reducing vulnerability and promoting self- employment...

REDUCING VULNERABILITY AND PROMOTING SELF-EMPLOYMENT OF ROMA IN EASTERN EUROPE THROUGH

FINANCIAL INCLUSION

Joost de Laat Human Development Economics Senior Economist World Bank Barbara Kits Consultant Sandor Karacsony Consultant

Brussels, September 4, 2012.

Roma: Poor and Vulnerable

2

Going to bed hungry at least once last month

40%

22%

33% 26%

45%

81%

71% 71% 74%

87%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Bulgaria Czech Republic

Hungary Romania Slovakia

Non-Roma neighbors Roma

6% 6% 10% 11%

7%

42%

30% 36%

61%

34%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%



Non-Roma neighbors Roma

At risk of poverty

Poor households need access to broad range of financial services

Bank accounts, targeted savings, financial literacy, microcredit

2010 Seoul G20 recognized financial inclusion as main pillar

>60 countries globally have initiated financial inclusion reforms

European Commission increasingly promoting financial inclusion

2007 Financial Education Guidelines

2011 Access to Basic Payments (SBA)

JASMINE, JEREMIE, PROGRESS, and CIP promoting micro-credit

3

GLOBAL DEVELOPMENT AGENDA AND FINANCIAL INCLUSION

Roma integration policies in most countries focus on:

Employment, education, health, housing, anti-discrimination

EC Communication on an EU Framework for National Roma Integration

Strategies (EC, 2011) promotes microcredit

EC Roma Pilot – Kiut Microcredit Project Hungary

Little policy attention to Roma financial inclusion broadly:

Access to bank accounts, promoting savings, financial literacy

4

ROMA INTEGRATION AND FINANCIAL INCLUSION

Report Objectives:

Do Roma face financial exclusion broadly? E.g. lack access to

financial services such as bank accounts and savings accounts?

Do Roma have access to microcredit and can microcredit

boost (self-) employment among Roma?

Policy recommendation for financial inclusion

5

REDUCING ROMA VULNERABILITY AND PROMOTING SELF-EMPLOYMENT THROUGH FINANCIAL INCLUSION

FINDINGS BASED ON ROMA REGIONAL HOUSEHOLD SURVEY (2011)

6

Survey Partnership: DG Regional Policy

United Nations Development Program

World Bank

Sample: approx. 750 Roma and 350 non-Roma households in each country from random sample of communities where Roma are overrepresented

Close coordination with separate survey by: Fundament Rights Agency

DO ROMA FACE FINANCIAL EXCLUSION?

FEW ROMA HOUSEHOLDS ARE ABLE TO COPE WITH UNEXPECTED EXPENSES…

Ability to pay for unexpected expenses without relying on loans or other external forms of financial support

35

60

33

58 59

8 15

6 6 10

0

20

40

60

80

100

Bulgaria Czech Republic Hungary Romania Slovakia

General Population Roma

Source: UNDP / WB Roma Regional Survey (2011) and EU SILC (Eurostat, 2008)

8

MODEL 1

(N=3,466)

MODEL 2

(N=3,466)

MODEL 3

(N=3,464)

Savings Account .27***

(.05)

.28***

(.06)

.26***

(.06)

Current Account .04

(.03)

.05**

(.02)

.02

(.02)

Debit Card .05**

(.02)

.04**

(.02)

.03

(.02)

Credit Card .07**

(.03)

.08**

(.04)

.07*

(.04)

Regional Fixed Effects Yes No No

Enumeration Area Fixed Effects No Yes Yes

Household Controls C, D No No Yes

Adjusted-R2 .06 .19 .22

F-statistic 18.94*** 13.06*** 7.273***

THOSE WITH SAVINGS ACCOUNT, MUCH MORE LIKELY TO FACE UNEXPECTED EXPENSES…

9

Ability of Roma households to face unexpected expenses compared to Roma from the same community with similar socio-economic status

Most important finding: Roma households with a savings account are almost 26 percentage points more likely to be able to cover unexpected expenses than Roma households without savings accounts.

Source: Roma Regional Survey (2011) and EU SILC (Eurostat, 2008). Authors’ own calculations. Cluster-robust standard errors in parentheses.

FEWER ROMA HOUSEHOLDS LIVE CLOSE TO BANK

% of households living less than 3KM from a bank


10

91

79

92

85

64

47

69

60

44

35

0

20

40

60

80

100


General population Roma households

CURRENT ACCOUNT (BASIC BANK ACCOUNT) ACCESS IS LOW AND VARIES

16

79 73

23

77

4

35

47

6

29

0

20

40

60

80

100


General Population Roma


11

And (not shown), no more than 5% has savings account in each country

And, even compared to non-Roma neighbors of similar socio-economic

status, Roma households are

17 percentage points less likely to have a current account

10 percentage points less likely to have a savings accounts

9 percentage points less likely to have a credit card

17 percentage points less likely to have saving

21 percentage points more likely to have arrears

Households speaking Romani at home are even less likely to use banking

services in general

12

LOWER USE OF FORMAL FINANCIAL SERVICES AND GREATER FINANCIAL VULNERABILITY

Report Objectives:


financial services such as bank accounts and savings accounts?

- YES

Do Roma have access to microcredit and can more

microcredit boost (self-) employment among Roma?

Policy recommendation for financial inclusion

13


ROMA SELF-EMPLOYMENT (MALE/FEMALE) RATES ARE RELATIVELY LOW, EXCEPT IN ROMANIA…

32 39 32 23 17

10 4

2 19

3

0

10

20

30

40

50

60

70

80

90

100



Employed by employer Self-employed

22 18 12 12 9

4 1

1 7 0

0

10

20

30

40

50

60

70

80

90

100



Employed by employer Self-employed

Roma working age men Roma working age women

24- 40% of working age men and 14-35% of working age women

15

BUT INTEREST IN SELF-EMPLOYMENT IS HIGH

20

8 12

28

11

20

18 12

12

14

10

4 2

19

3

0

10

20

30

40

50

60

70


Hungary Romania Slovakia Pe

rce

nta

ge o

f w

ork

ing

age

me

n in

tere

ste

d in

se

lf-e

mp

loym

en

t

Yes Maybe Already self-employed

16

3 9

21

7

19

11

10

13

12

4

1

1

7

0

0

10

20

30

40

50

60

70



Pe

rce

nta

ge o

f w

ork

ing

age

wo

me

n in

tere

ste

d in

se

lf-e

mp

loym

en

t

Yes Maybe Already self-employed

Roma working age men Roma working age women

0

10

20

30

40

50

60

70

80

90

100


% Starting Roma Entrepreneurs Reporting Lack of Finance as a Key Problem

MANY EXISTING ENTREPRENEURS REPORT LACK OF FINANCE A KEY OBSTACLE TO STARTING A BUSINESS

At most one third of formal businesses have loans

Savings is a primary source of funding for 60-82%

At most 21% of businesses report ‘loans’ as a primary source of funding

Lack of access to finance most commonly reported barrier to start-up business

17

What Are the Barriers?

LOANS ARE OFTEN NOT PRIMARY SOURCE OF BUSINESS FUNDING – AMONG ROMA AND NON-ROMA NEIGHBORS

But very few Roma use loans for income generating purposes

18

18

10

39

15

1

15

2 1

25

6

17

27

8 9

2 6

13

4

36

10

3

10

19

7

19

2

38

16

2

12 7

2

26

2

34

15

2 5

11 6

0 5

10 15 20 25 30 35 40 45

Pe

rce

nt


THOSE WITH LOANS MOSTLY CONSUMER LOANS: FEW HAVE INCOME GENERATING PURPOSE

Existing businesses: “intensive credit margin” Current

Business Owners

Start-ups: “extensive credit margin” Aged 20-54, and:

(1) current business owners working informally, as unskilled

worker, in periodic jobs without a contract, or

(2) those interested in becoming self-employed, currently

an employee or unemployed

19

FURTHER DISTINGUISH TWO GROUPS OF POTENTIAL BORROWERS FOR ANALYSIS

At most ¼ completed secondary school (higher in CZ) & at most ¼ completed apprenticeships

May indicate limited financial- / business skills

Limited work experience

Lack of proof of creditworthiness

20

16

59

20 16 16

44

23

15

28

87

98 94

80

98

50

69 62 62

86

0

20

40

60

80

100


Pe

rce

nt

Secondary School Completion

Intensive Extensive With Credit Refused Credit

EDUCATION LEVELS AMONG (ASPIRING) ENTREPRENEURS MUCH LOWER THAN GENERAL POPULATIONS BEING REFUSED BANK

CREDIT

21

ARREARS ON UTILITY BILLS ARE COMMON AMONG ASPIRING AND EXISTING ROMA ENTREPRENEURS

35

14

37

28

46

36

54

34

18

3 0

11

0 1 1

16

1 1

0

10

20

30

40

50

60


Pe

rce

nt

Utility Bills Intensive Utility Bills Extensive Mortgage Intensive Mortgage Extensive

25-67% of the employed among aspiring Roma entrepreneurs do not have a formal contract

No proof of income due to informality

51-73% of this group have a temporary job

No proof of stable income stream

22

ASPIRING ENTREPRENEURS LACK STABLE INCOME

Microcredit largely provided to existing businesses, by commercial banks, beyond reach of many Roma entrepreneurs

Greater depth of outreach in Bulgaria, Hungary, Romania

Microcredit programs successfully reaching Roma are often small in size

SUPPLY SIDE BARRIERS TO ACCESSING MICROCREDIT

Requires a comprehensive approach. Face considerable

challenges accessing credit:

lack work experience

lack collateral such as savings

are indebted, and

have lower education than the average person from general

population who has been refused credit

Findings consistent with field experiences by microcredit

providers E.g.: Kiútprogram, Autonómia, Mikrofond

24

CAN MICROCREDIT SUBSTANTIALLY RAISE ROMA SELF-EMPLOYMENT?

Report Objectives:


financial services such as bank accounts and savings accounts? -

YES

Do Roma have access to microcredit and can microcredit

substantially boost (self-) employment among Roma? -

Requires comprehensive, incremental approach

Policy recommendation for financial inclusion: follow

incremental approach, with focus on savings facilitation

25


Follow incremental approach to financial inclusion

Focus on savings facilitation, especially targeted savings

Focus on access to standard bank accounts

Address financial literacy and business skills

Facilitate smaller group of (aspiring) Roma entrepreneurs with

asset transfers and accessing MFI microloans

Monitor financial access using available survey questionnaires

and rigorously evaluate financial inclusion programs

26

COMPREHENSIVE APPROACH TO FINANCIAL INCLUSION

GLOBAL EXPERIENCES: INNOVATIVE INSTITUTIONAL APPROACHES TO REACHING POOR WITH BASIC FINANCIAL SERVICES

27

Bank on San Francisco, USA

Correspondent banking in Brazil

M-PESA, Kenya, mobile phone money account for easy transfer of funds using SMS

Channel government social safety net transfers through bank accounts instead of cash

PROMOTING FINANCIAL INCLUSION: PROGRAM EXAMPLES

Promoting targeted savings ETP Slovakia’s "Individual Development Account“ for housing Kindergarten-to-college (K2C) initiative in USA

Global “Graduation” pilot program Several poor and middle income countries From addressing basic needs, to savings, to skills transfer, to asset

transfer

Promoting financial literacy ETP Slovakia and Autonomia work

Promoting access to microloans Kiut and others

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THANK YOU FOR YOUR ATTENTION

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FOR INQUIRIES PLEASE CONTACT: JOOST DE LAAT ([email protected])

mailto:[email protected]

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