World Bank says expanded access to banking services comes with risks

Mon Nov 11, 2013 8:56pm EST
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By Anna Yukhananov

WASHINGTON (Reuters) - 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 (WMT.N: Quote) or 7-Eleven, or at their local pharmacy.

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 entrepreneurship.   Continued...