This paper serves as an introduction to the collection of selected papers from the Conference on 'Finance Against Poverty', held at Reading, England, March 1995, sponsored by the University of Reading, the University of Manchester, the UK Overseas Development Administration, the Norwegian International Development Authority, and the World Bank. The papers in this collection represent only a small fraction of the more than 45 papers presented by scholars, practitioners and donor agencies at the Conference. They have been selected in an effort to give a sense of the richness and variety of the conference deliberations-and as expressing some of the key themes and concerns which emerged. In this introduction-as at the conference-the importance of building sustainable financial systems for poor men and women is emphasized. The main themes point to recognizing the heterogeneity of the poor and its implications for program and institutional design, evaluating the limitations imposed by the policy and regulatory environment, and solving the challenges posed by institution building.Building sustainable financial services systems for poor men and women is of critical interest from three perspectives: first, from the point of view of financial sector development, people who have not been integrated into the formal financial sector because of low incomes, gender, ethnic identity or remote location often represent a large and potentially profitable market for institutions that can develop ways to reduce the costs and risks of serving them. Second, from the standpoint of enterprise formation and growth, the availability of stable sources of funding and deposit services contributes to successful start up and operations of micro and small enterprises. Third, from the perspective of poverty reduction, access to reliable, monetized savings facilities can help the poor smooth consumption over periods of cyclical or unexpected crises, thus greatly improving their economic security. Once some degree of economic security is attained, access to credit can help them move out of poverty by improving the productivity of their enterprises or creating new sources of livelihood.All three perspectives are reflected with diverse emphasis and approaches in the papers included in this issue. We review here the main themes these papers address, highlighting the areas of consensus as well as those of controversy, and stressing those in which the discussions at the conference added the most value to the state of the arts in the field.
The cost-output relationships and production technology in the Agricultural Development Bank of Honduras are analyzed using a translog model. Scale economies for the average branch are not significantly different from one. They are a function of output levels reflecting U-shaped cost surfaces. Product-specific economies of scale are substantially different. Returns to scale oflending activities approach unity, whereas there are important unexploited economies to the expansion of deposit mobilization. Cost complementarities between lending and deposit mobilization indicate advantages of joint provision of financial services over the traditional specialization in lending of agricultural development banks in developing countries.Knowledge of the production technology of financial institutions is essential for analyzing market structure and institutional performance. Many regulatory and managerial decisions are based on specific assumptions about economies of scale and other features of the cost-output relationships in these institutions. Consequently, several recent studies have addressed the measurement of scale economies and cost complementarities in the production of financial services (Benston, Hanweck, and Humphrey; Hunter and Timme; Mullineaux; Murray and White; Panzar and Willig 1977). However, few attempts have been made to analyze-these cost-output relationships in development banks operating in less developed countries.Development banks function primarily as lending institutions intermediating government funds or lines of credit established by foreign agencies and providing limited deposit services, if any, to the rural clientele. The lack of empirical evidence regarding the costoutput relationships in these banks has so far prevented the assessment of their overall perCarlos E. Cuevas is an assistant professor in the Department of Agricultural Economics and Rural Sociology, Ohio State University.The author acknowledges helpful comments and suggestions from Journal reviewers.formance and the evaluation of their operational strategies that emphasize lending over deposit mobilization. Furthermore, considerable regulation exists in less developed countries regarding bank branching, bank size, and loan pricing. These regulations are formulated with imperfect knowledge, if any, of the production structure of financial institutions. In particular, government subsidization of development banks should consider the cost structure of these banks to determine the magnitude of the subsidy and the expected impact of the policy on output expansion. Thus, the knowledge of the production structure of financial institutions becomes essential to assess the likely consequences of financial policy.Studies on development banks in less developed countries by Gheen and by Nyanin have provided limited insights into the cost structure and underlying technology of these institutions because of the choice of very restrictive functional forms for the cost function. In general, the use of Cobb-Douglas or constant elasticity of substit...
This volume is a product of the staff and external authors of the World Bank Group. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (International Bank for Reconstruction and Development); International Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. We encourage use for educational and noncommercial purposes. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Directors or Executive Directors of the respective institutions of the World Bank Group or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly.
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