Person: Rosengard, Jay
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Rosengard
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Rosengard, Jay
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Publication The World’s Best-Kept Financial Inclusion Secret Revealed: The Untold Success Story of BRI Microbanking Since 1895(Ash Center for Democratic Governance and Innovation, 2022-11) Rosengard, JayBank Rakyat Indonesia (BRI), Indonesia People’s Bank, has been the most successful promoter of financial inclusion in Indonesia since the country declared independence in 1945. BRI’s first major financial inclusion initiative was the 1970 creation of a nationwide network of BRI “unit desas,” or village units, for channeling Bimas (Mass Guidance) agricultural credit. The primary objective of Bimas was to promote national self-sufficiency by bringing the Green Revolution to Indonesia. However, by the 1983–84 planting season, successful rice farmers no longer needed Bimas support, leaving only marginal and failing farmers in the program. BRI thus began its microbanking metamorphosis and rebirth with painful adjustment and slow adaptation, subsequently laying the foundation for dramatic growth and rapid expansion. Three principal policy changes turned unit desas from marginally useful, extremely costly entities that had outlived their initial mission into profitable rural banks providing vital financial services: 1) transformation of unit desas from Bimas conduits to full-service rural banks; 2) internal treatment of unit desas as semi autonomous units of account (discrete profit/loss centers); and 3) evaluation of unit desas based primarily on their profitability rather than on hectares covered or money lent. BRI has built on its successful commercialization of microbanking in the mid-1980s to grow, broaden, and deepen its microbanking business over the past three decades. BRI faces two significant future challenges if it is to remain a profitable and effective global leader and national driver of financial inclusion. First, it must continue to evolve and adapt amidst an increasingly difficult political and economic environment. This is indeed a formidable challenge but one BRI has successfully met since Indonesia declared independence in 1945. However, the second challenge facing BRI is even more daunting. While continuing to navigate the treacherous waters of well-intentioned but counterproductive national policies that threaten to undermine past accomplishments in financial inclusion, BRI must also manage a transition back to sustainable, market-based microbanking.Publication Funding Economic Development: A Comparative Study of Financial Sector Reform in Vietnam and China(United Nations Development Programme and Fulbright Economics Teaching Program, 2009) Rosengard, Jay; Thế Du, HuỳnhAlthough there is considerable debate among economists as to the impact of financial sector development on economic growth, empirical evidence indicates a strong, direct link between the two. A recent comprehensive review of both the theory and research on this link between financial sector policies and economic development had a clear and unambiguous conclusion on the causal relationship between the two: A growing body of empirical research produces a remarkably consistent narrative: The services provided by the financial system exert a first-order impact on long-run economic growth. Building on work by Bagehot (1873), Schumpeter (1912), Gurley and Shaw (1955), Goldsmith (1969), and McKinnon (1973), recent research has employed different econometric methodologies and data sets in producing three core results. First, countries with better-developed financial systems tend to grow faster. Specifically, countries with (i) large, privately-owned banks that funnel credit to private enterprises and (ii) liquid stock exchanges tend to grow faster than countries with corresponding lower levels of financial development. The level of banking development and stock market liquidity each exerts an independent, positive influence on economic growth. Second, simultaneity bias does not seem to be the cause of this result. Third, better-functioning financial systems ease the external financing constraints that impede firm and industrial expansion. Thus, one channel through which financial development matters for growth is by easing the ability of financially constrained firms to access external capital and expand.3 This rationale might seem a bit puzzling in the context of Vietnam’s remarkable economic performance over the past two decades, with an average annual GDP growth rate of 7.2 percent, a four-fold increase in GDP, and a decline in poverty levels from three-quarters to one-fourth of the population.4 However, this performance could have been even better with a more efficient allocation of capital, for example, achieving GDP growth rates more in the range of China’s 9 to 10 percent per year - 2 percent of GDP per year is a high price to pay for low-return investments.5 Vietnam’s extremely high Incremental Capital Output Ratio (ICOR), rising from 3 to 5 since the early 1990s, well above the ICOR for high-growth economies (see Table 1 below), provides further cause for alarm in the current allocation of capital.Publication If The Banks Are Doing So Well, Why Can’t I Get A Loan? Regulatory Constraints to Financial Inclusion in Indonesia(Wiley-Blackwell, 2011) Rosengard, Jay; Prasetyantoko, A.Indonesia’s financial sector has two paradoxes: 1) Indonesia has been a global leader in microfinance for the past 25 years, but access to microfinance services is declining; and 2) Indonesia’s commercial banks are liquid, solvent, and profitable, and the Indonesian economy has been doing well over the past decade, but small and medium enterprises are facing a credit crunch. Although Indonesia is underbanked, most commercial banks have been unresponsive to unmet effective demand. The behavior of banks has been in their own short-term best interests, primarily because of the unintended consequences of Indonesia’s financial sector reregulation after the East Asian crisis and contradictory monetary policies, which have produced a prudentially sound but inefficient, narrow, and homogenized banking oligopoly. Indonesia should not respond to financial exclusion by artificially pumping out and administratively allocating more credit. Instead, it should promulgate smart regulation so that banks maintain their sound risk management without pursuing non-competitive and non-inclusive business practices.Publication The Unintended Consequences of Successful Resource Mobilization: Financing Development in Vietnam(United Nations Development Programme and the Fulbright Economics Teaching Program, 2011) Rosengard, Jay; Giang, Trần Thị Quế; Ngân, Đinh Vũ Trang; Thế Du, Huỳnh; Chauvin, Juan PabloThe total amount of development finance generated by Vietnam has been exceptionally high from all significant sources using all standard measures of comparison. However, there are many potential unintended consequences of Vietnam’s successful resource mobilization, with significant implications for the future financing of development. There are several steps the government can take to mitigate these risks. The principal vulnerabilities created by Vietnam’s mobilization of substantial resources for development finance fall into two main categories: threats to macroeconomic stability caused by imbalances in the composition of funding; and risks for microeconomic management arising from imprudent financing structures. The most serious macroeconomic threats are: public sector funds crowding out both access to and utilization of private sector funds; overleveraging of insufficient equity for unsustainable levels of debt; financial exclusion of low-income households and family enterprises; and flight of hot capital. The most serious microeconomic risks are: maturity risk from over-reliance on short-term financing for long-term investments; foreign exchange risk from over-use of foreign capital for investments in non-tradable goods; credit risk from debt-financed speculation in asset bubbles; and fiscal gap risk from public sector dependence on unsustainable revenue sources. The suggested ways of mitigating these vulnerabilities include: further deregulation and liberalization of the banking sector, coupled with government disengagement from commercial financing; further development of equity markets and more rigorous enforcement of prudential norms; further development of microfinance institutions, products, and delivery systems; introduction of market-based instruments to manage FPI speculative outflows, together with more effective monitoring of the private sector’s external debt; further development of domestic long-term debt instruments; better coordination of monetary and fiscal policy; and continued implementation of comprehensive tax reform.Publication The Tax Everyone Loves to Hate: Principle of Property Tax Reform(Wiley-Blackwell, 2012) Rosengard, JayThe dilemma is real and profound: most countries have a property tax, but few of their citizens like the tax. The property tax is the tax everyone loves to hate. Countries can seldom live with the tax as initially designed, yet neither can they live without the tax at all. Thus, this chapter focuses on the reform of an existing system of property taxation rather than on the creation of an optimal property tax. Leaders seldom have the opportunity to design a property tax with a blank slate. There is usually already some sort of system of taxing land and buildings, with a variety of established special interests and a political, social, and historical context. The challenge is to make an existing property tax less taxing.Publication Oversight is a Many-Splendored Thing: Choice and Proportionality in Regulating and Supervising Microfinance Institutions(World Scientific Publishing, 2011) Rosengard, JayThe Handbook of Microfinance showcases an expansive collection of works from leading academics and field practitioners. In an attempt to understand the enormous gap between the limited number of clients that are currently benefiting from microfinance services, and the huge number of potential clients that are not, the selected contributions in this comprehensive handbook have one common thread: the prevailing mismatch between demand by clients of microfinance institutions and potential clients selecting themselves out for their demand for a wider array of financial products which is not being met. The scope of the book is wide, and explores successes and failures, main challenges and debates, methodologies for impact evaluation via random trials, leading trends in Asia versus Latin America, main efforts in Africa, the importance of value chains in Central America, ethical and gender issues, savings, microinsurance, governance, commercialization trends and the potential advantages and disadvantages of it. This exhaustive Handbook also features main lessons from informal finance and 19th-century credit cooperatives addressing the above-mentioned mismatch.