds capital and profit buffers rather than eroding them.
- Address gender gaps across users, bank leadership, and supervisory roles to improve inclusion and governance.
- Recognize limits to what financial inclusion can achieve; benefits diminish as access and depth grow large, so tailor policy ambitions accordingly.
The More the Merrier? What Happens When More People Use Financial Services — Ratna Sahay, Martin Cihak, Papa N’Diaye, Adolfo Barajas, Srobona Mitra; September 15, 2015; https://www.imf.org/en/blogs/articles/2015/09/15/the-more-the-merrier-what-happens-when-more-people-use-financial-services
Content in this bundle
- Staff Discussion Note