Efficient Infrastructure for access to financial services
Saturday, March 22 2014
VOL 21 NO 129 REGD NO DA 1589 | Dhaka, Saturday, March 22 2014
http://www.thefinancialexpress-bd.com/2014/03/22/24798
Posted : 22 Mar, 2014 00:00:00
AA-A+
Efficient infrastructure for access to financial services
M S Siddiqui
Access to credit is crucial for economic growth and development. A survey has revealed that about two thirds of the adult population in developing countries or 2.7 billion people lack access to basic formal financial services, such as savings or checking accounts. Most of the unbanked live in Sub-Saharan Africa (12 per cent having access to banking) and South Asia (24 per cent having access to banking). East Asia, Middle East, North Africa, Latin America, Eastern Europe and Central Asia are the regions where less than 50 per cent of their people have access to banking. A large number of the unbanked people live on less than $5 a day.
Another study finds that more than a half of business enterprises in emerging markets have no access to credit mostly due to the lack of security guarantee as expected by financial institutions (FI). The majority of the FIs use the Five Cs (capacity, character, capital, collateral and conditions) methodology or its adaptation as part of their credit evaluation process. Collateral is typically considered a precedent, not just an evaluation criterion. Out of these variables, collateral very frequently influences the eventual approval of a credit application. Banks heavily prefer land and real estate as collateral. The security is taken by an FI to ensure an alternative source of repayment in the event the debtor fails to meet his or her contractual obligations to discharge the debt. In many cases, business owners did not even bother to apply for loans, because they were certain that they could not meet the collateral requirements often asked for by banks. A common trend among the FIs is rejection of credit applications mostly due to insufficient collateral,
VOL 21 NO 129 REGD NO DA 1589 | Dhaka, Saturday, March 22 2014
http://www.thefinancialexpress-bd.com/2014/03/22/24798
Posted : 22 Mar, 2014 00:00:00
AA-A+
Efficient infrastructure for access to financial services
M S Siddiqui
Access to credit is crucial for economic growth and development. A survey has revealed that about two thirds of the adult population in developing countries or 2.7 billion people lack access to basic formal financial services, such as savings or checking accounts. Most of the unbanked live in Sub-Saharan Africa (12 per cent having access to banking) and South Asia (24 per cent having access to banking). East Asia, Middle East, North Africa, Latin America, Eastern Europe and Central Asia are the regions where less than 50 per cent of their people have access to banking. A large number of the unbanked people live on less than $5 a day.
Another study finds that more than a half of business enterprises in emerging markets have no access to credit mostly due to the lack of security guarantee as expected by financial institutions (FI). The majority of the FIs use the Five Cs (capacity, character, capital, collateral and conditions) methodology or its adaptation as part of their credit evaluation process. Collateral is typically considered a precedent, not just an evaluation criterion. Out of these variables, collateral very frequently influences the eventual approval of a credit application. Banks heavily prefer land and real estate as collateral. The security is taken by an FI to ensure an alternative source of repayment in the event the debtor fails to meet his or her contractual obligations to discharge the debt. In many cases, business owners did not even bother to apply for loans, because they were certain that they could not meet the collateral requirements often asked for by banks. A common trend among the FIs is rejection of credit applications mostly due to insufficient collateral,