Creating a more efficient financial system : challenges for Bangladesh

While Bangladesh has embarked on a path to reform its financial system, most prominently by privatizing its government-owned banks, the Nationalized Commercial Banks (NCBs), a sustainable long-term expansion of the financial system requires a more substantial change in the role of government. Using recent research and international comparisons, this paper argues that the government should move from its role as an operator and arbiter in the financial system to a facilitator role. This implies not only divestment from government-owned banks, but also de-politicization of the licensing process and a market-based bank failure resolution framework that focuses on intermediation and not on the rescue of individual institutions. Most important, the government should move away from the implicit guarantee for depositors and owners to applying the existing limited explicit deposit insurance for depositors, while simultaneously relying more on market participants to monitor and discipline banks instead of micro-managing financial institutions. This redefinition of government's role should not be limited to the banking system, but applies to other segments of the financial system, such as capital markets and the micro-finance sector, and should be seen as an essential element in the governance reform agenda and in the movement from a relationship-based economy to a market and arms-length economy.Banks&Banking Reform,Economic Theory&Research,Financial Intermediation,Investment and Investment Climate,Corporate Law

The insurance sector in the Middle East and North Africa : challenges and development agenda

This paper studies the causes of the low development of the insurance sector in the Middle East and North African (MENA) region, particularly for long term insurance. The paper shows that life and non-life premiums, as well as assets, are very low relative to expected levels given per capita income and demographic characteristics, and examines the causes of such poor performance. There is a wide range of factors constraining the development of the industry, including the absence of mandatory insurance in key areas, the predominant presence of the state in some countries, gaps in regulation and supervision, unsupportive tax regimes, fragmented market structures, a chronic lack of suitably skilled people, as well as the absence of products that conform with cultural/religious preferences, especially in the case of life insurance. The lack of development of the insurance sector is a matter of concern, as research shows that the sector can contribute to both financial and economic development. Key recommendations to accelerate the development of the sector include wider introduction of mandatory insurance lines that have clear positive externalities, continuing the privatization process for government owned insurers, employing non capital techniques to force rationalization of insurance sectors with too many small and inefficient players, removing tax distortions, taking steps to stabilize motor third party liability markets (typically the largest line of business), strengthening reporting and disclosure, regulating banc-assurance, improving consumer protection, further developing Takaful long term insurance ('Family Insurance'), and establishing regional centers of excellence for skills development.Insurance Law,Insurance&Risk Mitigation,Debt Markets,Climate Change Economics,Emerging Markets

Tunisia's insurance sector

The main economic functions of the insurance sector are to cover financial risk and to mobilize long-term savings. The sector can also play an important role in developing the private sector and modernizing the securities market. But to play its economic and financial roles, the insurance sector must operate within a framework of stable, liberal regulation that provides incentives for efficiency, allows companies to innovate, and creates a contestable market with relatively free entry and exit. In most developing countries, regulation has deviated greatly from this ideal. Often dominated by state-owned companies, the insurance industry in many developing countries features: (a) strict controls on new entry; (b) prohibitions against majority ownership by foreign companies; (c) fixed premiums (especially for compulsory lines); (d) prior approval of tariff changes and new products; (e) high local retention ratios (which discourage reinsurance from overseas companies); (f) insurance reserves used as a captive source of funding for public deficits; and (g) weak prudential controls and inadequate monitoring of solvency. In recent years there has been a growing trend away from direct controls on premiums, products, and investments, and toward more monitoring of the solvency of companies, through more effective supervision and clear prudential controls. The author argues that Tunisia's insurance sector has been hampered by restrictive regulations, by the country's low incomes (which limit long-term savings capabilities), and by it pay-as-you-go social pension system. Tunisia's life insurance is seriously underdeveloped. The insurance is seriously underdeveloped. The insurance industry also suffers from structural problems. Worst of all, prudential regulations and standards are unequally applied, and some companies are still operating with insufficient capital(in a few cases, with greatly negative equity). What is needed? Capital-deficient companies need to be restructured and recapitalized, state-owned companies need to be privatized, and the market needs to be opened up to majority foreign-owned firms. Supervision must be strengthened and corrective measures applied more equitably and forcefully. The social pension system must be radically reformed, to include one fully funded pillar that will generate long-term savings and transform the prospects for life insurance business.Insurance Law,Insurance&Risk Mitigation,Payment Systems&Infrastructure,Non Bank Financial Institutions,Banks&Banking Reform,Environmental Economics&Policies,Banks&Banking Reform,Insurance&Risk Mitigation,Non Bank Financial Institutions,Insurance Law

Financing Africa: Through the crisis and beyond.

[Dataset available: http://hdl.handle.net/10411/17679]

Institutional Changes in Financial Systems of Poland and the Czech Republic

Over the past 23 years the financial sectors in both Poland and the Czech Republic have changed beyond recognition. The process of transformation was a tough and challenging task in both countries. There were significant differences in the initial conditions, as well as approaches to the transformation process, in Poland and the Czech Republic. It seems that according to the classification of Knell and Srholec (2005), the two countries represent different types of capitalism. In this article we try to demonstrate that the organization and development level of the financial systems in these seemingly similar countries are different as well. The primary objective of the study is to compare the path of development and today’s performance of the financial systems in Poland and in the Czech Republic.Przez ostatnie 23 lata systemy finansowe w Polsce i w Czechach zmieniły się nie do poznania. Proces transformacji był ciężkim i trudnym zadaniem w obu krajach. Pomiędzy krajami istniały znaczące różnice w warunkach początkowych jak i podejściu do procesu transformacji. Zgodnie z klasyfikacją Knell i Srholec (2005) kraje te reprezentują różne typy kapitalizmu. W artykule staramy się pokazać, że organizacja i poziom rozwoju systemów finansowych w tych z pozoru podobnych krajach są również istotnie różne. Głównym celem pracy jest porównanie ścieżek rozwoju i obecnego funkcjonowania systemów finansowych w Polsce i w Czechac

Building an environment for pension reform in developing countries

Fiscal problems are prompting many developing nations to amend and sometimes restructure their national old-age programs. As they do, these countries seek guidance on how to design market and regulatory structures to enhance their chances of success. This paper investigates the types of risks facing participants in retirement systems, and examines which financial, regulatory, and labor market institutions appear most supportive of retirement system reforms, and most urgently needed, in developing countries.Insurance&Risk Mitigation,Banks&Banking Reform,Pensions&Retirement Systems,Environmental Economics&Policies,Financial Intermediation

Pursuing the American Dream: Homeownership and the Role of Federal Housing Policy

Homeownership has always been a strong component of housing and housing policy in the United States. Owning a home is considered an important social and economic indicator, as well as a symbol of having a stake in society and contributing to the stability to the community. The system for producing housing units suitable for homeownership, and for financing home mortgages, has changed dramatically in recent decades. Technology and innovations have increased speed, efficiency and volume, resulting in more families finding mortgage financing than ever before and new homes being produced in record numbers. While homeownership rates are near all-time highs, particular demographic and economic populations, as well as distressed areas, lag behind. Despite greater access to mortgage credit for most families and communities, increased risks, and higher costs of credit, are being shouldered by consumers.This paper attempts to provide an overview of U.S. housing policies related to homeownership, an analysis of the barriers to homeownership, and background on pressing federal policies, programs, and regulations that could be refined to better support homeownership. As the Millennial Housing Commission considers recommendations regarding federal homeownership policy, several issues are paramount:1. What more can the federal government do to encourage and support homeownership?2. What can the federal government do to encourage innovations in the mortgage market, while adequately protecting consumers?3. What can the federal government do to help ensure that mortgage borrowers understand the rights and responsibilities of homeownership and are prepared to assume them?4. What can the federal government do to encourage the production and preservation of homes affordable to those with lower-incomes?Buying a home is typically the largest and most complicated financial commitment most households ever make. Would-be first-time buyers face many barriers to qualify for a conventionally-priced mortgage, including an inability to afford monthly payments, lacking sufficient savings for a downpayment and closing costs, having high debts or an unstable income. Even if they qualify, potential buyers may be hampered by a lack of affordable homes in a desirable area, or even information on how to buy a home or negotiate the best deal. Veiled or overt discriminatory practices still employed by some in the real estate and financial industries also conspire against some potential homebuyers. In combination, these hurdles, especially among low-income and minority populations, keep homeownership, and its ancillary social and economic benefits, out of reach.Policy makers and practitioners should understand the risks and implications of expanding homeownership to lower-income families. Unlike in the rental housing market, individual families must be able to successfully maintain their homes and their mortgages. Individual households need to have the capacity to stay current on their loans and to undertake needed repairs and upkeep. When families fail at homeownership, entire neighborhoods can be affected in addition to the substantial losses individual households must endure. To the extent that expanding homeownership to low- and very-low income people is a priority, correlated issues of access banking services, personal financial management and education policy must be considered.Based on interviews with leading practitioners, focus groups and other research, a series of policy changes are explored. Generally, policy prescriptions can be grouped into three categories:1.) Expanding the reach of mortgage markets for sustainable homeownership;2.) Educating and protecting consumers engaged in mortgage and home equity markets; and3.) Producing and preserving units suitable for affordable homeownership