This policy report presents first efforts at developing indicators illustrating that financial access is quite limited around the world and identifies barriers that may be preventing small firms and poor households from using financial services. Based on this research, the report derives principles for effective government policy on broadening access. The report's conclusions confirm some traditional views and challenge others.
Between 50 and 80 percent of adults in many developing countries have inadequate access to financial services.Failure to provide more households and small and medium enterprises with the financial services they need acts as a brake on development.
While noting the microfinance industry’s progress in delivering credit to poor people, the report calls for a broader financial strategy that delivers services to all excluded people and firms. Inclusive financial systems ultimately benefit the poorest people and the smallest firms the most, by creating more jobs, raising incomes, and generating more opportunities for small businesses.
Poor people and small firms, especially those in rural areas or in the informal sector, face many barriers to financial access—distance from services, the inability to produce formal documents when needed, and prohibitive costs. Ethiopia has less than one bank branch per 100,000 people, and in Cameroon it costs $700—more than GDP per capita—to open a checking account. Across Sub-Saharan Africa, only 20 percent of households have accounts with financial institutions.
In small firms in developing countries, only 15 percent of new investments are financed externally, compared with 30 percent among larger firms. Without financial access, small and new firms face obstacles to both entry and prospective growth.
Governments should strengthen institutions and adopt new technologies to bring down transaction costs, the report says. Research suggests that they should also encourage competition—including foreign bank entry—and provide the right regulatory incentives.
In contrast, direct interventions by governments, such as through credit subsidies or government-owned financial institutions, can be counter-productive, reducing incentives for the private sector to deliver services to the poor.
Finance for All? Policies and Pitfalls in Expanding Access was written by Asli Demirgüç-Kunt, Thorsten Beck, and Patrick Honohan under the general supervision of L. Alan Winters (DevelopmentResearch Group). It draws heavily on the results of the ongoing research program on Finance and Private Sector Development at the World Bank. Original research as background for this report includes work by the authors and by Meghana Ayyagari (George Washington University), Robert Cull, Xavier Gine, Leora Klapper, Luc Laeven, Ross Levine, Inessa Love, Vojislav Maksimovic, Maria Soledad Martinez Peria, David McKenzie, Sergio Schmukler, Colin Xu, and Bilal Zia.
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Conference on "Access to Finance," March 15-16, 2007 (English).
Podcast: Finance in Africa with Thorsten Beck (English)
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