Scoping and Defining Financial Inclusion, Access to Credit, and Sustainable Finance

By | February 4, 2021

The World Bank, for example, defines financial inclusion as encompassing access to credit and sustainable finance. Other definitions of financial inclusion are circular or conclusory. Writers on sustainable finance also conflate the terms with the environmental, social, and governance (ESG) movement in corporate law or the United Nations’ Sustainable Development Goals.

This symposium article scopes and defines these terms to provide clarity and a practical taxonomy. By scoping, we mean setting the term’s boundaries. Overly broad definitions are problematic because parties may be unable to determine if a concept or law applies to them. Conversely, overly narrow definitions may truncate important normative and regulatory debates.

After scoping, we define these terms based on various criteria. Most critically, each definition must be accurate—reasonably identifying what is being described—and also consistent with market expectations. Accuracy is important because unclear definitions can lead to hard-fought court battles over seemingly minor semantic issues. Consistency with market expectations is important because these terms should be accessible and sensible not only to academics but also to practitioners (including lawyers, legislators, and regulators), consumers, and policymakers.

I. Financial Inclusion

Using this methodology, we propose that financial inclusion should mean expanding account ownership to provide basic banking services, namely, deposit accounts and payment services. This definition is accurate: it reasonably identifies the problem of inadequate account ownership that global institutions and governments have described and measured. Despite decades of progress, the World Bank reports that nearly one-third of adults worldwide still lack a deposit account. Likewise, the Federal Deposit Insurance Corporation (FDIC) reports that, in 2017, 6.5% of American households were “unbanked.”

This definition is also consistent with market expectations. Poor people want a safe space to store their money and an easy day-to-day means to use their money to make payments, such as paying rent or buying groceries.

II. Access to Credit

The scope of access to credit has also been unclear and, often, too expansive. Who should have access to credit? In what amounts? For what purposes?

We define access to credit as making prudent lending available to all, including heretofore underserved borrowers, for beneficial purposes like starting a business. Entrepreneurial lending can create jobs and lift communities from poverty. This definition is accurate because it addresses would-be borrowers’ inability to obtain simple loans. It reflects market expectations by distinguishing access to credit from financial inclusion; account ownership alone does not guarantee access to credit.

Access to credit presents a classic “chicken and egg” problem. The poor lack assets because they cannot access credit, but they cannot access credit because they lack assets to pledge as collateral. Mortgage finance, for example, is especially inadequate in the developing world and disadvantaged communities because nonexistent or confusing titles to real property hinder would-be entrepreneurs from using their homes to obtain collateralized credit.

III. Sustainable Finance

As mentioned, existing definitions of sustainable finance are overly broad and conflate sustainable finance and the ESG movement in corporate law. We contend that sustainable finance should describe a financial system that consistently provides financial inclusion and access to credit. This would mean that a sustainable financial system should broadly provide account ownership and prudent lending.

This definition is accurate because it focuses on finance, not ESG. The definition also is consistent with market expectations because it decouples debates about sustainable finance from politicized issues.

IV. The COVID-19 Pandemic and an Antifragile Regulatory Approach

Finally, we use our taxonomy to discuss possible policy proposals for the financial system’s recovery from the COVID-19 pandemic. As we define it, sustainable finance requires continuously providing account ownership and prudent lending despite black swan events like the pandemic. A sustainable financial system therefore may need to “ring-fence” vulnerable deposit-taking institutions from commercial calamities. After the 2008 crisis, for example, the United Kingdom reinvigorated ring-fencing to protect retail banking, to ensure the basic banking services of safeguarding retail deposits, operating secure payments systems, efficiently channeling savings to productive investments, and managing financial risk.

The pandemic has also demonstrated the importance of inclusive account ownership. The Coronavirus Aid, Relief, and Economic Security (CARES) Act provided direct economic impact payments for many Americans. Yet low-income individuals often lack a bank account to receive a stimulus payment by direct deposit. The homeless cannot even receive checks by mail. Although the Consumer Financial Protection Bureau allows stimulus funds transfers to prepaid cards and prepaid bank accounts, the poor often incur high transaction costs in cashing stimulus checks or obtaining money orders. Conceivably, broadening account ownership could encourage saving for shocks like the pandemic.

V. Conclusion

We have thus explained how recognizing market realities over certain narrow proper law formalities could help the disadvantaged to use their de facto property rights to obtain collateralized credit. If nothing else, we hope that our taxonomy can provide a common set of terms for rigorous debates on how commercial law and financial regulation can contribute to helping the disadvantaged and alleviating economic inequality.


Steven L. Schwarcz is the Stanley A. Star Distinguished Professor of Law & Business at Duke University and Founding Director of Duke’s interdisciplinary Global Capital Markets Center (now renamed the Global Financial Markets Center).

Scoping and Defining Financial Inclusion, Access to Credit, and Sustainable Finance comes from an article that is part of a symposium issue on “Financial Inclusion, Access to Credit, and Sustainable Finance” forthcoming in volume 84 of Law & Contemporary Problems (available at

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