Financial Access and Stability
368 Pages

Financial Access and Stability


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The countries of the Middle East and North Africa (MENA) have been recovering from the global financial crisis, but the recent political turmoil has interrupted the pace of credit and output recovery in many countries. The political turmoil in the MENA region reveals deep-seated frustrations and a sense of political, social, and economic exclusion, especially among the youth.
The relatively weak growth performance reflects a combination of insufficient reforms and weak reform implementation, including financial sector reforms. The structural weaknesses of financial sectors imply that access to finance may remain restricted even with a full recovery of credit activity. Therefore, the region's countries face an ambitious reform agenda to revert two decades of relatively poor performance of output and employment growth. Financial development should be a central component of the region's growth agenda.
This study reviews the region's financial systems, the severity of the limitations on access to finance, and the main factors behind such limitations. It goes on to provide a road map for expanding access and preserving financial stability.



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Published 21 September 2011
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EAN13 9780821388358
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Financial Access
and Stability
A Road Map for the
Middle East and North AfricaFinancial Access
and StabilityFinancial Access
and Stability
A Road Map for the Middle East
and North Africa
Roberto R. Rocha
Zsofia Arvai and Subika Farazi© 2011 The International Bank for Reconstruction and Development/
The World Bank
1818 H Street NW
Washington DC 20433
Telephone: 202-473-1000
All rights reserved
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This volume is a product of the staff of the International Bank for
Reconstruction and Development/The World Bank. The findings,
interpretations, and conclusions expressed in this volume do not neces-
sarily reflect the views of the Executive Directors of The World Bank or
the governments they represent.
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1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422;
ISBN: 978-0-8213-8835-8
eISBN: 978-0-8213-8856-3
DOI: 10.1596/978-0-8213-8835-8
Library of Congress Cataloging-in-Publication Data have been
Cover photo by: Curt Carnemark, World Bank.Contents
Foreword xix
Acknowledgments xxiii
Abbreviations xxv
Overview 1
Main Objectives and Structure of This Report 1
The Region’s Weak Growth and Employment
Performance and Its Main Causes 2s Long-Run Growth Agenda and the
Role of the Financial Sector 5
The Region’s Excessively Bank-Based and Undiversified
Financial Systems 7
Large Banking Systems but Poor Access Outcomes 9
Main Factors Limiting Access to Finance in the Region 12
A Roadmap for Expanding Access and Preserving Stability 15
Notes 33
References 33
Chapter One: Introduction 35
The Main Lessons of the Global Financial Crisis for
the Middle East and North Africa 35
The Fragile Recovery and Long-Run Financial
Development Agenda 36
Main Objectives and Approach of the Report 43
Building Blocks of the Report 44
Structure of the Report 45
Notes 45
References 46
vvi Contents
Chapter Two: The Impact of the Global Financial
Crisis and Regional Political Instability on Regional
Financial Systems 47
Impact on Regional Equity and Bond Markets 48
Impact on Regional Banking Systems 52
Challenges to the Fragile Credit and Output
Recovery 61
Notes 64
References 64
Chapter Three: The Size and Structure of Regional
Financial Systems 67
A Bird’s Eye View of MENA’s Financial Systems 67
International Comparison of Financial Systems 75
Notes 93
References 94
Chapter Four: Do Financial Systems in the Region
Provide Access? 95
Enterprise-Level Indicators of Access 96
Bank-Level Indicators of Access 99
Microcredit Outreach 109
Access to Other Financial Services 110
Notes 113
References 114
Chapter Five: Main Factors Limiting Access
to Finance 117
Main Factors Hindering Access to Finance 118
Policy Interventions to Expand Access: Have They
Been Effective? 126
Summing Up 135
Notes 138
References 138
Chapter Six: Financial Infrastructure 141
Credit Reporting Systems 143
Collateral Regimes 149
Insolvency Regimes 155
Notes 157
References 157Contents vii
Chapter Seven: The Banking System: The Challenge of
Expanding Access to Finance While Preserving Stability 159
Structure of MENA Banking Systems 159
Performance of Banking Systems 168
Resilience of Banking Systems 173
Main Regulatory and Supervisory Issues 178
Notes 191
References 191
Chapter Eight: Why Have Nonbank Financial Institutions
Not Developed in the Region? 193
The Insurance Sector 194
Pension Funds 201
Mutual Funds 203
Leasing 208
Factoring 211
Notes 213
References 213
Chapter Nine: Capital Markets 215
Fixed-Income Markets 216
Equity Markets 227
Notes 236
References 236
Chapter Ten: An Agenda for Financial Development with
Financial Stability 239
Main Elements of the Proposed Agenda 239
First Things First: Strengthening Financial Infrastructure 242
Strengthening Bank Competition 246
Developing Nonbanking Financial Institutions 247
Developing Capital Markets 256
Improving the Provision of Long-Term Finance 263
Improving the Effectiveness of Policy Interventions 265
The Financial Stability Agenda 268
Notes 277
References 283
A Statistical Benchmarking 285
B Stock Price Synchronicity 313
C Statistical Appendix 317viii Contents
1.1 Financial Reforms in the Middle East and
North Africa 39
5.1 Bank Competition in the Middle East and 124
5.2 State Banks and Banking Penetration in the
Middle East and North Africa 128
5.3 Determinants of Bank Lending to Small and
Medium Enterprises 129
5.4 Exemptions on Reserve Requirements and
Lending Rates: A Stylized Example 134
5.5 Morocco’s Experience with Financial Reforms and
Financial Development 136
7.1 Islamic Banking 165
7.2 Status and Prospects of Financial Centers in the
Gulf Cooperation Council 167
7.3 Empirical Analysis of Bank Ownership and
Performance in the Middle East and
North Africa 171
7.4 Implications of International Financial Reforms 181
10.1 Alternative Models for Out-of-Court
Enforcement of Collateral 245
10.2 Reverse Factoring: The Case of NAFIN,
Mexico 255
10.3 Effective Implementation of State Bank Mandates:
The Case of Crédit Populaire du Maroc 267
10.4 Main Challenges in Islamic Banking 271
1 Per Capita Income Growth, by World Region,
1990–99 and 2000–08 3
2 Youth (Ages 15–24) Unemployment Rates, by
World Region, 2008 3
3 Labor Force Participation, by World Region, 2008 4
4 Private Investment Rates, by World Region,
1990–2007 4
5 Annual Credit Growth in Emerging Regions,
2006–11 6
6 Annual Credit Growth in the Middle East and
North Africa, 2006–11 6
7 Assets of Financial Institutions as a Percentage
of GDP 7