82393 M E R U T BE N NO 06 APRIL 2013 FINDEX The Global Findex Database NOTES Financial Inclusion in Europe and Central Asia In Europe and Central Asia 45 percent of adults have an account with a formal financial institution though just 7 percent report having saved formally in the Asli Demirguc-Kunt past year, according to new data from the Global Financial Inclusion (Global Findex) database. And how adults use financial services differs significantly Leora Klapper by gender, education, employment status, and other individual characteristics. Douglas Randall The database can be used to track the effects of financial inclusion policies in Europe and Central Asia and develop a deeper and more nuanced understanding of how adults in the region save, borrow, make payments, and manage risk. WWW.WORLDBANK.ORG/GLOBALFINDEX The countries of Europe and Central Asia1 have made undeniable, if uneven, progress in expanding financial inclusion in recent years. The well-developed microfinance industry and relatively widespread use of wage accounts in some countries are signs of success, though low savings rates and high levels of mistrust in the formal financial sector signal that much work remains to be done. The exclusion from the formal financial system of more than 175 million adults—disproportionately located in Central Asia—presents a particularly difficult challenge for policy makers in the region. Efforts to improve the scope and quality of financial access have been hindered by the lack of systematic indicators on the use of different financial services—both formal and informal—in most of the region’s economies. The Global Findex database provides such indicators, measuring how people in 148 economies around the world save, borrow, make payments, and manage risk. These new indicators are constructed with survey data from interviews with more than 150,000 nationally representative and randomly selected adults age 15 and above. The survey was carried out over the 2011 calendar year by Gallup, Inc. as part of its Gallup World Poll. This note features Global Findex data based on almost 25,000 interviews across 23 economies in Europe and Central Asia. How Common Is the Use of E G 1 R U Account penetration Formal Financial Services? FI Adults with an account at a formal financial institution (%) 100 Although mobile payment services and so- phisticated remittance systems are change- 80 ing how we define and measure financial 60 inclusion, traditional products and services 40 such as loans and deposit and savings ac- counts are still the most common entry 20 points into the formal financial system for 0 most adults.2 The use of these products REST OF EUROPE & CENTRAL COMMONWEALTH and services from formal financial institu- DEVELOPING CENTRAL EUROPE & OF INDEPENDENT WORLD ASIA (23) BALTIC1 (10) STATES (12) tions—banks, credit unions, cooperatives, Note: Figures in parentheses refer to the number of economies in post offices, or microfinance institutions— the region or subregion. Turkey is not included in the subregional averages. provides an important and easily compared Source: Demirguc-Kunt and Klapper 2012. benchmark for measuring financial inclusion. FINDEX NOTES 1 E G 2 R U Account penetration in Europe and Central Asia About 8 percent of adults in Europe and FI by individual characteristics Central Asia report having borrowed money Adults with an account at a formal financial institution (%) from a formal financial institution in the Gender past year, on par with the average in the rest FEMALE 40 MALE 50 of the developing world.3 This figure may reflect depressed borrowing following the Age group global financial crisis, which hit the region 15-24 32 25-64 51 especially hard. Larger shares of adults report 65+ 35 borrowing from other sources, such as fam- Within-economy income quintile ily and friends (28 percent) and store credit POOREST 32 (12 percent). In addition, credit cards are Q2 41 Q3 44 common in the region: 16 percent of adults Q4 52 RICHEST 58 in Europe and Central Asia report having a credit card, compared with 5 percent in Education level the rest of the developing world. In Serbia PRIMARY OR LESS 30 SECONDARY 46 23 percent of adults report having a credit TERTIARY OR MORE 71 card; in Turkey 45 percent do.4 Residence RURAL 39 Across the region, 45 percent of adults report URBAN 53 having an account at a formal financial insti- tution, with the share ranging from less than Note: Primary includes those with less than a primary education; tertiary includes those with more than a tertiary education. 5 percent in the Kyrgyz Republic, Tajikistan, Source: Demirguc-Kunt and Klapper 2012. and Turkmenistan to 90 percent in Latvia. The regional average is slightly higher than that for the rest of the developing world, where 41 percent of adults have a formal account (figure 1). Fifty-nine percent of adults with an account in Europe and Central Asia report making one to two deposits and withdrawals in a typical month, compared with 49 percent in other developing regions. This difference is probably related to the large share of account holders in the region using their account to receive wages. Account penetration in the region varies sharply across groups with different individual characteristics (figure 2). Men are 25 percent more likely than women to have a formal account, with the largest gender gaps found in Albania, Bosnia and Herzegovina, Kosovo, and Turkey. Adults with a tertiary education are more than twice as likely to have a formal account as those with a primary education or less. Consistent with the high rate of use of accounts to receive wages, account penetration is significantly higher among adults who report working full time for an employer (65 percent). How Are Accounts Used? Despite the higher account penetration in the region, adults in Europe and Central Asia are significantly less likely than their counterparts in other developing regions to report having saved money at a formal financial institution in the past 12 months. While 7 percent of adults in Europe and Central Asia report having saved formally, 18 percent in the rest of the developing world report having done so. Within the region, adults in the highest within-country income quintile are more than three times as likely on average as those in the lowest income quintile to save formally. The gap in formal savings activity with the rest of the developing world can be attributed to differences in general savings activity as well as in savings methods. The share of respon- dents reporting any savings activity is significantly smaller in Europe and Central Asia (20 2 FINDEX NOTES E 3 R U Formal and informal saving G percent) than in the rest of the developing FI Adults saving any money in the past year (%) world (32 percent). And while 58 percent of 100 savers in the rest of the developing world report having saved in the past year using 80 a formal account, only 34 percent of savers in Europe and Central Asia report having 60 done so ( figure 3). Adults who 40 saved The disproportionate impact that the global USING OTHER recession had in the region likely depressed 20 METHODS ONLY savings activity—future rounds of data may 0 AT A FINANCIAL confirm this. And one possible explanation INSTITUTION for the relatively low use of formal financial REST OF TURKEY ROMANIA EUROPE KAZAKHSTAN RUSSIAN UKRAINE UZBEKISTAN DEVELOPING & CENTRAL FEDERATION WORLD ASIA institutions to save could be that people open accounts primarily to receive payments Note: Country-level data shown for the 6 economies with the largest adult population. Source: Demirguc-Kunt and Klapper 2012. from employers or the government and find it difficult to also use these accounts to ac- crue personal savings. Indeed, 77 percent of account holders in Europe and Central E G 4 R U Savings behavior among account holders Asia report having used their account in the FI Adults with a formal account by savings behavior in the past year (%) past year to receive wages or government 100 payments, compared with only 41 percent in the rest of the developing world. Conversely, 80 just 14 percent of account holders in Europe DID NOT SAVE and Central Asia report having saved in the 60 past year at a formal financial institution (figure 4). New products that target existing 40 account holders could be used to encourage SAVED USING OTHER adults to save in formal financial institutions. 20 METHODS ONLY SAVED What Are the Barriers? 0 FORMALLY REST OF TURKEY EUROPE & ROMANIA KAZAKHSTAN RUSSIAN UKRAINE UZBEKISTAN DEVELOPING CENTRAL ASIA FEDERATION Why do more than 175 million adults in Eu- WORLD rope and Central Asia remain outside the Note: Country-level data shown for the 6 economies with the largest adult population. formal financial system? As in the rest of the Source: Demirguc-Kunt and Klapper 2012. developing world, the most frequently cited reason for not having a formal account is lack of enough money to use one: this is the response given by 65 percent of adults in the region without a formal account, with 25 percent citing it as the only reason (multiple responses were permitted). But Europe and Central Asia stands out for the relatively large share citing trust as an important barrier: about 31 percent of respondents in the region without a formal account report not having one because of lack of trust, compared with 11 percent in the rest of the developing world (figure 5). In Ukraine, which experienced a run on banks in 2008, 55 percent of adults without an account report lack of trust as an important barrier. In contrast with other barri- ers (cost, distance, documentation requirements), lack of trust is an entrenched issue with no mechanical solution, making the expansion of financial inclusion in the region particularly challenging for policy makers. The lack of trust in formal financial institutions points to the importance of developing and enforcing effective consumer protection legislation as well as educating consumers about responsible finance. FINDEX NOTES 3 E G 5 R U Most commonly reported barriers to use of formal accounts FI Non-account-holders reporting barrier as a reason for not having an account (%) 60 EUROPE AND CENTRAL ASIA REST OF DEVELOPING WORLD 40 20 0 LACK OF TOO FAR TOO FAMILY MEMBER LACK OF NOT ENOUGH NECESSARY AWAY EXPENSIVE ALREADY HAS TRUST MONEY DOCUMENTATION ACCOUNT Note: Respondents could choose more than one reason. In addition to those shown, religious reasons were cited by 4 percent of respondents in Europe and Central Asia. Source: Demirguc-Kunt and Klapper 2012. Conclusion As the first public database of indicators that consistently measure people’s use of financial products across economies and over time, the Global Findex database fills a big gap in the financial inclusion data landscape. The data set can be used to track the effects of financial inclusion policies globally and develop a deeper and more nuanced understanding of how people around the world save, borrow, make payments, and manage risk. By enabling policy makers to identify segments of the population excluded from the formal financial sector, the data can help them prioritize reforms accordingly and, as future rounds of the data set become available, track the success of those reforms. WWW.WORLDBANK.ORG/GLOBALFINDEX 1. Central Europe and Baltic economies are Albania, Bosnia and Herzegovina, Bulgaria, Kosovo, Latvia, Lithuania, the former Yugoslav Republic of Macedonia, Montenegro, Romania, and Serbia. Commonwealth of Independent States economies are Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, the Kyrgyz Republic, Moldova, the Russian Federation, Tajikistan, Turk- menistan, Ukraine, and Uzbekistan. The subregional averages exclude Turkey. 2. The complete database, including indicators on the use of remittances and mobile payments, is available online. 3. The regional and worldwide aggregates omit economies for which Gallup excludes more than 20 percent of the population in the sampling either because of security risks or because the population includes non-Arab expatriates. These excluded economies are Algeria, Bahrain, the Central African Republic, Madagascar, Qatar, Somalia, and the United Arab Emirates. The Islamic Republic of Iran is also excluded because the data were collected in that country using a methodology inconsistent with that used for other economies. 4. Information is collected on the ownership of credit cards but not their use. The reference citation for the Global Findex data is as follows: Demirguc-Kunt, A., and L. Klapper. 2012. “Measuring Financial Inclusion: The Global Findex Database.” Policy Research Working Paper 6025, World Bank, Washington, DC. 4 FINDEX NOTES