Access to financial services, or rather the lack thereof, is often indiscriminately decried as problem in many developing countries. This paper argues that the —problem of access“ should rather be analyzed by identifying different demand and supply constraints. We use the concept of an access possibilities frontier, drawn for a given set of state variables, to distinguish between cases where a financial system settles below the constrained optimum, cases where this constrained optimum is too low, and–in credit services–cases where the observed outcome is excessively high. We distinguish between payment and savings services and fixed intermediation costs, on the one hand, and lending services and different sources of credit risk, on the other hand. We include both supply and demand side frictions that can lead to lower access. The analysis helps identify bankable and banked population, the binding constraint to close the gap between the two, and policies to prudently expand the bankable population. This new conceptual framework can inform the debate on adequate policies to expand access to financial services and can serve as basis for an informed measurement of access.

Access to financial services or outreach of the financial system has become a major concern for many policymakers in developing countries. While the use of financial services measured as having deposit accounts with banks–reaches over 90% in most high-income countries, in many low- and even middle-income countries the use of formal financial services is still restricted to a small number of firms and households (Peachey and Roe, 2004; Beck, Demirguc-Kunt and Martinez Peria, 2005). Moreover, the intense financial sector reforms undertaken by many emerging economies over the past decade–doing away with interest rate controls and directed credit, liberalizing entry and privatizing state-owned banks–have not led to the type of broadening of access to financial services that was initially expected, particularly for lower-income households and small and medium-size enterprises (SMEs).