By T. Beck, A. Demirguc-Kunt and M.S. Martinez (September 2005)
http://www.yearofmicrocredit.org/docs/Reaching_Out_Sept9.pdf
Abstract
This paper presents a new set of indicators of banking sector penetration, consisting of quantitative data about access to and the use of financial services. Additionally, the paper uses these indicators to show the relationship between banking sector outreach and a firms' financing obstacles.
Main takeaways of this paper are:
- The new indicators, while rough, are good predictors of household and firm use of banking services.
- Outreach indicators are positively correlated with traditional measures of financial development and economic activity. Similarly, there is a correlation between better communication and transport infrastructure.
- Just as government ownership is associated with lower outreach, more concentrated systems are associated with greater outreach.
- Firm's financing constraints are lower for those where there is a higher penetration of branches and ATMs, showing the link between outreach and financial constraints.
Summary
A new data set is presented in this paper with the aim of measuring the access to and use of banking services in 99 countries. The data was gathered through a survey of banking regulatory agencies and complemented with other country-level available data.
The database has certain limitations, such as being available only at one point in time; considering only two banking services (deposits and loans); taking data only from banks; and not considering the price dimension of outreach.
The data set provides a rough indication, but it is the first consistent and comparable cross-country data on outreach and penetration of banking systems. Moreover, however imperfect the indicators may be, the authors show that there is a correlation between them and the underlying statistics.
Access to financial services is measured in terms of access to banks physical outlets with data on the number of branches or ATMs, adjusted by geographic and demographic intensity:
Indicator 1: Number of branches / 1000 km2
Indicator 2: Number of branches / 100,000 people
Indicator 3: Number of ATMs / 1000 km2
Indicator 4: Number of ATMs / 100,000 people
Use of financial services is measured with data on the number of deposits and loan accounts relative to population and to GDP per capita
Indicator 5: Number of loans / 1000 people Indicator 6: Average size of loans to GDP per capita Indicator 7: Deposit accounts / 1000 people Indicator 8: Average size of deposits to GDP per capita
The first econometric exercise that the authors implement on the data is to test the relationship between the new outreach indicators with other country characteristics. Some of their findings are:
- There is a strong, positive association of higher outreach (access to and use of) with the traditional indicators of financial development.
- Outreach is correlated with population density and size of the economy, showing that more densely populated countries have higher geographic branch and ATM penetration, but no robust correlation was found between high penetration and use of banking services.
- Some indication that more effective information sharing and fewer restrictions on banks' activities are associated with better access (more outlets, but not necessarily more loans), while high entry barriers are associated with low use of lending and deposit services.
- In terms of ownership, government-dominated systems tend to have less branch and ATM penetration, but foreign banks are not correlated with outreach indicators. This does not support the view that government owned banks help improve outreach, while foreign dominated might worsen outreach because they cherry-pick the best and often wealthiest clients.
- Better communication and transport infrastructure is associated positively with access to and use of banking services.
The second econometric exercise aims to shed some light on the association of the new indicators with indicators of a firm's financing obstacles. Based on a cross-country, firm-level survey, the authors reach the following conclusions:
- Firms in countries with higher branch and ATM penetration report facing lower financing obstacles.
- The economic effects of outreach on a firm's financing obstacles varies across indicators but shows that demographic penetration of bank outlets is somewhat more important than geographic penetration.
- Financial intermediary development (measured as private credit/GDP) is not robustly associated with firm's financing obstacles when we control for the new outreach indicators (use of deposits and loans and ATM and branch penetration), meaning that this variable losses importance to explain firm's obstacles when we include into the analysis outreach variables.
- Neither government ownership nor firm size have a significant impact on the relations between higher banking outreach