The Basic Analytics of Access to Financial Services

39 Pages Posted: 2 May 2007

See all articles by Thorsten Beck

Thorsten Beck

City University London - Sir John Cass Business School; Tilburg University - European Banking Center, CentER

Augusto de la Torre

UDLA, Centro de Investigaciones Económicas; Columbia University, SIPA

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Abstract

Access to financial services, or rather the lack thereof, is often indiscriminately decried as problem in many developing countries. This paper argues that the problem of access should rather be analyzed by identifying different demand and supply constraints. We use the concept of an access possibilities frontier, drawn for a given set of state variables, to distinguish between cases where a financial system settles below the constrained optimum, cases where this constrained optimum is too low, andin credit servicescases where the observed outcome is excessively high. We distinguish between payment and savings services and fixed intermediation costs, on the one hand, and lending services and different sources of credit risk, on the other hand. We include both supply and demand side frictions that can lead to lower access. The analysis helps identify bankable and banked population, the binding constraint to close the gap between the two, and policies to prudently expand the bankable population. This new conceptual framework can inform the debate on adequate policies to expand access to financial services and can serve as basis for an informed measurement of access.

Suggested Citation

Beck, Thorsten and de la Torre, Augusto, The Basic Analytics of Access to Financial Services. Financial Markets, Institutions & Instruments, Vol. 16, No. 2, pp. 79-117, May 2007, Available at SSRN: https://ssrn.com/abstract=981542 or http://dx.doi.org/10.1111/j.1468-0416.2007.00120.x

Thorsten Beck (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Tilburg University - European Banking Center, CentER ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Augusto De la Torre

UDLA, Centro de Investigaciones Económicas ( email )

De los Granados y De los Colimes, Esquina
Quito, Pichincha
Ecuador

Columbia University, SIPA ( email )

420 West 118th Street
New York, NY
United States

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