C HAPTE R 3
The Role of the State in Broadening Access
Introduction This chapter discusses the role of the state in broadening access to finance. In particular, the chapter analyzes the two contrasting views that have dominated the debate regarding the appropriate role of the state in fostering access and their policy prescriptions. It also describes an emerging third view, which seems to be behind some recent innovative experiences to broaden access, like the ones described in this book. Given the potential benefits of access-enhancing financial development, a relevant question is whether state intervention to broaden access to finance is warranted, and, if so, what form this intervention should take. Although most economists would agree that the state can play a significant role in fostering financial development and broadening access, the specific nature of its involvement has been a matter of much debate. Opinions on this issue tend to be polarized in two highly contrasting but well-established views: the interventionist and the laissez-faire views. The interventionist view argues that problems of access to finance result from widespread market failures that cannot be overcome in underdeveloped economies by market forces. Therefore, the state is called upon to have an intense, hands-on involvement in mobilizing and allocating financial resources. In contrast, the laissez-faire view contends that governments can do more harm than good by intervening directly in the allocation of financial resources and argues that government efforts should instead be deployed toward improving the enabling environment, which will help reduce agency problems and transaction costs and mitigate problems of access.
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