Defining and Measuring Access To Financial Services
Access to finance (the possibility that individuals or enterprises can access financial services) should be distinguished from the actual use of financial services, because non-use of finance can be voluntary or involuntary. 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.
Measuring financial access is essential for strengthening the link between theory and empirical evidence. Currently, the main proxy variables that measures financial access include: the number of bank accounts per 1,000 adults, number of bank branches per 100,000 adults, the percentage of firms with line of credit (large and small firms).
In the case of financial markets, measuring financial access requires ascertaining market concentration, for a high degree of concentration reflects greater difficulties for entry of newer and smaller firms. Other factors include the percentage of market capitalization and traded value outside of top 10 largest companies, government bond yields (3 month and 10 years), ratio of private to total debt securities (domestic), ratio of domestic to total debt securities, and the ratio of new corporate bond issues to GDP.
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 on 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.
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. 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. The access frontier approach distinguishes between users and non-users of a product or service, and segments non-users into four groups:
- Those who are able to use the product or service but choose not to (voluntary non-users)
- Those who can currently access the product or service but do not yet (non-users, lying within the present access frontier)
- Those who should be able to use the product or service within the next three to five years, based on changes in the features of the product or service, or of the market, respectively (non-users, lying within the future access frontier)
- Those beyond the reach of market solutions in the next three to five years (the supra-market group, lying beyond the future access frontier)
The following table gives an overview of the grouping 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.
| 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. 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, although this is an imperfect measure of financial access.
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