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Financial Inclusion of the Poor in Peru

Financial Inclusion of the Poor in Peru. Dr. Ana Marr, University of Greenwich, London, UK Dr. Janina Leon, Universidad Catolica de Peru Mg. Fatima Ponce, Universidad Catolica del Peru LACEA 2012, Lima - PERU. Content. 1. Background 2. The importance of the study

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Financial Inclusion of the Poor in Peru

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  1. Financial Inclusion of the Poor in Peru Dr. Ana Marr, University of Greenwich, London, UK Dr. Janina Leon, Universidad Catolica de Peru Mg. Fatima Ponce, Universidad Catolica del Peru LACEA 2012, Lima - PERU

  2. Content • 1. Background • 2. The importance of the study • 3. The Peruvian microfinance experience • 4. Poverty in Peru • 5. Hypothesis and Empirical model • 6. Analysis of results • 7. Main lessons Marr/Leon/Ponce

  3. Background • Review of international academic literature on microfinance. • Particular interest in the debate about potential trade-off between MF financial sustainability and poverty reduction. • Cull et al (2007): 124 MFs in 49 countries. Evidence of trade-off based on loan methodology (group vs individual), MFI size and age. Larger and older individual-based MFIs performed worse on outreach to clients. • Mersland and Strom (2008): 32 NGOs, 68 private MFIs, in 54 countries. They find little evidence of importance of ownership but regulation matters. • Karlan and Morduch (2010): Financial inclusion. From simplest form (micro-credit) to broader inclusion (savings, insurance, remittances, etc). Links with poverty. Marr/Leon/Ponce

  4. 2. The importance of the study • One of the first studies on financial inclusion – taken as a specific subject of research. • Applied to one of the most dynamic microfinance markets in the world, i.e. Peru. • Obtained exclusive information about financial inclusion of all regulated MFIs in Peru. • We employ the simplest concept of financial inclusion, i.e. access to micro-credit. • The determinants include: MFIs’ characteristics (i.e. size, age, branches); performance; strategic alliances Marr/Leon/Ponce

  5. 3. The Peruvian Microfinance Experience • Historical facts • Financial requirements • Importance of public policy • Current Financial System and Microfinance (Table 2, p.11) • Role of Prudential regulation • Main formal and non-formal channels • Microfinance in Regulated Institutions • Commercial banks • “Non-bank” microfinance institutions Marr/Leon/Ponce

  6. 4. Poverty in Peru • Main features (Graph 1, p. 12) • Poverty and extreme poverty in the country • Inequality of income –main trends • Financial Inclusion and Microfinance – main indicators (Graph 2, p.13) • Credits by Poverty Level • Loans by Poverty Level • Newly banked population (Graph 4, p.14; Graph 5, p.15) Marr/Leon/Ponce

  7. 5. Hypothesis and Empirical model • Research questions: How far has the Peruvian population gained financial access to microfinance? • Main hypothesis: Financ.incl. = f(MFI charact; MFI profitab.; MFI social perf.; (+) (-) (+)   MFI strateg connect, econ sectors, ). (+) (¿?) • Methodological issues: • Main variables • Data bases • Empirical model Marr/Leon/Ponce

  8. 6. Main Correlations of Newly Banked Clients Positive correlation between newly-bankable clients (TOTPERS) and MFI profitability (ROE, rTOTPERS, ROE= 0.73), number of MFI branches (NSUC, rTOTPERS,NSUC= 0.92) and the MFI total asset value (ASSETS, rTOTPERS,ASSETS= 0.95). Marr/Leon/Ponce

  9. 6. Multivariate Analysis of Results ^ TOTPERS = 1202.7 +7.07ASSETS + 64.2NSUC – 1364.4ANTIGUO + 1074 RBN9 t-stat 1.43 6.5 2.3 -2.9 2.1 R2= 0.91 F=71.3 All the slope coefficients with a significant level to 5%. • Positive relationship between the newly-banked clients and the value of total assets of MFI: For each million of New Soles increasing the MFI assets, around seven new clients will be banked, ceteris paribus. • Positive relationship between the newly-banked clients and the number of MFI branches: For each new MFI branch open, around 64 new clients will be banked, ceteris paribus.  Number of newly-banked clients closely associated to the MFI growth in Assets and # Branches; still estimated values are small. Marr/Leon/Ponce

  10. 7. Main lessons • Conclusions • Financial inclusion in the last decade • Microfinance and poverty • Policy inferences • Further research Marr/Leon/Ponce

  11. TABLE 2: FINANCIAL INSTITUTION BY TYPE OF CREDITS Marr/Leon/Ponce

  12. GRAPH 1: PERUVIAN REGIONS BY INCIDENCE OF POVERTY, 2010 Marr/Leon/Ponce

  13. GRAPH 2: LOANS BY TYPE OF FINANCIAL INSTITUTION AND REGION Marr/Leon/Ponce

  14. GRAPH 4: POVERTY INCIDENCE & NEWLY-BANKED BY REGIONS Marr/Leon/Ponce

  15. GRAPH 5: POVERTY INCIDENCE AND NEWLY BANKED – Scatterplot Marr/Leon/Ponce

  16. GRACIAS!! • THANK YOU!! Marr/Leon/Ponce

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