Does it make sense to promote an access to finance agenda in the midst of a financial crisis?
by Alejandro Ponce: Friday, June 19, 2009
Absolutely. Access to finance is much more than poor people simply getting credit. Access to finance is - or should be - about delivering a wide range of “appropriate” financial services that include savings, payments, credit, and insurance to the people in need of them. In a sense, finance is similar to sanitation, electricity, or water. The key is to supply those financial services taking into consideration the market it is intended for.
A natural question arises concerning whether financial institutions are willing to provide these services in the midst of a financial crisis. That may well depend on the product, but many are. While it may be difficult to finance a mortgage today, opening a bank account may have become easier. Consider for example, the case of Latin America. Due to the crisis, many banks have experienced a shortage of liquidity and resources from international markets. To overcome this deficit, banks have aimed to expanding their depositor base by offering new products and targeting new market segments. In Colombia during the last year, the number of adults with a bank account increased considerably, so that now more than half of the adult population hold an account. In Mexico, banks are pushing regulators to pass the law that would allow them to contract agents and expand their depositor base. These situations present an opportunity for many people to get access to a bank account and a chance to fortify the system. So, even with a credit squeeze and financial crisis, these trends show that it still makes sense to promote an access to finance agenda.
3 Comments
June 20th, 2009 at 9:56 am, V.Rengarajan ()
Yes it makes sense to promote an access to finance agenda in the midst of a financial crisis. Access to savings (even curtailing conventional standard consumption), insurance assume more importance at this juncture. Enabling environment is also necessary for serving the purpose of the financial access.
In the context of micro credit for the poor in developing countries, it cannot be similar services like water, sanitation or electricity. However credit service is necessary but what makes difference from other services is that it is not a direct consumable input While other services are directly consumable ones ( e.g. water), the credit one is only a monetary instrument ( coins & notes) which has to be used for exchange of goods only( medium of exchange). Further the process of exchange of goods, albeit credit is made access, cannot take place unless those goods ( e.g. raw material, water, power, the asset for income generation( mostly for the poor ) , matching the needs of client ( the poor) are readily or made accessible in the market . A mere financial access alone may not fetch the desired result unless the market provides the needed physical goods (including infrastructure) for felicitating smooth exchange./transaction. Capability of the financially accessed person (poor) for such a transaction also matters here.
June 20th, 2009 at 3:07 pm, Jatinder Handoo ()
It makes a perfect sense to promote an access to finanace agenda at this period of time. Financially excluded poor people trapped in the cycle of informal sysytem are in fact some of the worst hit individuals due to finanancial tsunami.
Cost of mitigation of poor health, illitracy and hunger has become out of reach in the wake of financial crisis for extermely poor.
Therefore,in the present times ACCESS TO FINANACE AGENDA becomes a sort of panacea not only for imminent problems but to transnational social menances of future like global terrorism, anarchy and crime across the world.
June 25th, 2009 at 9:03 am, Laura B ()
To me it seems risky to equate financial services with sanitation and water, which are more like public goods in my mind (http://www.economist.com/research/Economics/alphabetic.cfm?letter=P#publicgoods). The market failures that hinder financial access are different from those that prevent people from having clean water, and thus require a different policy response (although some governments do respond similarly, via direct provision or subsidization of financial services in target markets, which does not work well in many cases). I would also like to suggest rather than trying to highlight which products are more desirable or palatable (eg savings v. credit) the emphasis should be on how they are delivered: the notion of responsible (versus irresponsible) access. There are deposit products that are harmful to poor customers if they are used incorrectly (e.g. high fees for going over the minimum number of transactions in a nofrills account).
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