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Assessing Financial Access Through Surveys of Users
An example
of Brazil
By
Anjali Kumar, LCSFF
How do we measure financial
access? Despite the relatively high quantification of many
aspects of financial systems, there has been a growing
realization that information on the availability and use of
financial services in different populations, whether countries
or regions within a country, is scant. Efforts to measure the
use of financial services are being organized from multiple
perspectives. Information on the supply of financial services to
a given community, through financial institutions such as banks,
can be collected from regulators, such as central banks, or
through surveys of banks themselves. But data from regulators
cannot provide an answer to the question of who has access, and
who does not. Even if a financial institution exists in a given
location, it is not clear whether the poor of that region are
being served. Data from financial institutions themselves can
complement this, through knowledge of their clients, but are
still limited in the extent to which they can capture
information on those excluded from financial services.
Questions regarding the use of
financial services had to varying degrees been incorporated in
instruments such as the Living Standards Measurement surveys of
the World Bank. As questions on finance are integrated into a
larger exercise, the scope of the financial modules of these
inquiries has necessarily been limited. Recently, a wave of
more specialized surveys on financial access has been launched,
in countries including Brazil, India, Colombia and Mexico, and
prior to this, Nicaragua and Romania. Exercises have also been
launched in a number of African countries by external agencies,
such as the DFID. Going forward, if a harmonized approach is
adopted, these could provide a means of comparing financial
access across countries.
This article describes a survey of
2,000 urban residents of Brazil and explains how survey data
were used to examine policy questions. Interviewees were
individuals of 18 or above, selected on a probabilistic basis
from census data. This ensured that the sample was
representative of the population which it was drawn from. The
survey first looked at general access to a formal financial
institution, and then at specific financial services; including
savings and deposits, credit and payments services.
Looking first at broad findings,
the survey showed that while 43% of individuals interviewed had
a bank account, a much larger number of persons used formal
financial institutions through payment points offered by
correspondent banks. This finding has prompted new inquiries
into the scope for expansion of correspondent bank services, in
Brazil and elsewhere. The survey also showed that most
respondents used private banks (58%), despite the large presence
of public banks in Brazil. Cooperatives or microfinance
institutions had a very limited urban presence (four percent of
respondents). Results also suggested that physical access was
not an important issue, at least in urban areas. Almost
three-quarters of respondents (73.5%) took less than 20 minutes
to arrive at their bank.
Beyond such
facts, the survey was also able to explore the dimensions of and
reasons for financial exclusion. Around two-thirds of those who
did not have an account claimed to want one (64%). Possible
reasons for not having an account separated those
difficulties due to banks’ characteristics, and those due to
respondent characteristics. Among the former, high fees dominate
– bank services are expensive for many persons. But, lack of
documentation and difficulties in opening an account suggest
that bureaucratic requirements are also important barriers.
Maintaining an account can be even more difficult than opening
it - almost a third of the persons sampled had had an account
and had then closed it. The main reason cited for cancellation
was the difficulty of maintaining a minimum balance (218 cases)
combined with cancellation by the bank (also due largely to
problems in maintaining the minimum balance) and high fees. This
suggests that a large proportion of those who do not have access
may not easily be able to afford to maintain a traditional bank
account – and from a policy perspective, suggests that
simplified but low-cost accounts may be valuable to many. (Such
simplified accounts have since been introduced in Brazil, with a
huge response in terms of increased account holders).
The survey
suggested that deposit services are sought most of all for
‘security,’ and most depositors are not sensitive to returns.
Over two-thirds of account holders cited security as the main
reason for holding an account. Gaining access to other financial
services was second, (10% of respondents), and rates of return
were third. And people withdrew deposits mostly when they needed
money, and not due to declining returns, or increased risk.
In addition, credit services were sought by a low proportion of
the population (15%), however only two-thirds of applications
were accepted. Loans were sought most of all for family
emergencies - consumption smoothing.
The analysis then looked at three
policy issues. The first of these was the association
between the location of the respondents and the
availability of financial services. Government policy for the
expansion of access has emphasized the importance of installing
some financial institution or point of service in each
municipality. The survey examined location both in terms of
region of the country and in terms of better and worse off
neighborhoods within a city. Second, the study examined the
role of public and private financial institutions
in the provision of financial services. Many governments assume
that due to market failures in financial markets, public banks
have a special role to play in serving the poorer segments of
society. Third, the study looked at the role of information
on respondent characteristics in the provision of financial
services, investigating the extent to which proxies for
information on creditworthiness, such as income, wealth or the
possession of collateral, could influence decisions regarding
the provision of financial services.
Regarding the role of location,
the survey showed a clear variation in a series of indicators of
financial access across regions, but also at the level of
individual neighborhoods. An examination of regional
differentials indicated that the poorer North and Northeast of
the country were more limited in access than the more affluent
central or southern regions. But differences in access were also
strong within local areas. Persons living in legalized areas,
in regularized houses or apartments, and in larger homes, had
significantly greater access, using a number of measures,
compared to persons in informally constructed small homes in
unregularized areas. This suggests that although there are
indeed differences between the availability of financial
services between regions of the country, placing financial
institutions in each region or municipality in itself is not a
sufficient condition for broadening access. There may well be
important differences also within neighborhoods and districts of
a municipality, region or state. Even if there is a financial
institution present in a given location, its clients may be
biased towards the better off persons. And conversely, areas
benefiting from dense networks of financial institutions may
still have pockets of the underserved.
Examining survey evidence on the
role of public and private banks yields mixed results. Public
banks do provide more services in the poorer regions and for low
income clients. Thus, 84% of individuals in the less well off
North used mainly public banks, compared to around two-thirds of
individuals in the Southeast. And 81% of persons in homes of
less than 0.5 rooms per person used mainly public banks compared
to 61% of individuals in houses of over 2 rooms per person. But
the biggest reason for this contribution was in terms of payment
services, through a single specialized correspondent chain of
one public bank. The role of public banks in taking deposits and
providing credit is less clearly distinguished from private
banks, and their role in the provision of housing credit appears
perversely to have supported the better off.
The analysis found that
information on the socio-economic characteristics of respondents
and financial access is very important in determining access to
financial services. Such information could be used by financial
institutions as a proxy to creditworthiness. For example, income
could be a proxy for cash flows which can service loans, and
assets, or wealth, could aid loan recovery. Banks sometimes
desire such information for opening an account, or even to
accept a deposit. Other characteristics of this form could
include position in household, gender or employment. Income was
revealed to be the most important of the socio economic
characteristics, and it has a strong positive relation with
access to a variety of financial services, including having a
bank account, deposit and credit services. Only 15% of persons
with income in the lowest quintile had a bank account, in
contrast to 64% of respondents in the highest quintile. Only
nine percent of the persons with income in the lowest quintile
had deposits in contrast to 47% of persons in the top
quintile. Ninety-two percent of respondents in the bottom
quintile did not apply for credit, compared to 74% in the
top quintile. And as income levels increase, the proportion of
refusals of credit applications diminishes.
The final
section of the analysis was an evaluation of the relative
importance of different factors affecting access, based on
regression analysis. The analysis used a series of different
measures of access and a range of different explanatory
variables related to location as well as individual
characteristics. Thus for example, with the probability of
having a bank account as the measure of access, geographic
region of the country, type of building and number of rooms per
person, income and education level were all significant. Thus
location is important in determining access, but location in
terms of the micro characteristics of an area or neighborhood
can be as important a discriminator for access, as location in
terms of regions or municipalities.
Socioeconomic characteristics,
especially income but also education and (for credit services)
wealth, can be more important than region or location, at the
users level, in determining financial access. A calculation of
marginal effects showed that moving up from the bottom to the
second quintile of income increases the probability of having a
bank account by 11 percentage points, and increases the
probability of using a bank (compared to a non-bank) as a
primary financial institution by 62 percent. Persons educated
beyond primary level almost double their probability of having a
bank account compared to those without any formal education (a
97 percentage points increase in probability). Distinguishing
between public and private banks, additional income lowers the
probability of using public banks by 6 percentage points as
compared to private banks; additional education lowers the
probability of using public banks by 5 percentage points.
In terms of
policy advice, the results suggest first that given the
importance of factors such as income, education and wealth, in
determining access, which may be due to asymmetries in
information, factors which reduce such asymmetries in
information can be important for the expansion of financial
access. The importance of socioeconomic characteristics such as
education, in determining access suggest that programs of
financial education, financial mentoring, training and twinning
and awareness building may also be important for raising
financial access. Next, the survey showed that problems with
maintaining balances, costs, and self-exclusion, were relevant.
Therefore another suggestion is that services which are
specially designed and targeted for the less well off may help
to address access. For example, basic accounts, minimum packages
of financial services, simplified documentation requirements or
special financial products, such as payroll loans, designed for
low income persons, could be important for raising access.
Regarding location and financial
access, the finding is that persons in less well off and more
remote regions do face lower levels of access. However if
service outlets are to be provided in all geographical areas,
this can be hard to justify on economic grounds and thus public
support may be justified. And providing financial outlets will
not automatically ensure financial services for the poor of that
region. Attention to product design for the less well off is
still important. Also, location defined at a micro level in
terms of neighborhoods, with service expansion targeted at areas
or parts of a city with specific microeconomic characteristics
(e.g. high concentrations of low income housing), may be more
appropriate as a focus for new outlets. The provision of
financial services in poor urban pockets may be a challenge
equal to exclusion in remote regions.
A final suggestion is the
introduction of more competition in those services where public
banks dominate – e.g., housing or payments. Although the
analysis did suggest that persons with lower levels of income
tended to use public banks proportionately more, it also showed
that along a broad spectrum of deposit and credit services, the
roles of these institutions could be largely substitutable.
Maintaining a differential role for public banks on the grounds
of access may therefore have limited justification. Indeed, as
persons become better off, they tend to prefer private services
for a broad spectrum of financial transactions.
Specialized surveys on financial
access have generated great interest among both policy makers,
researchers, and the wider donor community. Although these can
be expensive, as they require the collection of socioeconomic
data to correlate with financial variables, such surveys can
provide valuable information on financial behavior, on
perceptions of constraints to access, and on actual difficulties
to access to financial services, in the form of costs, time or
distance. Such information can permit the exploration of
specific policy related questions towards financial access. If
at least the core questions of such separate exercises are
comparable, this could provide a valuable instrument for
exercises of benchmarking and cross country comparison.
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