Framework for Financial Development
What is Financial Market Development?
The process of designing new contracts (widening) and increasing the use of existing contracts (deepening).//
Two characterizing features of Financial Inclusion are?
-Access to and use of financial services
-The proportion of individuals and firms that use financial services
What is Fintech? Describe at least two of its potential benefits.
-Technology-enabled innovation in financial services that could result in new business models, applications, processes or products, with an associated material effect on the provision of services.
Benefits include:
-Low-cost, lower-quality products that appeal to those whose choice is between this product and non-consumption.
-Fintech innovations have a lot to offer for inclusion, especially payment systems and credit extension
What is the difference between financial literacy and capability?
To have “financial capability” two requirements need to be met: (1) content knowledge- this is the literacy part- and (2) the intent and ability to change financial behavior.//
Explain what Microfinance is and give an example of a microfinance service.
“Micro” means little, so microfinance is the offering of financial services to relatively poor clients who only have needs for small “quantities” of financial services. “Microfinancial services” include: 1. Microcredit 2. Microsavings 3. Microinsurance
What are the functions performed by financial markets?
-Transferring resources across time and space
-Pooling resources and sharing ownership
-Dealing with asymmetric information
-Price discovery
-Clearing and settling payments
-Managing risk
Three common measures of Financial Inclusion are?
-Formally banked adults and enterprises
-Adults with credit at regulated institutions
-Enterprises with outstanding loan or line of credit with regulated institutions
Name at least three types of participant in the Fintech Ecosystem.
-Fintech Providers
-Established Financial Institutions
-Regulators
Name at least four policies or “interventions” that can enhance financial capability
-Develop a strategy for financial literacy
-Provide training
-“teachable moments”
-“Rule of thumb” training
What are two of the macroeconomic effects of microfinance?
-When microfinance is widely available, it increases wages.
-Microfinance provides a better redistribution, anti-poverty program because it reaches many more people not just marginal entrepreneurs.
-Microfinance lowers savings rates/capital accumulation.
-Microfinance could lower the relative price of output produced using small-scale entrepreneurs. This would hurt both the redistribution and aggregate development gains from microfinance.
Examples of financial repression include:
a. Establishing a ceiling on deposit or lending rates
b. Restricting residents from investing abroad or holding foreign currency
c. requiring institutional investors to hold or purchase government securities at below-market yields.
d. Making banks hold large, non interest-bearing balances at the central bank.
e. a and d
f. All of the above
f. All of the above
Three of the potential effects of financial inclusion to growth, macro stability and equality are?
-There is a positive contribution to growth, but it decreases with high levels of access and depth
-There is a positive link between financial inclusion and stability, but higher levels of credit can hurt financial and output stability. High vs low quality of supervision can make a qualitative difference.
-There is a positive link between financial inclusion and equality but only by some measures
According to the IFC, what are the four factors that determine the mixture of financial services and the interactions between banks and Fintech firms in a country?
-Penetration level of formal financial services
-Income and financial literacy levels
-Development level of technology and venture capital ecosystems; and
-Financial infrastructure
Financial literacy and capability can be promoted through alternative delivery channels. Name at least six of these channels.
-Soap operas
-Movies
-Reality Shows
-Video Games
-Online Multimedia
-Comic Books
Describe what ”factoring” is and why it is useful for SMEs (5 items required)?
-Purchase of accounts receivable by a lender (factor).
-Similar to asset-based lending- relies on the value of an underlying asset, not the firm value and risk profile.
-It only involves financing of accounts receivable (asset), not inventories.
-Asset is sold to lender. Bundles financing, credit, and collection services.
-Uses “hard” information on value of borrower’s accounts receivable. Focuses on credit quality of obligor not borrower.