Access to financial services and its barriers   

Of course, access to credit is very important for economic development. It helps to boost economic growth, improve income distribution and reduce poverty. But access to credit is not good enough in many countries. It is given more in developed countries. But there is limited access to credit in many countries. This is an important problem, especially in less resourceful countries. This is mainly because of several reasons including inadequate financial resources, a lack of well-developed plans and institutional barriers. To facilitate the economic development of all in a society, it is important to provide access to credit to those who need it. No doubt, people of all strata need to get access to credit, though the reasons for their access may be different, for their economic development.

It is notable here that access refers to the availability of financial services at reasonable costs. Access to financial services means the access of an individual or a business organization to a range of services such as credit, deposit, insurance, payment and other services that manage financial risks of an individual or a business organization. But access does not necessarily mean the use of such services, even though some may have access to financial services and use such services. There may be voluntary non-users who may not use such services, although there is access to different sorts of financial services. Moreover, there can be involuntary non-users, who do not have access to financial services and, for this reason, do not use such services. Thus, though the availability of services is necessary for access to financial services, it is not a sufficient condition for the use of such services.

Of course, access to financial services has been increasing across countries in recent decades. Not only the government but also private and other financial institutions including microfinance institutions facilitated access to financial services. Mobile phones facilitated access enormously. But there is a lack of access to financial services for many men and women across countries. According to available sources, the use of financial services is far from universal in the world. No doubt, the percentage of people who do not have access to such services is higher in many countries. Many people do not get access to credit and deposits. Moreover, there is limited access to insurance and other financial services in many countries. But access to such services is less especially in developing and less developed countries.

Of course, there is a range of policy-based, structural, social, political, religious and other reasons for limited access to financial services including credit and deposits. Discriminatory policies or discriminations based on social, political, religious, or ethnic grounds are significant factors/reasons that prevent access to financial services. Deficiencies in the contractual and informational frameworks, contractual and informational networks including high collateral requirements, prohibitive fixed cost of transacting at financial institutions, contract enforcement costs, or a lack of information from credit registries (or informational asymmetries) can also put hindrances to access to financial services. Undeniably, low income, poverty, a lack of credit or irregular income, prevents many from being served commercially (or profitably) by financial institutions including insurance companies.

Moreover, there are some other important factors including the price or features of financial services in government, private and other financial institutions, documentary requirements to open an account and deficiencies in physical access and low connectivity that put hindrances for many to get access to financial services. Notably, distance, especially which requires travel to a far, is noted as an important barrier in many countries. Of course, license laws and regulatory compliance also play very important roles in determining access to financial services for many. Also, a lack of keeping up with technology, low availability of financial providers, a lack of financial literacy or scant awareness about financial services prevent the access and usage of financial services including deposit and insurance services in many countries.

Of course, barriers can vary across financial services, countries and locations within a country. For instance, low income and distance prevent the usage of insurance services more than credit services. Besides government policies can facilitate access to credit and deposit services more than insurance in many countries. Lower barriers to access to financial services tend to be associated with more open and competitive financial systems including banking systems characterized by private ownership of banks and foreign bank participation, a stronger legal system, strong information and physical infrastructures, effective regulatory and supervision approaches, greater transparency and freedom of the media. Within a state, barriers are fewer in urban areas compared to rural areas.

Undeniably, limited access or no access to financial services brings a range of negative economic, social and other impacts. A lack of finance is a critical mechanism that generates persistent income inequality and slower economic growth. Limited financial access can reduce the business potentials, hamper operational activities of organizations, reduce the profitability of organizations and bring some other negative impacts. Also, limited access can significantly affects the formation of small businesses and general community development. Limited access leads to the usage of informal financial services. In many developing and less developed countries, informal financial services are used more due to a lack of formal financial services. Moreover, limited access to financial services can reduce social and other well-being.

No doubt, people of all strata need to get access to financial services, though the reasons for their access may be different, for their economic development, the advancement of their organizations and enhancing their social and other sorts of wellbeing. Thus, effective measures are needed to provide everyone with access to financial services in developed, developing and less developed countries. Undoubtedly, all structural, policy based and other barriers need to be well-addressed and feasible conditions need to be provided for providing access not only to credit but also to deposits and other financial services. Moreover, strong measures are needed to end social, political, religious and other discrimination in providing access to financial services across countries. Of course, the financial system needs to be improved.

Moreover, access to financial services needs to be ensured in developed, developing and less developed countries by addressing country specific, policy-based and other barriers. But more emphasis needs to be given by developing and less developed countries to providing access to such services with their increased availability. Of course, strengthening institutional infrastructure and addressing other institutional barriers can facilitate access to financial services. Also, introducing new technologies may reduce physical distance and economic barriers to access to financial services by improving enabling infrastructure readiness, providing interconnection platforms or improving networks.

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