Women's Economic Opportunity Index - Economist Intelligence Unit

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Appendix IWomen’s economic opportunityA new global index and rankingFor an entrepreneur, access to credit can be key to starting or growing a business. A study in 2007found that banks are more likely to extend loans in countries that have strong collateral laws and wherecredit registries exist. 55 This study looked at credit institutions across 129 countries over 25 years. Overall,both strengthened legal creditor rights and more effective sharing of credit information are associatedwith higher ratios of private credit to GDP. 56Most credit registries record historical credit information on individuals’ or companies’ bank loans, anda growing number also record credit from utilities and retailers. This may be especially important for newwomen business owners who may not have a credit history of existing business or property loans. Furtherresearch suggests that establishing strong legal rights and new credit registries may also reduce incomeinequality. 57 As women in most countries have lower incomes than men, this suggests again that womenmay benefit disproportionately from better credit information.A forthcoming paper on credit and women-owned businesses tests the hypothesis of whether creditreporting improves access to finance for women-owned businesses. 58 The two appear to be directlyrelated. In addition, the paper finds that women tend to have superior payment performance to men,especially when they are credit rationed and underrepresented in the loan market. Therefore, reportingthis type of information would give them a positive edge in applying for credit and would help women togain increased access to finance.55. S Djankov, C McLiesh and AShleifer, “Private Credit in 129Countries”, Journal of FinancialEconomics, Vol. 84, No. 2, 2007,pages 299-329.56. ibid.57. S Claessens, and E Perotti,“Finance and Inequality:Channels and Evidence”, Journalof Comparative Economics, Vol.35, No. 4, 2007, pages 748-773.58. M Miller, Credit reportingand women-owned businesses(working title), papercommissioned by the World BankGroup’s Gender Action Plan,forthcoming.59. Consultative Group to Assistthe Poor, “Financial Access 2009:Measuring Financial InclusionAround the World”, World Bank:Washington DC, 2009.60. Banking the Poor: MeasuringBanking Access in 54 Economies,World Bank: Washington DC,2008.Further ReadingS Coleman, “Constraints faced by women small business owners: evidence from the data”, Journal ofDevelopmental entrepreneurship, Vol. 7, No. 2 (August), 2002, pages 151-174.D Karlan and J Zinman, “Expanding Credit Access: Improving Microfinance Operations and MeasuringImpact with Credit Scoring”, 2007, Basis Briefs, November 2009, Department of Agricultural and AppliedEconomics, University of Wisconsin: Madison.Financial Services ProvisionThis indicator is based on two data points collected by the Consultative Group to Assist the Poor (CGAP), apolicy and research centre dedicated to advancing financial access for the world’s poor. 59 They are:i) Provision of basic, low-fee accounts for low-income clients;ii) Provision by private operators of financial services at post offices.For many people, access to savings institutions and instruments are not readily available. The elementsof this indicator cover some of the factors that may influence access to savings, in particular those that arerelevant to women.i) Provision of basic, low-fee accounts for low-income clientsOpening a bank account often involves initial charges and recurring maintenance costs. In Rwanda, thetypical monthly maintenance fee for a bank account is equivalent to 3% of the average monthly wage;at some banks the minimum balance can be a multiple of local per-head income. 60 Of the banks in 54countries sampled for a 2008 World Bank report, half charged monthly fees, and 20% reported charging113 Economist Intelligence Unit 2010
Appendix IWomen’s economic opportunityA new global index and ranking61. ibid.62. Consultative Group to Assistthe Poor (2009), op. cit.63. P Dupas and J Robinson,“Savings Constraints andMicroenterprise Development:Evidence from a Field Experimentin Kenya”, MIT Poverty ActionLab: Cambridge MA, 2009.64. M Bruhn and I Love, “TheEconomic Impact of Bankingthe Unbanked: Evidence fromMexico”, World Bank PolicyResearch Working Paper No.4981, World Bank: WashingtonDC, 2009.65. “The Role of Postal Networksin Expanding Access toFinancial Services”, DiscussionPaper, World Bank GlobalInformation and CommunicationTechnologies Department:Washington DC, 2006.for services such as cheque books or automatic teller machine (ATM) use. Average charges across theboard were much higher in Africa than in East Asia (US$4 versus 50 US cents). 61 The report found that suchcosts were a factor in the number of bank accounts opened in a country.Only 20 of 139 countries surveyed in 2009 by CGAP had banking regulations in place that madeprovision of basic, low-fee accounts to low-income clients compulsory. Among developing countries,these include India, Pakistan, Malaysia, Argentina, Chile, Colombia and Mexico. So far, survey data do notshow a significant difference in the number of accounts per person in countries with and without basicbanking. 62 However, country-level studies show some positive economic results in providing basic savingsprogrammes to women.For example, a recent randomised evaluation in Kenya tested the impact of formal savings accountson how small-scale entrepreneurs save and use their money. 63 Anecdotally, many individuals in poorcountries say that they find it hard to save, given the many demands on their income. The researchersfor this project tested whether savings constraints prevent microentrepreneurs from expanding the sizeof their businesses. The researchers opened interest-free savings accounts in a local village bank for arandomly selected sample of 185 poor daily income earners (such as market vendors, bicycle taxi driversand self-employed artisans) and collected a unique dataset from self-reported logbooks that respondentsfilled out daily.What they found, if applicable to other countries, is relevant to policies to improve women’s economicopportunity. Despite the fact that the savings accounts paid no interest and featured substantialwithdrawal fees, take-up and usage was high among women. After about six months, access to a savingsaccount led to a 39% increase in productive investment and a 13% increase in food expenditure amongwomen microentrepreneurs in Kenya, suggesting that higher investment levels led to higher incomelevels. They also found evidence suggesting that women in the control group draw down their workingcapital in response to health shocks, and that the accounts enabled the treatment group to cope withthese shocks without having to liquidate their inventories.In Mexico, a unique event—the opening of multiple branches of a new bank targeting lower-incomeindividuals—allowed researchers to evaluate the effect of increased access to financial services onentrepreneurial activity, employment and income for low-income people. 64 Banco Azteca openedbranches in all of the existing stores of its parent company, Grupo Elektra, a large consumer goodsretailer. Almost overnight, Banco Azteca established more than 800 branches. Results showed thatinformal business ownership increased significantly for men in municipalities where the new bankopened, and that there was also an increase in women being employed as wage-earners (more so thanmen). Total employment, including informal business owners and wage earners, rose by 1.4% for theoverall sample, and income levels for both women and men rose by about 7%.ii) Provision by private operators of financial services at post officesThe world’s vast postal network can be leveraged to provide access to financial services to underservedmarkets. The World Bank reports that there are 500,000 post offices in the developing world—twice thenumber of bank branches in the same countries—and that they have a greater reach into rural and poorareas than banks. 65 In Brazil, for example, this reach has allowed Banco Postal to open more than 5m new114 Economist Intelligence Unit 2010
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