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David Roodman's Microfinance Open Book Blog


If you follow microfinance blogs, you probably know that the World Bank has released a big database called Global Findex. With muscular funding from the Gates Foundation, the World Bank ran an ambitious polling project to learn about what financial services people use and how they use them---or why they don't. Some 150,000 people were interviewed in 148 countries. And that's just the first round: the surveys will be repeated, the grant lasting 10 years.

It's clear from the work done so far (led, I believe, by Asli Demirguc-Kunt, and co-authored by Leora Klapper), as well as from the outreach effort, that the World Bank was the right institution for the job. The data set appears to be of high quality. Ditto for the "metadata," which tell number-crunchers like me exactly how variables are defined and stored. The project's home page offers an almost bewildering slate of options for exploring the data. The technical paper is quite readable and contains lots of good figures and tables. CGAP's main blog is running a series on the implications of the new data. (Don't miss Jonathan Morduch's piece reconciling the macroview from this data set with the micro view from Portfolios of the Poor.)

I have to admit I'm not very excited about this database. Probably that's a reflection on my lack of imagination as a researcher. While it's true that I didn't know before that 52.9853% of adults in Afghanistan who have an account at a formal institution make 1--2 withdrawals per month, and that 67.14356% make 1--2 deposits, I'm likely to forget those facts as fast as I type them. Meanwhile, the big picture is unsurprising. Half the world is still unbanked. And, what do you know, more people have bank accounts in countries where more people have money.

But even if I don't feel the excitement in my gut, my head tells me this is important. Here's why. This graph shows the relationship between one of the dataset's key variables, % of adults with an account at a formal financial institution, and a standard measure of national wealth, gross domestic product per person. The relationship is strong. And it is S-shaped, which makes sense since no matter how poor a country, its financial inclusion rate can't fall below 0, and no matter how rich, it can't rise about 100%. Each dot in the graph represents a country, and I've labelled the dots with 3-letter country codes (list here), which don't collide with each other on the screen as much as full country names would. So that's Burundi, Liberia, and the former Zaire in the impoverished bottom left and Singapore and Luxembourg in the affluent upper right:

I ran a few regressions, looking at how much of the cross-country differences in this measure of financial inclusion can be explained by such factors as GDP/capita, % of the population that lives in cities, and what continent a country is on. The answer: about two-thirds. To this extent, financial inclusion appears to be driven by factors beyond the influence of well-meaning outsiders such as the Gates Foundation and David Roodman's Microfinance Open Book Blog. As I wrote in my book without much originality, financial inclusion appears to be more a consequence than a cause of rising wealth.

But two-thirds is not all. Some countries, such as Bangladesh and Kenya, score much higher on financial inclusion than their GDP/capita peers. Their dots are well above the smooth red line in the graph above (look for BGD and KEN). Others, necessarily, are below average. This suggests that a country's level and quality of financial inclusion are not beyond intentional influence. There may be substantial room for domestic policymakers and foreign actors to boost financial inclusion in many countries. In fact, data like this may provoke such change, especially when it comes in the form of comparisons between neighbors. (India (IND), why despite the largest financial inclusion drive in the history of developing countries are you so far behind Sri Lanka (LKA)?) Apparently that's part of what happened in Kenya: financial inclusion data from FSD Kenya reached the eyes of the central bank governor and made him more open to giving the nascent M-PESA some regulatory leeway. Think how many insouciant comparisons can be made now.

I should add that we don't have to just guess as to why people in some countries are less apt to open formal financial accounts. The pollsters asked them. From page 19 of the technical paper:

There is much more to the data set. Pollsters collected demographic information---income, sex, education level, etc.---so many of the results are broken out along these dimensions. Informal services, such as moneylending and savings clubs, also get attention. All in all, it is an impressive piece of work. OK, I admit it, I'm starting to get excited about it.

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CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.