Data on Access of Poor and Low Income People to Financial Services

This presentation explores the following three themes with reference to the poors access to financial services:

• What is the price of access?
• Why is there not enough access?
• What can we do to solve the problem of access?

The presentation provides the following data about access:

• Price is a critical component;
• Two critical spreads are:
  • Formal sector banking rates versus the informal sector rates;
  • Lending minus savings rates.

The presentation finds that:

• Price depends on the interest rate spread among banks, microfinance institutions (MFIs) and informal lenders;
• The reason for spreads could be information asymmetries;
• Credit bureaus could help in this area.

The presentation then makes the following points:

• The way to go from cross-country analysis to policy prescription, given the endogenity issues;
• Whether micro studies provide information about why countries are different;
• The conclusion of experimental studies that selection bias is particularly poignant for microcredit.

The presentation concludes by recommending a three-pronged process to make policy prescriptions that involves:

• Collecting cross-country data on price and quality of credit and savings options;
• Conducting micro-level experimental studies to answer:
  • Are firms/individuals credit/savings constrained?
  • Why are they so?
  • What to do?
• Combing the results of the two prongs to make out-of-sample policy decisions.