Access to Finance Overview
Access to finance refers to the availability of financial services – in the form of deposits, credit, payments, or insurance – to individuals or enterprises. The availability of such services can be constrained for instance by physical access, affordability or eligibility.
In Africa, on average, less than 20 percent of households have access to formal financial services, with low population densities, poor transport and limited communications infrastructure contributing to a lack of supply in extensive regions of the continent. Even where such services are available, low-income individuals and small and medium businesses may have difficulty in meeting eligibility criteria such as strict documentation requirements or the ability to provide collateral.
Those able to meet such demands may find they are still excluded from formal financial services by cost barriers, in the form of high transaction fees or substantial minimum requirements for savings balances or loan amounts.
Lowering these barriers to access and offering suitable financial products can allow households and small businesses to maximize the leverage of their savings or earnings for increased productivity, contributing to higher incomes, job-creation and, ultimately, growth.
In Africa, on average, less than 20 percent of households have access to formal financial services, with low population densities, poor transport and limited communications infrastructure contributing to a lack of supply in extensive regions of the continent. Even where such services are available, low-income individuals and small and medium businesses may have difficulty in meeting eligibility criteria such as strict documentation requirements or the ability to provide collateral.
Those able to meet such demands may find they are still excluded from formal financial services by cost barriers, in the form of high transaction fees or substantial minimum requirements for savings balances or loan amounts.
Lowering these barriers to access and offering suitable financial products can allow households and small businesses to maximize the leverage of their savings or earnings for increased productivity, contributing to higher incomes, job-creation and, ultimately, growth.
Aspects of Access to Finance
Typically, four aspects of access to finance can be distinguished: informal finance, microfinance, finance for small and medium enterprises (SMEs) and mobile banking.
Informal Finance
Informal finance refers to services that are unregulated by central banks or other supervisory authorities. This type of financing is generally not arranged through formal agreements and is not enforced through the legal system. Informal lending and savings schemes are very common in Africa, particularly among the financially excluded or those on low incomes.
Microfinance
Microfinance covers the provision of a range of financial services to low income households, including loans, savings, money transfers and insurance. Although microfinance still has low penetration rates in Africa as a whole, research shows microfinance is growing rapidly. In 2007 more than 14 million people in Sub-Saharan Africa used microfinance institutions to help to meet their financial needs.
Mobile Banking
Mobile banking refers to the use of mobile phones for transferring money and accessing other banking services, such as balance inquiries. About four in ten Africans have a mobile phone and increasing numbers are using them for financial transactions. Progress in mobile communications technology and encryption systems has changed the economics of financial service provision, particularly in remote areas, rapidly expanding the number of people able to access these services.
SME Financing
SME financing denotes financial services for small and medium-sized enterprises. Access to loans, leasing, trade credit and other forms of finance can be effective in supporting the growth of these small and medium-scale businesses and increasing output. The SME sector, which makes a significant contribution to the national economies of many African countries, is increasingly becoming a focus of attention for development stakeholders interested in market-based methods of encouraging economic development and fighting poverty.
Sources:
Access to Finance Thematic, from the Making Finance Work For Africa (MFW4A): http://www.mfw4a.org/access-to-finance/access-to-finance.html
Summary
Understanding Access to Finance
Access to finance refers to the availability and ease with which individuals or enterprises can obtain financial services such as deposits, credit, payments, and insurance. For many people—especially in developing regions—this access remains limited due to various barriers including geographical distance, affordability, and strict eligibility requirements.
viduals to access these funds early, often due to career changes, retrenchment, dismissal, or other life events. While early access to pension savings can provide short-term financial relief, it can have serious long-term consequences if not handled wisely.
Across Africa, less than 20% of households have access to formal financial services. This is largely due to:
viduals to access these funds early, often due to career changes, retrenchment, dismissal, or other life events. While early access to pension savings can provide short-term financial relief, it can have serious long-term consequences if not handled wisely.
Across Africa, less than 20% of households have access to formal financial services. This is largely due to:
As a result, low-income individuals and small or medium enterprises (SMEs) are often excluded from the formal financial system.
Improving access to suitable financial products allows families and small businesses to make the most of their earnings or savings. This leads to:
Improving access to suitable financial products allows families and small businesses to make the most of their earnings or savings. This leads to:
Types of Financial Access
1. Informal Finance: Informal financial services are unregulated by national authorities and are not legally enforceable.
2. Microfinance: Microfinance provides small-scale financial services to low-income individuals and households.
3. Mobile Banking
Mobile phones are transforming how people access financial services.
4. SME Financing
Small and Medium Enterprises (SMEs) are critical drivers of job creation and economic growth
Breaking down the barriers to finance is key to building an inclusive financial system. Whether through mobile banking, microfinance, or targeted SME support, increasing access empowers individuals, strengthens communities, and boosts national development.