Access to finance refers to the possibility that individuals or enterprises can access financial services, including credit, deposit, payment, insurance, and other risk management services[1]. Those who involuntarily have no or only limited access to financial services are referred to as the unbanked or underbanked, respectively[1][2].
Access to finance varies greatly between countries and ranges from about 5 percent of the adult population in Papua New Guinea and Tanzania to 100 percent in the Netherlands [1] (for a comprehensive list of estimated measures of access to finance across countries, see Demirgüç-Kunt, Beck, & Honohan, 2008, pp. 190–191[1]).
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Access to finance (the possibility that individuals or enterprises can access financial services) should be distinguished from the actual use of financial services, because none-use of finance can be voluntary or unvoluntary[1]. Voluntary non-users of financial services have access to, but do not use financial services either because they have no need for those services, or because they decided not to make use of such services due to cultural, religious, or other reasons[1].
Involuntary non-users want to use financial services, but do not have access due to a variety of reasons: First, they may be unbankable because their low income prevents them from being served commercially (i.e. profitably) by financial institutions; second, they may be discriminated against based no social, religious, or ethnic grounds; third, they may be unbankable because contractual and informational networks (such as high collateral requirements or a lack of information from credit registries) prevent financial institutions from commercially serving these non-users; finally, the price or features of financial services may not be appropriate for the population groups of the non-users[1].
Because the factors that determine whether or not an individual or enterprise has access to finance may change over time, it makes sense to group the banked and unbanked into market segments that reflect their current and possible future status as users or non-users of financial services. One such approach to market segmentation is the access frontier, which can be used for analyzing the development of markets over time [3]. The access frontier defines the maximum proportion of the population that has access to a product or service at a given point in time, and the frontier may shift over time, e.g. as the result of technological and competitive changes in the market[3]. The access frontier approach distinguishes between users and non-users of a product or service, and segments non-users into four groups[3]:
The following table gives an overview of the gouping of consumers into users and non-users, the segmentation of non-users, as well as three zones that enable government policies to better match interventions to the requirements of market development[3].
| User group | Market segment | Market policy zone |
|---|---|---|
| Users | Current users (current market) | n/a |
| Non-users | Voluntary non-users | n/a |
| Non-users, lying within the present access frontier | Market enablement zone | |
| Non-users, lying within the future access frontier | Market development zone | |
| The supra-market group, lying beyond the future access frontier | Market redistribution zone |
Estimating and measuring access to finance is relatively difficult because relevant data are not readily available[1]. A lack of consistent cross-country data on the use of financial services has led to the use of the number of deposit and loan accounts as a simple measure of financial access[1], although this is an imperfect measure of financial access.
Financial services may be provided by a variety of financial intermediaries that are part of the financial system. A distinction is made between formal and informal providers of financial services, which is based primarily on whether there is a legal infrastructure that provides recourse to lenders and protection to depositors [4]. The following table gives an overview of this distinction by showing the segments of financial systems by degree of formality[5].
| Tier | Definition | Institutions | Principal clients |
|---|---|---|---|
| Formal banks | Licensed by central bank | Commercial & development banks | Large businesses Government |
| Specialized non-bank financial institutions (NBFIs) | Rural banks Post Bank Savings & loan companies Deposit-taking microfinance banks |
Large rural enterprises Salaried workers Small & medium enterprises |
|
| Semi-formal | Legally registered, but not licensed as financial institution by central bank | Credit unions Microfinance NGOs |
Microenterprises Entrepreneurial poor |
| Informal | Not legally registered at national level (though may belong to a registered association) | Savings (susu) collectors Savings & credit associations, susu groups Moneylenders |
Self-employed Poor |
A more detailed approach to distinguishing formal and informal financial services adds semi-formal services as a third segment to the above. While formal financial services are provided by financial institutions chartered by the government and subject to banking regulations and supervision, semi-formal financial services are not regulated by banking authorities but are usually licensed and supervised by other government agencies[4]. Informal financial services are provided outside the structure of government regulation and supervision[4].