Figure 19. Rate of Borrowing from Formal and Informal Sources (%), 2011 <!-- Start of picture text --> 50<br>43.1 43.2<br>45<br>40<br>35<br>30<br>25<br>20<br>15<br>10 4.6<br>2.9<br>5 0.5<br>0<br>Financial Institution Store Credit Family/Friends Past Employer Other<br>Turkey BRIC Rest of Developing World Developed World Rest of ECA<br><!-- End of picture text --> <!-- Start of picture text --> Source : FINDEX 2011<br><!-- End of picture text -->

# **5. GOING FORWARD**

Turkey can use different public and private services to increase overall saving levels and reduce transaction costs associated with the banking industry. Deposit-collection services can be used to facilitate the savings process, especially in rural areas where traveling to branches of financial institutions is more burdensome. Moreover, collection boxes and drop-off sites can also be established to further reduce the transaction costs.

Mel, McIntosh and Woodruff’s (2013) experiment in Sri Lanka demonstrates how policies to increase savings can be used most efficiently. In the experiment, workers had methods of direct deposit but could only withdraw from the closest bank. The results show that by offering deposit-collection services or collection boxes, banks can form an incentive structure that favors deposits over withdrawals. They find that the frequency of deposit-collection does not substantially change the overall level of savings even though it affects the deposit amounts. The usage of collection boxes also does not reduce the amount of savings, even though it significantly reduces the costs for the service provider. Therefore a community savings lockbox appears as an effective method that can be employed along with deposit-collection services.

Summing up, Turkey has been successful in reducing poverty between 2002 and 2011 primarily through the improvements of its labor market. Overall, individuals in Turkey use bank accounts at a high level but the usage is significantly lower amongst especially the females and also the lower income groups, the less educated and the young. The observed trends between 2011 and 2014 indicate that Turkey has been most successful in addressing disparity issues related to gender. This is highly encouraging since financial inclusion of females was the most severe shortcoming of Turkey based on the 2011 results. Despite this improvement, gender disparity continues to be the most significant source of discrepancy in multiple indicators suggesting that Turkey is only at the beginning of the improvement process in gender equity. Moreover, a lack of money and trust in financial institutions along with high costs associated with banking seem to be the common reasons for not holding a formal account. Individuals in Turkey have low savings levels even though usage of debit and credit cards is significantly higher than the rest of ECA.

Turkish citizens also notably prefer informal lending rather than formal borrowing sources when they are in need of money. Therefore several challenges must be addressed including: (i) continuing to improve the access to finance for females and targeting the poor more explicitly for financial inclusion, (ii) increasing trust in formal financial institutions, (iii) reducing the costs of banking especially in terms of services that incentivize increased savings such as the use of deposit-collection methods, and (iv) increasing public awareness of the appropriate and informed use of debit and credit cards.

21