Access to Finance: A Functional Approach to Supply and Demand

This paper provides a comprehensive description of the financial environment for households and small businesses in a defined geographical region. It develops a new, functional approach to financial access surveys, which involves asking detailed questions about how respondents meet their financial needs—from purchasing inventory to paying for large, medical expenses—rather than focus on a narrow set of financial products. This approach identifies innovative financial tools which arise in response to their needs that traditional surveys miss, and is a scalable complement to financial diaries and other more detailed approaches. From here, we survey the providers of finance, ranging from large state and private banks, to moneylenders, shopkeepers and other households, with the aim of developing the first comprehensive approach to mapping an area’s financial landscape. The primary contribution of this work is methodological; however, we describe preliminary findings from the pilot regions before concluding with recommendations for additional analysis and scaling up of the methodology. It helps examine in a direct way the challenges of designing policy to improve the way households can manage risk and savings and small firms can respond to investment opportunities. Both the approach itself and the findings that arise are likely to influence not only the way data are gathered in the future but also the way in which policies are designed for inclusion and growth.