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Financial sector development - Access to financial services for all

Stable, efficient financial systems are an elementary aspect of any national economy. Providing poor households, farmers and small enterprises with improved access to financial services can boost their involvement in economic life and reduce their vulnerability.

A well-functioning financial sector is of paramount importance to a country's economic development. It offers the opportunity to mobilise savings for use in productive investments that create income and employment. Providing private households and farmers as well as businesses with access to secure investment opportunities, access to payment transaction systems, credit and insurance services is essential in order to reduce income risks, achieve a more effective cushion against economic and market fluctuations and save for larger investments such as children's education or setting up a business. Insurance against poor crops and natural disasters is particularly crucial in reducing the risks incurred by small farmers. It serves to increase productivity, thus strengthening food security. An efficient financial sector accessible to all segments of the population has the effect of reducing poverty, both at the private household level and from the standpoint of the national economy. It also stimulates economic growth at all levels.

Current challenges
At present, poor sections of the population in many development countries are largely excluded from the formal financial sector. This is particularly true of rural regions, where more than 90% of the population often have no access to formal financial services. Typical reasons for this deficiency are a lack of sales and service offices, high costs, insufficient infrastructure, service offerings that are not geared to specific needs, and inadequate legal and regulatory frameworks.

As a result, poorer members of the population often have to resort to relatives, friends and other informal money lenders. Such informal options, however, rarely produce funding for investments. In the context of development policy, therefore, financial sector development aims to create enduring financial services for broad sections of the population who have so far enjoyed only limited access, if any, to such services.

Rural regions pose additional challenges, i.e. in terms of reducing risks and transaction costs, as well as access to supplementary services such as measures to promote technical innovation or marketing.

SDC focus SDC has been active in the field of financial sector development for more than 40 years, with particular emphasis on poor households, small enterprises and farmers. Over the past few years the spotlight has been on microfinance, i.e. financial services for poor households and in particular poor women as well as for micro businesses. Now, however, the focus is increasingly on ways of financing small businesses, particularly in rural regions. SDC is committed to the sustainable development of a demand-driven financial sector that meets the specific needs of SDC's various target groups, both in terms of the breadth and depth of the services offered. Activities are concentrated in particular on the following areas: Demand side: Educating SDC target groups in order to strengthen their negotiating positions, promote the effective use of to savings, insurances and credit services, and facilitate access to institutional financial services. Supply side: Support for financial institutions with the potential and willingness to sustainably and cost-effectively expand their range of services for SDC target groups, and significantly improve the breadth and depth of such services. Financial market infrastructure: Support for networks and associations of financial institutions, educational institutions, rating agencies, credit bureaus, auditors, IT providers etc. in order to boost the financial sector. Framework conditions and supervision: Support for legislative, regulatory and supervisory institutions as well as financial sector reforms wherever framework conditions impede the positive development of the financial sector.International cooperation: SDC actively collaborates on international forums and partnerships and fosters cooperation with international competence centres. The aims are international co-ordination and harmonisation, the exchange of experiences and know-how, and the promotion of global or regional networks.

Theme contact: Hans Ramm

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Specific themes in this area:

Microfinance
Financial services for poor sections of the population and micro enterprises who have no regular access to the services offered by formal financial institutions.

 Rural finance
Despite the major role they play in economic development, rural regions suffer from a massive deficit of financial services.

 Small entreprise finance
Small enterprises are of major importance in achieving broad-based development and employment. Yet often such enterprises have no access to services tailored to their needs.

Micro-insurance
People in developing and transition countries tend to be exposed to a wide range of risks, such as disease, harvest failure, loss of income and theft, yet they have virtually no formal insurance protection.