Access to financial services, or financial inclusion, implies an absence of obstacles to the use of financial services, whether these obstacles be price or non-price barriers. It is important to distinguish between access to, having the possibility to use financial services, and actual use of financial services. Financial access does not mean that all households and firms should be able to borrow unlimited amounts at prime lending rates or transmit funds across the world instantaneously for a fraction of 1% of the amount. Even if service providers are keenly competitive and employ the best financial technology, prices and interest rates charged and the size of loans and insurance coverage on offer in a market economy must necessarily depend on the creditworthiness of the customer.
Access essentially refers to the supply of services, whereas use is determined by demand as well as supply. Therefore, improving access means improving the degree to which financial services are available to all at a fair price.
Barriers to access decline as per capita GDP rises and the physical infrastructure improves.
The positive association between GDP per capita and indicators of the number of branches, ATMs, loans and deposits is confirmed. Both the average size of loans and the average size of deposits to GDP per capita ratios are negatively correlated with GDP per capita (although not significantly in the case of loans). At the same time, indicators of the number of banking outlets and loan and deposit accounts tend to be positively correlated with each other and negatively correlated with loan-income and deposit-income ratios.
In the ECA region physical accessibility of banking services varies from country to country. In European Union countries (New Member States), access to banking services is generally better with Hungary having the best bank branches penetration and Slovenia and Estonia the best distribution of ATMs among the population. Lithuania has the poorest outreach in terms of branches but makes up for it by the number of ATMs. Balkans and non-EU countries lag behind with banking sector penetration, except Croatia where access to bank branches and ATMs is better than in the majority of NMS-EU countries.
The Caucasus and Central Asian countries have banking sector penetration on the same level as the Balkan countries, except Armenia with an exceedingly higher number of branches.
There is growing recognition that increasing access to formal financial services has both private and social benefits. Extending the breadth of financial service availability in a given population causes economic growth and can improve income distribution. Moreover, the poor benefit disproportionately from financial development.
Limited geographic or physical access to a bank is only one type of barrier that potential customers face. Documentation requirements, by limiting eligibility, can be another important barrier to access. For example, banks in Albania, Czech Republic and Poland demand on average only one document to open a bank account. Whereas banks in Armenia, Croatia and Moldova require two or three documents, including an identity card or passport, wage slip, and proof of domicile. Given that in many countries employment is highly informal, a large proportion of the population cannot produce any employment confirmation or proof of income source.
Use of deposit services
According to the CGAP “Financial Access 2010” the use of services of financial intermediaries varies across the ECA region with the western part (CEE and the Balkans) excelling over the eastern part (Caucasus, Central Asia). In most of the European countries the average number of deposit accounts per adult exceeds one, with as many as 4.2 accounts per person in Lithuania, which is comparable with Belgium.
In the Caucasus, deposit accounts are far less used. In countries such as Azerbaijan, Armenia of Georgia there are only about 600 deposit accounts per 1,000 adults and the situation is even worse in Kyrgyzstan and Tajikistan. Statistics for the latter indicate only 31 deposit accounts per 1,000 adults.
Consequently, the total value of deposits accumulated in the financial system of the country are lower in Central Asia and the Caucasus compared to Eastern Europe.
Use of Credit
Although the statistics on loan accounts were less available than on the use of deposit services, similar geographic trends are seen – the use of credit was higher in countries of Eastern Europe than in Central Asia or the Caucasus and the total value of credit relative to country’s GDP was also higher.
