Why financial sector development?
Stable, efficient financial systems are an elementary aspect of any national economy. Providing poor households, farmers and small enterprises with improved access to financial services can boost their involvement in economic life and reduce their vulnerability.
At present, poor sections of the population in many development countries are largely excluded from the formal financial sector. This is particularly true of rural regions, where more than 90% of the population often have no access to formal financial services. Typical reasons for this deficiency are a lack of sales and service offices, high costs, insufficient infrastructure, service offerings that are not geared to specific needs, and inadequate legal and regulatory frameworks.
As a result, poorer members of the population often have to resort to relatives, friends and other informal money lenders. Such informal options, however, rarely produce funding for investments.
What are the aims?
In the context of development policy, financial sector development aims to create enduring financial services for broad sections of the population who have so far enjoyed only limited access, if any, to such services.
A well-functioning financial sector is of paramount importance to a country's economic development. It offers the opportunity to mobilise savings for use in productive investments that create income and employment. Providing private households and farmers as well as businesses with access to secure investment opportunities, access to payment transaction systems, credit and insurance services is essential in order to reduce income risks, achieve a more effective cushion against economic and market fluctuations and save for larger investments such as children's education or setting up a business. Insurance against poor crops and natural disasters is particularly crucial in reducing the risks incurred by small farmers. It serves to increase productivity, thus strengthening food security. An efficient financial sector accessible to all segments of the population has the effect of reducing poverty, both at the private household level and from the standpoint of the national economy. It also stimulates economic growth at all levels.
How are they achieved?
“SDC supports its partners in their development, while aiming at sustainability and maximum depth and breath of outreach (access), by strengthening financial sectors at four levels:
Demand side: helping clients in strengthening their social capital and financial literacy, and thus their bargaining position, so as to facilitate their access to institutional financial services.
Supply side: supporting financial institutions that have the potential to significantly expand their services to SDC’s target groups on a costcovering basis and share the development vision in becoming viable institutions to maximise their breath and depth of outreach.
Infrastructure: supporting networks and associations of financial institutions, training institutions, rating agencies, credit bureaus, auditors, transfer and payment systems, information- technology and technicalassistance providers, etc., so as to strengthen FSD.
Policy, regulatory, and supervisory framework: supporting regulatory and supervisory institutions and financial sector reform where framework conditions impede FSD.
SDC gives priority to rural areas and to capacity development in its FSD projects, and intervenes particularly at the first three levels mentioned above.” (SDC Policy for Financial Sector Development)
What will you find on the financial sector development pages?
Under topics, you find a short introduction to each topic of FSD with relevant documents, events, trainings and links. The Resource Box provides you with a manual along the PCM for your FSD projects as well as a selection of different case studies. You find an overview of all projects, events & trainings in the realm of financial sector development under the specific tab. Or you can also explore the latest saving and credit forum, or relevant partners. Last but not least, under reference indicators, you find the official mandatory aggregated reference indicator (ARI) from SDC for FSD, as well as further helpful documents on indicators for FSD.
For downloading our FSD Factsheet, please click here (for the German version here; for the French version here).