WASHINGTON Nov 11 In Brazil, bank customers can
access their accounts aboard a floating bank on the Amazon
River. In Mexico, rural residents find banking services inside
popular stores like Walmart or 7-Eleven, or at their
Mobile technology and regulatory reforms have made it easier
and cheaper for private and public companies around the world to
offer banking services to the poor, youth, women and rural
residents, and others who lacked access.
But in a new report released on Monday, the World Bank warns
that while some services, like low-fee accounts, clearly benefit
the poor and small firms, others - such as microcredit,
microinsurance, and debt relief - can do more harm than good.
"We're very careful to make sure we're not saying that
everyone should be borrowing," said Asli Demirguc-Kunt, the
World Bank's director of research and co-author of the report.
Instead, the World Bank encourages governments to reduce
regulatory barriers, legal hurdles or other factors that make
financial services too expensive for some, such as boosting
competition and protecting the rights of creditors.
Access to finance helps the world's poorest save so they can
invest in education and improve standards of living, and enables
small companies to borrow so they can grow. It also makes it
easier for governments to target subsidies and financial
assistance to the bank accounts of the neediest.
More than 50 governments have pledged to improve financial
inclusion, or the number of people and companies that use
financial services. World Bank President Jim Yong Kim last month
also announced a target of universal financial access by 2020.
Now, about 2.5 billion people, or half the world's adult
population, lack access to financial services.
Microcredit, or tiny loans to the poor, came into vogue in
the late 1990s as a way of providing banking services to the
world's poorest in order to combat poverty and boost
But several studies in recent years have shown that
microcredit, which often comes with very high interest rates,
has little or no impact on the financial fates of people in
nations such as Mexico, the Philippines, Morocco and India.
The World Bank said India in particular offers a cautionary
tale about the overextension of credit, after reports of dozens
of suicides by poor borrowers in 2010 in the southern state of
India lacked appropriate protection for consumers and legal
provisions for personal bankruptcy, the bank said. In general,
governments should avoid directed credit and lending through
state-owned banks, as these interventions can become tied to
politics, according to the World Bank.
FINGERPRINTING, IRIS SCANS
But innovative financial instruments and new technology have
made it easier to expand access, even in countries without
One experiment in rural Malawi collected the fingerprints of
some farmers that wanted loans to grow paprika. The experiment
showed that farmers who were at highest risk for default were
more likely to pay back a loan if they were fingerprinted, since
they worried they might not get another loan in the future.
The identification could also make lenders more likely to
extend credit since they would have better information about
"Recent research suggests that biometric identification
(such as fingerprinting, iris scans, and so on) can
substantially reduce information problems and moral hazard in
credit markets," the World Bank said.
Other tools that can encourage people to save in formal bank
accounts are commitment savings accounts, where people give up
access to their money for a set period of time, or regular
reminders of savings goals.
But the World Bank said it was important to have more
educated consumers in addition to enabling government policies.
For that, standard financial literacy classes generally fail at
preparing people for major financial decisions.
"A person can learn the meaning of street signs, but this
does not make him capable of driving in traffic," the bank said.
Instead, what seems to work better is providing information
just as a person is starting a new job or purchasing a financial
"You need the right regulations in place, but also to
educate consumers so that they watch out for themselves,"