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IFC-World Bank report shows vast financial services expansion potential in emerging markets

September 14, 2009: A new report from IFC and the World Bank shows by focusing on building and reforming credit reporting, collateral registries, and payment and securities systems, more than half the population in emerging markets could have access to financial services within 10 years and enjoy financial transaction cost reductions of nearly 80 percent.

The report, Financial Infrastructure: Building Access through Transparent and Stable Financial Systems, maps financial intermediation systems and the size of the financial systems market. It provides an expanded data index for measuring financial infrastructure and identifies reforms.

Financial institutions process payments, check potential borrowers’ past experiences with credit, and evaluate the suitability of proposed loan collateral. Consumers pay bills, buy houses, remit earnings, and save for retirement. All of these formal financial transactions rely on a foundation of institutions, information, technologies, and rules and standards—the infrastructure of financial intermediation.

These systems are analyzed in the report, drawing on efforts of the World Bank Group in payment and securities settlement systems, remittances, credit reporting, and secured transactions and collateral registries. The report makes recommendations for reform to make the system more efficient and reliable, thereby reducing costs and increasing access to financial services.

These underlying systems of financial infrastructure touch at least every fifth person in emerging markets. Today, credit bureaus cover 390 million people, remittances over 700 million, and payment systems one billion people. In financial terms, bureaus support nearly $800 billion worth of credit and the value of remittances reached $328 billion in 2008.

“Properly functioning financial infrastructure is critical for efficient and increased access to financial services,” said Peer Stein, IFC Manager for Access to Finance Advisory Services. “And this report shows not only where we could be in terms of access to finance, but it provides a roadmap for achieving these gains at a global, country, and institutional level.”

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