There are various striking intuitions about human existence. For example, in his brilliant memoirs, Speak, Memory, Nabokov begins with the deep reflection where human existence is compared to a baby in a cradle, rocking, completely vulnerable and uncertain. All of this is bracketed by two episodes of infinite darkness. The first episode took place before you were born and the second takes place after you’re gone. Your existence is a temporary flame, like that of a lit match.
In 2025, this would mean that the Kierkegaard sense of things would tell you that neuroscience can never really explain how existence is sensed by a living person.
Kierkegaard writes, “in my view the misfortune of the age was precisely that it had too much knowledge, had forgotten what existence means, and what inwardness signifies.” He continues, “for a knowledge-seeker, when he has finished studying China he can take up Persia; when he has studied French he can begin Italian; and then go on to astronomy, the veterinary sciences, and so forth, and always be sure of a reputation as a tremendous fellow.”
By way of contrast, “inwardness in love does not consist in consummating seven marriages with Danish maidens, then cutting loose on the French, the Italian, and so forth, but consists in loving one and the same woman, and yet being constantly renewed in the same love, making it always new in the luxuriant flowering of the mood.” (Concluding Unscientific Postscript to Philosophical Fragments, page 232.)
Winston Churchill says somewhere (if we paraphrase) that the further back you are able to look, the more secure your ability to analyze the present and the future. Without these ‘historical smarts’, your sense of direction is very feeble. Let us use the novel, Lost Illusions, by Honoré de Balzac as a back door into historical smarts.
This novel was originally published in three parts between 1837 and 1843 and is set mostly in the 1820s, primarily in provincial France. It is unique because it starts with technology and commerce.
At the time when this story begins, the Stanhopepress and inking-rollers were not yet in use in small provincial printing-offices. Angoulême, although its paper-making industry kept it in contact with Parisianprinting, was still using those wooden presses from which the now obsolete metaphor ‘making the presses groan’ originated. Printing there was so much behind the times that the pressmen still used leather balls spread with ink to dab on the characters. The bed of the press holding the letter-filled ‘forme’ to which the paper is applied was still made of stone and so justified its name ‘marble’. The ravenous machines of our times have so completely superseded this mechanism — to which, despite its imperfections, we owe the fine books produced by the Elzevirs, the Plantins, the Aldi and the Didots — that it is necessary to mention this antiquated equipment which Jérôme-Nicolas Séchard held in superstitious affection; it has its part to play in this great and trivial story.
Not only do we get this conceptual framework about printing technology, but later on in the novel, Balzac gives us a further insight into paper-making and textiles, including a long discussion of China.
In England, where four-fifths of the population use cotton to the exclusion of linen, they make nothing but cotton paper. The cotton paper is very soft and easily creased to begin with, and it has a further defect: it is so soluble that if you seep a book made of cotton paper in water for fifteen minutes, it turns to a pulp, while an old book left in water for a couple of hours is not spoilt. You could dry the old book, and the pages, though yellow and faded, would still be legible, the work would not be destroyed.
“There is a time coming when legislation will equalize our fortunes, and we shall all be poor together; we shall want our linen and our books to be cheap, just as people are beginning to prefer small pictures because they have not wall space enough for large ones. Well, the shirts and the books will not last, that is all; it is the same on all sides, solidity is drying out. So this problem is one of the first importance for literature, science, and politics.
“One day, in my office, there was a hot discussion going on about the material that the Chinese use for making paper. Their paper is far better than ours, because the raw material is better; and a good deal was said about this thin, light Chinesepaper, for if it is light and thin, the texture is close, there are no transparent spots in it. In Paris there are learned men among the printers’ readers; Fourier and Pierre Leroux are Lachevardiere’s readers at this moment; and the Comte de Saint-Simon, who happened to be correcting proofs for us, came in in the middle of the discussion. He told us at once that, according to Kempfer and du Halde, the Broussonetia furnishes the substance of the Chinesepaper; it is a vegetable substance (like linen or cotton for that matter). Another reader maintained that Chinesepaper was principally made of an animal substance, to wit, the silk that is abundant there. They made a bet about it in my presence. The Messieurs Didot are printers to the Institute, so naturally they referred the question to that learned body. M. Marcel, who used to be superintendent of the Royal Printing Establishment, was umpire, and he sent the two readers to M. l’Abbe Grozier, Librarian at the Arsenal. By the Abbe’s decision they both lost their wages. The paper was not made of silk nor yet from the Broussonetia; the pulp proved to be the trituratedfibre of some kind of bamboo. The Abbe Grozier had a Chinesebook, an iconographical and technological work, with a great many pictures in it, illustrating all the different processes of paper-making, and he showed us a picture of the workshop with the bamboo stalks lying in a heap in the corner; it was extremely well drawn.
“Lucien told me that your father, with the intuition of a man of talent, had a glimmering of a notion of some way of replacing linen rags with an exceedingly common vegetable product, not previously manufactured, but taken direct from the soil, as the Chinese use vegetable fibre at first hand. I have classified the guesses made by those who came before me, and have begun to study the question. The bamboo is a kind of reed; naturally I began to think of the reeds that grow here in France.
“Labor is very cheap in China, where a workman earns three halfpence a day, and this cheapness of labor enables the Chinese to manipulate each sheet of paper separately. They take it out of the mould, and press it between heated tablets of white porcelain, that is the secret of the surface and consistence, the lightness and satin smoothness of the best paper in the world. Well, here in Europe the work must be done by machinery; machinery must take the place of cheap Chineselabor. If we could but succeed in making a cheap paper of as good a quality, the weight and thickness of printedbooks would be reduced by more than one-half. A set of Voltaire, printed on our wovenpaper and bound, weighs about two hundred and fifty pounds; it would only weigh fifty if we used Chinesepaper. That surely would be a triumph…
On 28 August 1608, Captain William Hawkins, a bluff sea captain with the Third Voyage, anchored his ship, the Hector, off Surat, and so became the first commander of an EIC vessel to set foot on Indian soil.
The Mughal capitals were the megacities of their day: ‘They are second to none either in Asia or in Europe,’ thought the Jesuit Fr Antonio Monserrate, ‘with regards either to size, population, or wealth. Their cities are crowded with merchants, who gather from all over Asia. There is no art or craft which is not practised there.’ Between 1586 and 1605, Europeansilver flowed into the Mughal heartland at the astonishing rate of 18 metric tons a year, for as William Hawkins observed, all nations bring coyne and carry away commodities for the same’. For their grubby contemporaries in the West, stumbling around in their codpieces, the silk-clad Mughals, dripping in jewels, were the living embodiment of wealth and power — a meaning that has remained impregnated in the word ‘mogul’ ever since.
Marx (1818-1883) implies that the foundation of human reality is econo-technical, and on that basis society creates thoughts and philosophies, art and poems. This explanation seems appealing when we think of the economic development of China in our time, for example, or the rise of computers and software.
Our MI comment on this is that any monocausal explanation of how mankind went from Neanderthal to the Manhattan skyline is completely inadequate. You must create a “double-helix” of Marx and Heidegger, adding the dimensions of surprise and unintended consequences. Without the physics concepts of emergence and complexity, we have no possibility of understanding how we got to now. In the site tagline, we use the word “composite” as a reference to this kind of deeper understanding.
When I was first introduced to computers, programming languages like COBOL, Fortran, and Pascal were standard. None of them were particularly user-friendly, especially for someone like me who isn’t a natural coder. Over time, new languages and tools appeared, making programming more accessible.
Programmable payments are automated transactions that occur when specific conditions or events are met. Unlike traditional payment methods, which can rely on manual approvals or fixed schedules (think monthly softwaretransactions), programmable payments offer a more dynamic approach. For instance, a programmable payment might only occur when a product is delivered or a service is completed.
Transparency and security are other significant advantages, particularly when programmable payments are powered by blockchain. Each transaction is recorded on a decentralized ledger, providing a clear, auditable trail of activity. This can help reduce the risk of fraud and create a more secure system for managing payments.
As the Internet of Things expands, integrating programmable payments could allow devices to handle payments autonomously. Imagine a car that automatically pays for tolls or parking, or a smart refrigerator that orders and pays for groceries when supplies run low. The possibilities for real-time, automated payments between connected devices are enormous.
Despite all the potential, programmable payments face challenges. The technology—particularly blockchain-based systems—can be complex and requires specialized expertise, which can increase upfront costs for businesses. In addition, the regulatory environment around programmable payments is still evolving, especially for cross-border transactions. This creates uncertainty for businesses.
Both point to a future where systems execute tasks on their own, based on rules set by users. The goal is simple: Once the conditions are established, the system handles the rest.
Programmable payments are reshaping the future of finance. It’s an exciting future that promises smarter and more streamlined and efficient financial operations.
[from the International Monetary Fund, by Patrick A. Imam, Kangni R Kpodar, Djoulassi K. Oloufade, Vigninou Gammadigbe]
This paper delves into the intricate relationship between uncertainty and remittance flows. The prevailing focus has been on tangible risk factors like exchange rate volatility and economic downturn, overshadowing the potential impact of uncertainty on remittance dynamics. Leveraging a new dataset of quarterly remittances combined with uncertainty indicators across 77 developing countries from 1999 Q1 to 2019 Q4, the analysis highlights that uncertainty in remittance-sending countries negatively affects remittance flows. In contrast, uncertainty in remittance receiving-countries has a more complex, dual effect. In countries with high private investment ratios, rising domestic uncertainty leads to a decline in remittances. Conversely, in countries with low public spending on education and health, remittances increase in response to uncertainty, serving as a social safety net. The paper underscores the heterogeneous and non-linear effects of domestic uncertainty on remittance flows.
[from NBK Group’s Economic Research Department, 21 November, 2024]
Kuwait: Solid credit growth in October driven by household credit. Domestic credit increased by a solid 0.4% in October, driving up YTD growth to 2.9% (3.2% y/y). The recovery in household credit continued, with growth in October at a solid 0.5%, resulting in a YTD increase of 2.4%. While y/y growth in household credit remains a limited 2.3%, annualized growth over the past four months is a stronger 4.7%. Businesscredit inched up by 0.2% in October, pushing YTD growth to 3.6% (2.9% y/y). Industry and trade drove businesscredit growth in October while construction and trade are the fastest growing YTD at 17% and 8%, respectively. In contrast, the oil/gas sector continued its downtrend, deepening the YTD decrease to 13%. Excluding the oil/gas sector, growth in business credit would increase to a relatively good 5% YTD. Looking ahead, the last couple of months of the year (especially December) are usually the weakest for businesscredit, likely due to increased repayments and write-offs, but it will not be surprising if the recovery in household credit is generally sustained, especially given the commencement of the interest rate-cutting cycle. Meanwhile, driven by a plunge in the volatile public-institution deposits, resident deposits decreased in October, resulting in YTD growth of 2.4% (4.2% y/y). Private-sectordeposits inched up in October driving up YTD growth to 4.5% compared with 10% for government deposits while public-institution deposits are a big drag (-14%). Within private-sector KD deposits, CASA showed further signs of stabilization as there was no decrease for the third straight month while the YTDdrawdown is a limited 1%.
Chart 1: Kuwait credit growth
(% y/y)
Source: Central Bank of Kuwait (CBK)
Chart 2: UK inflation
(%)
Source: Haver
Egypt: IMF concludes mission for fourth review, sees external risks. The IMF concluded its visit to Egypt after spending close to 2 weeks, holding several in-person meetings with the Egyptian authorities, private sector, and other stakeholders. The IMF released a statement mentioning that the current ongoing geopolitical tensions in the region in addition to an increasing number of refugees have affected the external sector (Suez Canal receipts down by 70%) and put severe pressure on the fiscal front. The Fund acknowledged the Central Bank of Egypt’s commitment to unify the exchange rate, maintain the flexible exchange rate regime, and keep inflation on a firm downward trend over the medium term by substantially tightening monetary policy. It also highlighted that continued policy discipline was also a key to containing fiscal risks, especially those related to the energy sector. The Fund, as always, re-iterated the need for promoting the private sector mainly through an enhanced tax system and accelerating divestment plans of the state firms. Finally, it also said that the discussions would continue over the coming days to finalize the agreement on the remaining policies and reform plans. However, the release did not provide any clear hints about the conclusion on the government’s earlier request to push the timeline of some of the subsidy moves.
Oman: IMF completes article IV with a strong outlook for the economy in 2025. Oman’s economy continued to expand with growth reaching 1.9% in the first half of 2024 (versus 1.2% in 2023), despite being weighed down by OPEC+ mandated oil production cuts as non-oil GDP grew a stronger 3.8% y/y in H1 (versus 1.8% in 2023). The fiscal and current account balances remain in a comfortable situation evident by a decline in public sectordebt and the recent rating upgrade to investment grade. The Fund expects Oman’s economic growth to see a strong rebound in 2025, supported by higher oil production. It also believes that fiscal and current account balances will remain in surplus but at lower levels. Key risks to the outlook stem from oil price volatility and intensifying geopolitical tensions. The IMF also mentioned that further efforts are needed to raise nonhydrocarbon revenues through more tax policy measures and the phasing out of untargeted subsidies which should help in freeing up resources to finance growth under the government’s diversification agenda.
UK: Inflation rises more than forecast, reinforcing BoE’s caution on rate cuts. UKCPIinflation increased to 2.3% y/y in October from 1.7% the previous month, slightly above the market and the Bank of England’s forecast of 2.2%. On a monthly basis too, inflation rose to 0.6%, a seven-month high, from September’s no change. The steep rise was mainly driven by an almost 10% rise in the household energy price cap effective from October. Core inflation also accelerated to 3.3% y/y (0.4% m/m) from 3.2% (0.1% m/m). While goods prices continued to fall (-0.3% y/y), service prices rose at a faster rate of 5% from 4.9%. Recently, the Bank of England had cautioned about inflation quickening next year (projecting a peak rate of 2.8% in Q3 2025), citing the impact of higher insurance contributions and rising minimum wages as outlined in the latest government budget. Therefore, with inflation rising above forecast, the bank will likely slow the pace of monetary easing after delivering two interest rate cuts of 25 bps earlier, with markets now seeing only two additional cuts by the end of 2025.
Eurozone: ECB warns of fiscal and growth risks in its latest Financial Stability Review [archived PDF]. In its most recent Financial Stability Review (November) [archived PDF], the European Central Bank warned that elevated debt and fiscal deficit levels and anemic long-term growth could expose sovereign debt vulnerabilities in the region, stoking concerns of a repeat of the 2011 sovereign debt crisis. Maturing debt being rolled over at much higher borrowing rates raising debt service costs poses risks to countries with little fiscal space and leaves certain governments exposed to market fluctuations. The bank also emphasized the risks of high equity valuations, low liquidity and a greater concentration of exposure among non-banks. Moreover, it sees current geopolitical uncertainties and the possibility of more trade tensions as heightening risks. The Eurozone’s current government debt-to-GDP ratio stands at 88%, but the underlying data suggest a much more precarious situation with Greece, Italy, and France’s ratios at 164%, 137% and 112%. Recently, concerns about France’s high fiscal deficit (around 5.9% of GDP) and elevated debt levels saw yields on the country’s bonds rise steeply, widening the spread gap with Germanbonds to the highest level in over a decade.
Disclaimer: While every care has been taken in preparing this publication, National Bank of Kuwait accepts no liability whatsoever for any direct or consequential losses arising from its use. Daily Economic Update is distributed on a complimentary and discretionary basis to NBK clients and associates. This report and previous issues can be found in the “News & Insight / Economic Reports” section of the National Bank of Kuwait’s web site. Please visit their web site, nbk.com, for other bank publications.
Among the 369 largest counties, 348 had over-the-year increases in average weekly wages. In the second quarter of 2024, average weekly wages for the nation increased to $1,390, a 4.4-percent increase over the year. Hamilton, IN, had the largest second quarter over-the-year wage gain at 33.4 percent. (See table 1 [archived PDF].)
Large County Average Weekly Wage in Second Quarter 2024
Hamilton, IN, had the largest over-the-year percentage increase in average weekly wages (+33.4 percent). Within Hamilton, an average weekly wage gain of $2,161 (+139.6 percent) in professional and business services made the largest contribution to the county’s increase in average weekly wages.
Essex, MA, had the largest over-the-year percentage decrease in average weekly wages (-2.1 percent). Within Essex, an average weekly wage loss of $644 (-25.7 percent) in professional and business services made the largest contribution to the county’s decrease in average weekly wages.
All of the 10 largest counties had over-the-year percentage increases in average weekly wages. In the second quarter of 2024, King, WA, experienced the largest over-the-year percentage gain in average weekly wages (+10.4 percent). Within King, professional and business services had the largest impact, with an average weekly wage increase of $774 (+24.5 percent).
For More Information
The tables included in this release contain data for the nation and for the 369 U.S. counties with annual average employment levels of 75,000 or more in 2023. June 2024 employment and second quarter 2024 average weekly wages for all states are provided in table 3 [archived PDF] of this release.
Over-the-year changes of employment and wages presented in this news release are adjusted and may differ from unadjusted data used in BLS data tools and interactive charts. More information is available in the QCEWTechnical Note.
The County Employment and Wages full data update for second quarter 2024 is scheduled to be released on Thursday, December 5, 2024, at 10:00 a.m. (ET).
The County Employment and Wages news release for third quarter 2024 is scheduled to be released on Wednesday, February 19, 2025, at 10:00 a.m. (ET).
* 40-year JapaneseGovernment Bonds to be issued in July will be a reopening issue of the May 2024 issue. The auction method is Dutch-style-yield-competitive auction at intervals of 0.5bp.
Kicking off a new CGD series of policy proposals to inform the European Union’s upcoming development agenda, Mikaela Gavas and W. Gyude Moore suggest a reset of the EU’s international relations narrative. Explore their ideas for how the EU can position itself as a global development player while staying true to its values and focusing on the common good.
The same applies to aid flows. The figure below shows data on total aid disbursements from the US depending on who is in power: the solid blue line is Democratic control of the presidency and both branches of Congress, the blue dashed line is Democratic control of the presidency and one or neither branch, the solid red line is Republican control of the presidency and both chambers, and the red dashed line is control of the presidency and one or neither chamber. There’s only one data point for each year, of course, but the lines connect between them. The broad picture strongly suggests the trend matters more than who is in power (indeed, remember the Surprise Party?).
Figure 1: US aid disbursements by party control (Current $m)
The potential good news from this is that despite substantive disagreements over topics including the Mexico City Policy, bipartisan cooperation on aid might still be more possible than it might appear from a close-up perspective in the midst of partisan rancor. To repeat the bad news: much of the recent bipartisan movement on foreign economic policy has been to the detriment of developing countries. And there is certainly some talk of sweeping changes, including cuts, that might mean the past is no guide. But perhaps there still space for elements of a positive agenda around aid for the legislative sessions of next year, one that could appeal to at least some people on both sides of the aisle. Examples might include:
Advancing localization: Spending more US aid finance in recipient countries rather than on US contractors has been a hallmark of Samantha Power’s tenure at USAID. But it has Republican antecedents. The Trump administration followed a localization strategy for PEPFAR that significantly increased the number of local partners and a New Partnerships Initiative at USAID designed in part to do the same. And in 2021, US SenatorsMarco Rubio (R–FL) and Tim Kaine (D–VA) introduced legislation to reduce red tape for local organizations seeking USAID funds. It would be great to see further cooperation on ensuring more development dollars are actually spent in developing countries.
Country focus: All else even somewhat equal, a dollar of foreign assistance simply has a larger impact in poorer countries. The logic that richer countries should be able to look after themselves was a justification for the Trump administration’s “Journey to Self-Reliance”—a philosophy dedicated toward “ending the need for aid.” The Biden administration has continued to produce the “country roadmaps” designed to chart the journey. It would be great to see bipartisan efforts to focus grant resources in particular where they’ll have the greatest impact—in the poorest countries.
Sovereign lending and guarantees: While grants should be focused on poorer countries, loans could be an effective and comparatively low-cost tool to support wealthier countries. The recently passed Ukraineaid package provided resources in the form of partially forgivable loans, and senior Republicans have been pushing the model more widely. More lending and guarantees could be a powerful tool to support infrastructure rollout in middle-income countries. And strengthening the US sovereign loan guarantee program could back development and national security goals at a considerably lower cost than grant-based programs.
MCC reform: The Millennium Challenge Corporation, created during the George W. Bush administration, is running into pipeline challenges—and appropriators have clawed back funding in response. That’s a shame. It is a small but effective aid agency providing resources for development priorities including infrastructure and working with client countries to help them deliver—in fact, it’s a model of successful localization. MCC faces spending challenges in part because it hasn’t increased the size of individual country operations, limits repeat operations, and can only work in countries that pass its “scorecard” of development indicators. The agency wants to address its partner problem by working in richer countries. That’s a sad way to achieve impact and goes against the bipartisan principle that richer developing countries should be weaned off aid flows, not given more. Altering the size of compacts, allowing more repeat compacts, and moving away from a scorecard model towards a model of reward for reform—a specific set of policy changes that need to be completed before funds start flowing—would be a far more effective approach.
Fighting malaria: In the 1958 State of the Union, PresidentEisenhower said that the US would lead a global effort to eradicate malaria. The time and the tools were not right then, but today there is far greater hope for rapid progress against the disease. George Bush created the President’s Malaria Initiative in 2005, and the US has been a vital contributor to the global fight against the parasite since then. With the arrival of new vaccines in the past couple of years, we could accelerate progress and save hundreds of thousands of children’s lives each year. And with better vaccines, we could move even faster. PEPFAR, the US initiative to provide HIV drugs, has transformed the battle against AIDS worldwide. A similar bipartisan initiative could achieve as much with malaria.
Transparency: Both parties have shown commitment to increasing the transparency of aid finance including around subawards and indirect cost rate data. It would be great if there was a bipartisan consensus on simply publishing all aid contracts.
Beyond aid, the African Growth and Opportunity Act was first passed during the Clinton administration, renewed during the Bush administration and then again under the Obama administration. A bipartisan proposal to renew the trade package once more was launched in the Senate in April this year. Perhaps AGOA could be made even bigger and better. Even amidst partisan rancor, there is plenty a Congress and administration could do to improve US relations with and support to low- and middle-income countries next year.
Undoing Gender Inequality Traps in the Financial Sector: The Case of Colombia
by Mayra Buvinic and Alba Loureiro, July 9, 2024 (CGD Blog Post)
Gender data is needed to gauge the extent to which financial services include and benefit women. However, sex-disaggregated data that tracks access to and use of financial services is still hard to come by, and it is especially rare to have country-level data that captures the universe of financial sector providers (FSPs) and is published on a regular basis.
A notable exception is Colombia, where Banca de Oportunidades (BdO), a public sector technical assistance and advocacy platform, compiles in a centralized data platform anonymized data from all FSPs in partnership with Colombia’s Superintendency of Banks. The 2023 edition, the 13th annual publication, reports on 15 million transactions, 60 percent of them monetary, from the universe of banks, credit and savings cooperatives, microfinance institutions, and fintechs. The report tells a sobering story worth highlighting of the trajectory of women’s financial inclusion because it mirrors much of what we know [archived PDF] about the constraints women face having access to financial services in low- and middle-income countries. The report’s numbers [archived PDF] suggest that:
Expanding access is not enough
Despite almost universal access to financial products, gender gaps persist. In 2023, 19 out of every 20 adult Colombians (or 94.6 percent) reported access to at least one financial product or service. However, women faced less favorable conditions (see below), underscoring that mere access is insufficient.
Gender gaps are evident in both savings and credit
In 2023, women had 6.5 and 3.7 percentage points (pp) lower access to savings and credit, respectively, than men. While women’s access to savings increased over time–from 75 percent in 2018 to 90.4 percent in 2023–the gender gap widened (from 4.3 pp to 6.5 pp). In the same period, the gender gap in credit narrowed slightly (from 4.8 pp to 3.7 pp) but both men’s and women’s access to credit decreased–for women from 37.7 percent in 2018 to 33.4 percent in 2023.
Women face access to credit in less favorable conditions than men
Interest rates are higher for women clients across all loan types, and highest for microcredit–with a 5.4 percent gender gap–which women access more than men. In 2023, women accessed 1,029 million and men accessed 857,000 microcredit loans. More men than women accessed commercial loans (20,000 versus 14,000 loans) while housing loans went equally to women and men.
Paradoxically, these less favorable conditions coexist with women exhibiting lower credit risks than men
Women have better repayment rates than men across loan types (Figure 1). Women also perform better across insurance products, except for microinsurance, showing lower accident rates. However, female clients have 13.8 pp lower access to insurance products than men.
Figure 1: Total Repayment Rates, Overdue More Than 30 Days.
Source: The graphic was extracted from the Financial Inclusion PowerPoint (Paola Arias and Jaime Rodriguez, 4 June, 2024) [archived PDF], and the labels were translated from Spanish.
The data implies that women’s good financial behavior is penalized rather than prized, with higher interest rates and lower access to financial products
Rationing credit and other financial services to women perpetuates ‘gender inequality traps’ leading to further rationing
It all starts with women having fewer assets to use as collateral and lower earnings than men (a commonplace fact across financial markets everywhere) which leads them to qualify for smaller loans. In turn, this results in women having less access to credit to increase earnings because of the high costs to lenders of serving customers with small loans, resulting in even lower earnings.
Gender biases that affect the supply and demand for credit reinforce this vicious cycle
On the supply side, there are cognitive and perceptual biases (the latter detected by eye-tracking) from financial sector providers–male potential borrowers are ‘ex-ante’ perceived as having higher earnings than similar women. And female bank agents are stricter at evaluating female clients than male clients.
On the demand side, the incorrect assumption that women are higher credit risks than men is reinforced by female clients’ own lower self-confidence and greater self-exclusion from financial services: women do not apply for credit because they anticipate they will be rejected because they have lower earnings.
Not surprisingly perhaps, women in Colombia score lower than men in a financial health indicator–with an average score of 4.9 for women and 5.6 for men measured in a 0 to10 scale (scored by BdO using data from the 2022 edition of the survey).
To overcome these gender inequality traps, only a combination of strategies will work
Solutions must address both demand– and supply-side constraints and include:
Increase women’s self-confidence and combat their self-exclusion from financial services with credit ‘plus’ interventions that include ‘soft skills’ training.
Provide customized products that fit women’s needs, including importantly insurance and microinsurance that respond to women’s greater need for mitigating (family) risks.
Combat supply-side biases that lead to inefficiencies and exclusions, including incentives to financial sector providers to reach women with financial services.
For the above, collect and publish gender data, but data that does not end up sitting on a shelf gathering dust; data that instead is used to make management decisions, which underscores the role of public sector institutions such as BdO in collaborating with and incentivizing financial sector providers, and in measuring, tracking, and reporting progress in financial inclusion.
Fortunately, there is a growing wealth of research that backs up the solutions suggested above. But there is still an important practical research agenda ahead:
First is reaching the poorest and excluded with financial services that they may need. In the case of Colombia, this includes indigenous and Afro-descendent populations in geographically distant regions of the country. This requires building further granularity in the financial inclusion data, following guidelines of intersectionality data in development.
There is substantial research on demand-side constraints in women’s access to financial services. There is comparatively little research on supply-side gender biases and solutions to these biases that can be scaled.
Lastly, there is the task of developing financial health indicators that can be easily and widely used disaggregated by gender and other demographic features to monitor an important development outcome from increasing financial access to all.
Disclaimer
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.
