A new eBook: Understanding Banks in Emerging Markets

Thorsten Beck, Ralph De Haas, Steven Ongena, 6 November 2013

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Banking is often modelled as a black box – especially banks in emerging markets where details of bank operations are less widely appreciated. To help open up the black box, the latest VoxEU eBook, Understanding Banks in Emerging Markets: Observing, Asking, or Experimenting?, brings together scholars who shed light on the problem in three ways: (i) observing the bank and its behaviour from the outside; (ii) opening up the box by asking CEOs, loan officers, and bank clients specific questions; and (iii) prising open the bank through (framed) field experiments.

The eBook summarises key findings from papers presented at a conference held last month at the EBRD in London. The conference was organised by the European Banking Center at Tilburg University, the EBRD, the Review of Finance, and the CEPR.

A wide variety of topics with a common thread

The conference dealt with a wide variety of topics, but the common thread was the use of innovative data to learn more about how banks operate in emerging markets. In particular, the studies use data from:

  • existing data repositories such as credit registries (‘observing’);
  • large-scale surveys of bank CEOs and bank clients (‘asking’); and
  • randomised experiments (‘experimenting’).

All three methods illuminate different corners of the banking black box. Using these different data sources allows researchers to address relevant policy questions, and also to better understand the micro-mechanisms of financial contracting and the supply- and demand-side constraints that (potential) borrowers in emerging markets face on a daily basis.

The authors and chapters

Here is a list of the chapter titles and authors

Introduction
Thorsten Beck, Ralph De Haas and Steven Ongena

Who Pays Bank Taxes?
Olena Havrylchyk and Gunther Capelle-Blancard

Investment Financing and Financial Development: New Evidence from Vietnam
Conor O’Toole and Carol Newman

Uncovering Collateral Constraints
José María Liberti and Jason Sturgess

Bank Monitoring and Institutions: The Korean Lesson
Raoul Minetti

Microfinance Banks and Financial Inclusion in Southeast Europe: Is Public Funding Still Warranted?
Martin Brown, Benjamin Guin and Karolin Kirschenmann

Why is Voluntary Financial Education so Unpopular? Evidence from Mexico
Miriam Bruhn, Gabriel Lara Ibarra and David McKenzie

Bank Funding and Firm Innovation: Evidence from Russia
Cagatay Bircan and Ralph De Haas

‘Know thy Competitor, Know Thyself?’ First Evidence from Banks in Emerging Europe
Ralph De Haas, Liping Lu and Steven Ongena

A Tribute to Ravi
Koen Schoors

Conclusions

This new eBook is an example of how new micro-level data sets allow better testing of existing and new hypotheses. These data sets are on the country- and cross-country level and from different sources, including households, enterprises, banks, and credit registries. Information gained through lab or field experiments can provide additional insights into optimal product and policy design. It will be the combination of different methodologies and data sources that will push this research programme forward.

The papers presented in the conference and summarised in this eBook point the way towards an exciting research agenda.

  • First, more detailed micro-level data help researchers and practitioners understand the impact of innovative products, lending techniques, and delivery channels.
  • Second, micro-level data allow a more careful analysis of the impact of specific financial-sector policies on banks and customers.
  • Third, the data opens the important area of how demand- and supply-side constraints on entrepreneurs affect access to external finance.

Applying lessons from behavioural economics will be critical in the third point.

A tribute to Ravi Ramrattan: The economists on the ground

While research economists certainly do not spend all day in armchairs, our profession tends to be seen as a low-risk one. However, observing, asking, and experimenting carries risks – especially in today’s world of constant terrorist threats. It was with great shock that we heard the sad news that one of our conference participants was murdered on 21 September 2013 in the Westgate shopping centre in Nairobi. While Ravi Ramrattan was still a young economist, he had already made an enormous impact around the world, in his native Trinidad, at LSE in the UK, and especially in Kenya where he was involved in randomised control trials as well as household- and bank-level surveys. He was about to start a PhD at Tilburg University as another stepping stone in what promised to be a bright career. As testimony to the impact he has made on people even on their first encounter, we reprint an obituary by Koen Schoors, another conference participant.

Topics: Frontiers of economic research
Tags: banking research, emerging markets

Thorsten Beck

Professor of Banking and Finance, Cass Business School; Professor of Economics, Tilburg University; Research Fellow, CEPR

Ralph De Haas

Deputy Director of Research, EBRD

Steven Ongena

Professor in Banking, University of Zurich and the Swiss Finance Institute; Research Fellow, CEPR