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Market Integration

Market Integration. Gerhard Coetzee, Ronald Chua, Luis Noel Alfaro 27 August 2005 African Microfinance Conference, Cape Town. Outline. Market integration defined Market Integration and Financial Exclusion Indications of market integration Some evidence Enabling Factors

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Market Integration

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  1. Market Integration Gerhard Coetzee, Ronald Chua, Luis Noel Alfaro 27 August 2005 African Microfinance Conference, Cape Town

  2. Outline • Market integration defined • Market Integration and Financial Exclusion • Indications of market integration • Some evidence • Enabling Factors • Market Development • Challenges of integration

  3. Introduction • Conventional supply-led approach • Market demand based approach • Commercial finance not interested • Slow growth in poverty focused sector • Still very separate, still very shallow • Integration – may lead to market development and larger outreach • Market development – leads to decrease in poverty • GDP per capita growth of 3.8% to reach MDGs • One std dev improvement in equality in LA and Afr

  4. Defined • Up-scaling and downscaling • Linkages, joint ventures • Breadth and depth • Why? • Political push – charters, accounts • Profit pull – increased competition due to globalization, liberalization • Perceptions of the poor changing – Prahalad • Technology – largely ICT

  5. MI and FE “The inability to access necessary financial services in appropriate form” (Kempson and Whyley, 1999). Causes may be (Financial Services Authority, 2000): • Access exclusion due to risk assessment • Conditional exclusion or eligibility • Price exclusion or affordability • Marketing exclusion • Self-exclusion • Market integration includes financial inclusion strategies

  6. Indicators of Market Integration • Supply Side • Diversity of players • Convergence • mainstream and margin players, • financial services and ICT • Products/Services • Wider Range • Better Quality (more responsive products) • Better Delivery • Better Prices • Greater reach • Numbers and Geographical Reach (breadth) • Depth

  7. Indicators of Market Integration • Demand • Sophisticated clients • More choices • From vulnerable poor to the poorest • Context • Rules, new and adjusted • Information Flows

  8. 120,000 104,000 100,000 100,000 80,000 No of points (1000s) 60,000 40,000 20,000 8,600 8,000 6,300 2,700 2,800 0 Banks Post Office ATMs DSD Lottery Retail Spaza Payment merchants* Outreach potential

  9. Evidence • South Africa • Three new bills • Msanzi • Std Bank / MTN • WIZZIT • Payment system work • Uganda • MDI • MTN Banking • Stanbic

  10. Evidence • Philippines • Repeal of Anti-Usury Law • Tiered banking system • Banking Liberalization • Legal Framework for non-bank institutions • National Anti-poverty Act • National Strategy for Microfinance • Revised Banking Act specifying microfinance • Mobile Commerce – Smart Money and G-cash

  11. Evidence • Latin America • Initial Evidence • Supervised Institutions higher returns and efficiencies • Possibly outreach • Similar Experience in terms of changes of rules and use of technology

  12. Enabling Factors for Market Integration* • Functioning MFI Sector • Conducive Policy Environment • Appropriate Legal Framework • Appropriate Regulation and Supervision • Access to money and capital markets • Presence of Support Institutions • Incentives for continuing innovation • Change of mindsets and heartsets * First six factors taken from: Commercialization of Microfinance: Perspectives from South and Southeast Asia Charitonenko et al, Asian Devt. Bank

  13. Market development • Always possible? • No, depending • Different strategies

  14. Challenges • Mission drift • Knowledge of market • Appropriate products • Business model • Scaling Up • Cost of integration • Organisational culture

  15. Need to Change Heartsets and Mindsets • The poor – from BENEFICIARY to CLIENTS • Poverty and vulnerability – from RISK to OPPORTUNITY • From SUBSIDY to SUSTAINABILITY • From MICROENTERPRISE CREDIT to FINANCIAL SERVICES • From MARGIN to MAINSTREAM • Reaching the poor and sustainability – from TRADE-OFF to WIN-WIN

  16. From VISION to REALITY SUPPLY Financial system responsive to breadth and depth of financial service requirements of low income groups and microenterprises DEMAND Low income HH/ individuals and microenterprises integrate with economic mainstream – financial services and markets

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