Innovative Experiences in Access to Finance: Market-Friendly Roles for the Visible Hand? (Latin American Development Forum)

Interest in access to finance and awareness of its importance have increased significantly since the early 2000s. Growing evidence suggests that lack of access to credit prevents many households and firms from financing high-return investment projects, which has an adverse effect on growth and poverty alleviation. Despite the increasing awareness of the importance of access to finance among both researchers and policymakers, there are still some major gaps in our understanding of the main drivers of access, as well as about the impact of different policies in this area. This book aims to fill some of these gaps by discussing recent innovative experiences in broadening access to credit in Latin America. These experiences are consistent with an emerging new view that, while recognizing the central role of the public sector in improving the contractual and informational environment for financial markets, also contends that there might be room for well-designed, restricted interventions in collaboration with the private sector to foster the development of financial markets and broaden access to them. In particular, the book analyzes, among other things, some interesting experiences from Brazil, Chile, Colombia, and Mexico that use different instruments to broaden access to credit in a sustainable way, such as structured finance, factoring, credit guarantees, and correspondent banking. Most of these experiences have led to financial innovation by developing new financial products and coordinating different players in the financial and real sectors to overcome barriers to access to credit. The book provides a first systematic analysis of these innovative experiences, including an analytical framework to understand problems of access to finance and a discussion of the effects and optimal design of public interventions. Finally, the book discusses some open policy questions about the role of the private and public sectors (including state-owned banks) in broadening access to finance in a sustainable and market-friendly manner.

The role of government is among the most critical but also most controversial dimensions of financial sector development. This book is a thoughtful and important contribution to this debate, combining case studies across Latin America with a rigorous conceptual discussion. It is an important read for academics, policy makers, and other stakeholders in the financial sector. --Thorsten Beck, Professor of Banking and Finance, Cass Business School, London Research Fellow, CEPR; (Co-)Managing Editor, Economic Policy; Coeditor, Review of Finance

De La Torre, Gozzi, and Schmukler show that financial access for small and medium enterprises and low-income people isn t just humane, it is essential to empowering the people who drive growth and poverty reduction for everyone. They also show conceptually and with evidence drawn from recent experiences in Latin America that government has an active role to play, not in micromanaging the allocation of resources, but in solving coordination and risk-sharing problems that permit private institutions to broaden access efficiently. This book should be required reading for any course focusing on smart public policies to spur economic development. --Charles W. Calomiris, Henry Kaufman Professor of Financial Institutions, Columbia Business School

As someone who has long struggled with the question of what useful and effective ways there are for government to get involved directly in improving the access of small business to financial services, I found this book to be a valuable review of some fascinating success stories in Latin America. The authors have done a great job of creating a framework for their five case studies that takes good account of the literature. Plenty of food for thought here for financial sector policy makers. --Patrick Honohan, Former Governor, Central Bank of Ireland and Professor of International Financial Economics and Development, Trinity College Dublin