Financial Access Initiative
The Financial Access Initiative is a consortium of leading development economists focused on substantially expanding access to quality financial services for low-income individuals.
Launched with a $5 million grant from the Bill & Melinda Gates Foundation in late 2006, the Initiative is housed at the Wagner Graduate School of Public Service at New York University. The Initiative is led by Managing Director Jonathan Morduch (New York University), Director Dean Karlan (Yale University), and Director Sendhil Mullainathan (Harvard University).
At the Financial Access Initiative we:
- Systematize evidence and communicate lessons. We clarify and organize what is known (and what needs to be known) about the unmet demand for and impact of finance by the poor. Emphasis is placed on presenting the information in actionable frameworks and targeting regulators, donors, and other key decision makers.
- Generate new evidence. Through randomized control trials we fill important knowledge gaps on the nature of demand for financial services; the extent of impacts of financial access on incomes, businesses, and broader aspects of well being; and mechanisms that can increase impact and scale.
- Frame policy and regulatory issues. We describe policy options for central bankers and regulators focusing on experiences across countries, hurdles, and possibilities. The outputs are independent, rigorous guides to policy with an emphasis on direct effects and trade-offs of policy choices.
Why the Initiative is important
The Financial Access Initiative comes at a time when public and private institutions, as well as energetic and dedicated individuals, are working to dramatically expand financial access. Central reserve banks are trying to sort through difficult policy options; donors and investors are directly taking stakes, or pondering taking states, in institutions involved in this process; and commercial banks are experimenting with how they can broaden their customer base to include the very poor, either directly or by working through other institutions. Wholesale investment banks are also delicately stepping into this pool as well.
These efforts are affecting millions of people around the world and could ultimately have an impact on billions. Given the possible benefits, and the pervasive interest, a critical question is: why hasn’t financial access broadened on its own? Are there impediments that can’t be solved by normal commercial means? Or have there been market failures for other reasons? Can and should subsidies be used to extend the reach of the market and create added economic and social impacts?
Recent evidence suggests that market failures can often be overcome through innovative management and contract structures. Still, large gaps remain in understanding how to expand access, and the consequences of pursuing alternatives strategies.
Global regulators are often at a loss when it comes to regulating and promoting, institutions that cater to this area of finance, aware that the institutions involved will not always have the scope to meet global regulations designed for large banks, and yet need to be safely run. Similarly, private participants in this world – donors, large financial institutions, and most importantly, customers – all have a mutual interest in knitting together beneficial relationships.
Donor and microfinance networks have been well positioned to craft coherent policy messages, often in the form of “Best Practices” and donor guidelines. These efforts have centered on finding common ground, and focused on building strong institutions.
But basic research on households and their uses of financial services, while equally important, has been a secondary priority. One consequence is that rigorous empirical knowledge is lacking about fundamental issues like the capacity of microfinance to reach the very poor, the impact of competing loan contracts, interest rate regulations, savings behaviors, the role of non-financial inputs, institutional incentive structures, and voluntary-regulatory structures.
Today, with a robust start but much more innovation needed, the time is right to explore debates, expand conceptual frameworks, and collect better evidence.
Broad interest in financial access means this is an important moment to not only conduct research, but also to put new ideas into practice.
The Logo
This design is an abstraction of the economic supply and demand chart of financial services to the poor, highlighting an outward shift in the supply curve. The green element represents a demand curve, and the blue element represents the supply curve. The outward shift of the supply curve indicates increased financial access for poor households, the primary focus of the Financial Access Initiative.