In Ethiopia, there is less than one bank branch per 100,000 people while Spain has 96. In Albania there are four loans per 1,000 people and the average loan size is fifteen times GDP, while in Poland there are 774 loans per 1,000 people and the average loan size is only one third GDP. Statistics like these were inaccurate or unavailable entirely until the recent release of the initial results of a data collection project by the World Bank. Spearheaded by the International Year of Microcredit, this research and data collection effort is yielding landmark results that are sure to have significant impact on improving access to financial services for poor people in years to come.

Historically, data about access has not been gathered because no standard existed by which reliable and comparable data could be collected due to the inherent difficulty in surveying individual households and firms. However, access to these services is critically important in enabling people to improve their standards of living, so measuring the level of access to basic financial services is critical to understanding the success of microfinance initiatives. This data is vital in determining the correlation between access to financial services and reduced poverty levels as well as providing information on what kinds of governmental policy interventions might strengthen access for microentrepreneurs. Stanley Fisher, Governor, Bank of Israel, and Chair of the Advisors Group for the International Year of Microcredit says about the importance of data collection: "Without systematic data our knowledge of the extent to which finance is available to people, and our ability to analyze its impact, is limited. Many people - me included - believe…that access to microfinance can have a major impact on the standard of living of those who use it. But until we have better data, we will not be able to measure just how important it is to provide access".



Therefore, in 2004, under the auspices of the International Year of Microcredit, the United Nations Capital Development Fund (UNCDF), the World Bank and the International Monetary Fund (IMF) initiated a working group to address current data gaps in who has access to financial services in developing countries, who provides those services and at what cost.¹ A smaller working group comprised of the World Bank, the UK's Department for International Development (DFID) and South Africa's FinMark Trust went on to identify access indicators for gathering and evaluating data from existing surveys as well as defining core concepts for future collection efforts.² The data yielded by these indicators were compiled and published by Thorsten Beck, Asli Demirguc-Kunt and Maria Soledad Martinez Peria of the World Bank, providing the first ever cross-country look at depth of access.

The Research

First data results from this study show exciting results. The report, entitled "Reaching Out: Access to and Use of Banking Services across Countries"³, details the methods used and information gained from a World Bank survey that was conducted in 2003-2004. This initial study was an attempt to test the indicators and survey methodology for accuracy as well as to begin to gather information about access. As a focus, this survey measured household and institutional access to financial services across 99 countries based on information provided by bank regulatory authorities and compared it to firm and household survey data from the same countries. The countries chosen had economically or financially developed economies as well as emerging markets and transition economies.

The study found that the level of outreach by the financial sector correlated strongly with the level of financial, institutional and infrastructure development across countries, and concluded that greater levels of outreach are tied to higher levels in standard economic development indicators.

The Results

The survey results published by Beck, Demirguc-Kunt and Peria offer a first quantified glimpse into the financial sectors of developing countries and present information about the correlation between banking sector penetration and levels of firm and household use of and access to financial services. The study found that the level of outreach by the financial sector correlated strongly with the level of financial, institutional and infrastructure development across countries, and concluded that greater levels of outreach are tied to higher levels in standard economic development indicators. In particular, the report states:

"In terms of what explains outreach, we find that geographic access to banking services is positively correlated with population density and access to and use of banking services are higher in larger economies…In addition our regression analysis suggests that other country characteristics as well as policy variables are also correlated with outreach. Specifically we find that a better communication and transportation infrastructure is associated with greater outreach. Countries with better developed institutions enjoy greater levels of outreach". (p26)

The collection efforts and subsequent paper focused on measuring access to financial services by capturing data on banking branch and ATM penetration for a geographic area relative to population density, as well as measuring the number of deposit accounts and loans relative to the population and average loan size relative to GDP per capita. The resulting data showed that the indicators accurately predicted household and firm use of banking services. For example, data collected from surveys indicates that Bangladesh has 4.47 bank branches per 100,000 people, 54.73 loan accounts and 228.75 deposit accounts, while Spain has 95.87 bank branches per 100,000 people, 556.48 loan accounts and 2,075.96 deposit accounts. The data specify: "Both cross-country and firm-level regression indicate that firms in countries with higher branch and ATM penetration and more extensive use of loans report lower financing obstacles".

The report also details results around data analysis efforts of cross-country variations in levels of outreach attempting to learn if the size of an economy has any affect on the level of financial services penetration and outreach. The analysis yielded interesting results. Correlation and regression results indicated that larger economies have greater levels of outreach. For example, the team was able to accurately predict the percentage of households who have bank accounts using this data and actual household deposit account data previously collected. It found that in Pakistan, .122 of households had deposit accounts while their regression predicted .101. The report goes on to suggest that this indicates that scale economies may be helpful in effectively providing banking services.

The paper outlines the findings as showing, "that higher branch and ATM penetration and wider use of loan services are associated with lower financing obstacles, even after we control for a standard measure of financial sector depth".

The final part of the report examines correlations between variations in outreach levels and cross-country differences in the perception firms have about the level financing constraints they face. The paper outlines the findings as showing, "that higher branch and ATM penetration and wider use of loan services are associated with lower financing obstacles, even after we control for a standard measure of financial sector depth". For example, increasing the number of ATM branches from the 25th to the 75th percentile decreases the probability that such firms will rate financing as a major constraint to growth by 3/8 percentage point for ATM's per population and ½ a percentage point for ATM's per area.

The report concludes by expressing the authors' desires that it be a first step in "developing consistent and comparable cross-country indicators of banking system outreach", and that the findings of the research team be the start of regular assessment of the indicators so that the debate about access to financial services can be informed about its effects and determinants.

Next Steps

The research initiated by the International Year of Microcredit's Data Project continues as more surveys are submitted and analyzed to capture more data around access to financial services and actual use of those services. Speaking at the United Nations International Forum to Build Inclusive Financial Sectors on November 7,⁴ Demirguc-Kunt said: "we will continue to collect more data, do further analysis and we will try to mainstream data collection efforts, harmonize survey data, identify and construct basic indicators and track them over time, and most importantly conduct and disseminate research on access particularly the impact of access to better guide policy discussions. We hope at the end of this we will have a better understanding of access and it impact on growth and poverty alleviation."

The International Year of Microcredit project considers the data research set in motion in 2005 to be one of its greatest accomplishments. As the World Bank and others continue to collect more and better data going forward, this achievement will allow decision-makers to truly address the lack of access to financial services currently faced by poor people worldwide.

Link: Table 1 - Branch and ATM Penetration Across Countries. (Source: "Reaching out: Access to and use of banking services across countries." Thorsten Beck, Asli Demirguc-Kunt and Maria Soledad Martinez Peria, September 2005.)

¹ For more information, please visit: UNCDF, What Type of Access Do Poor and Low-Income People Have to Financial Services?

² For more information, please visit: UNCDF, World Bank, DFID and FinMark Trust Team Up to Measure Access to Finance.

³ To view the full report, please visit: World Bank, Reaching out: Access to and use of banking services across countries.

⁴ For more information, please see: UNCDF, International Year of Microcredit Unites Financial Sector Leaders, Senior Government Officials, Corporate CEOs, and Microfinance Clients.






Contributed by Sidney Povall of the Robert F. Wagner School of Public Service, New York University. Reprinted with permission from United Nations Capital Development Fund(UNCDF).

To read another Global Envision article about microfinance, see Microfinance: Investing in Potential.








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