Access to finance refers to public loans or government subsidised loans for firms. Such loans are intended to support and stimulate economic growth by providing financing to firms where the market is failing to do so.
How can access to finance deliver economic growth?
Access to finance policies are intended to impact on firm growth, productivity and employment. Ideally, any evaluation of access to finance would seek to understand these affects, as well as evaluating the effect on firm financing.
There are a number of reasons why government might support access to finance schemes:
- enabling start-up, micro and small and medium sized firms to grow
- supporting the growth and development of innovative business when social returns exceed private returns (e.g. because of wider impacts on innovation and knowledge, or other societal benefits)
Schemes can support those firms unable to access private finance by:
- Providing information
- Providing incentives to lenders (e.g. tax breaks)
- Indirectly providing finance (e.g. loan guarantees, or ‘funding for lending’ type schemes)
- Directly providing finance (e.g. loans).
Technological change and big data may have a role to play in reducing market failures in accessing finance. Similarly, these changes may also affect the means by which governments choose to provide finance to firms.
What does the evidence on access to finance show?
Access to finance schemes tend to be effective in improving access to debt finance, although there is some evidence that loan guarantees may increase default risk. The evidence on impact on access to equity finance is more mixed.
Even though schemes do improve access to finance, this doesn’t necessarily translate into improved firm performance.
Most of the evaluations that look at some aspect of firm performance do find positive effects. But results are much more mixed when it comes to specific aspects of firm performance - with only around half of the evaluations reporting a positive effect when looking at these (e.g. employment).
You can find more details and other findings in our full evidence review here. Or you can download a summary below. Also below, find a full table of evaluated outcomes - other than those which impact local economic growth.
What policymakers need to know when designing access to finance programmes
Just because a scheme improves access to finance, doesn’t necessarily mean that it improves firms’ economic performance. There is also little available evidence on whether positive effects on individual firms translate in to greater local economic growth. It’s possible that gains to supported local firms come at the expense of other non-supported local firms.
The existing evidence base does not provide much guidance on how to develop programmes to improve policy effectiveness. That is, ‘what works better’ in terms of policy design. For example, there’s no evidence that programmes targeted at Small and Medium Sized Enterprises are more or less effective than non-targeted programmes or that effectiveness differs across different types of programme. Again, our evidence review provides more details. You can download a summary below.
If policymakers want to use access to finance programmes to support local economic growth, we need more evidence on the most effective ways to deliver these programmes.
What policymakers and academics need to know when evaluating access to finance programmes
Too many evaluations of access to finance schemes focus only on the direct impacts on firm financing. We need more evaluations that consider the impacts on firm performance and on local economic growth.
We also need to improve evaluations to provide a more accurate assessment of the effect of schemes and to help us understand which aspects of programme design can improve cost effectiveness. You can learn about how to evaluate at this page.
To help practitioners to evaluate access to finance policy, we have pulled out some examples of good practice in this area:
- Japan’s Emergency Credit Guarantee examines the impact of Japan’s Emergency Credit Guarantee (ECG) programme set up during the 2008 financial crisis. Read more.
- Partial Credit Guarantee Programme examines the impact of a partial credit guarantee programme which was implemented in a large Italian region beginning in 2008. Read more.
- Mexico Microcredit Programme examines the impact of a microcredit programme implemented in a region of Mexico in 2009. Read more.
You can learn more about how we rank evaluations using the Scientific Maryland Scale.