| EU-DG Social Policy: Financial Inclusion (- into what?) |
WHAT DOES FINANCIAL EXCLUSION MEAN - A CRITICAL ASSESSMENT OF THE UNDERLYING APPROACH
The project on financial inclusion which DG Social Policy mandated to a group of people from the debt advice asked the question how exclusion from financial services could be overcome.
The summary of their findings as well as the study itself is annexed.
The conclusions are summarized as follows:
"Finally, over-indebted people should be guaranteed access to basic bank services; financial education and advice should be developed; and financial institutions' social responsibility should be encouraged and monitored."
The valuable research has some basic problems which already arose in the form the European Commission restricted its scope through the somehow predefined outcome. This reflected the state of the art in the 1990ties. In its 2000 Gothenburg Conference on Access to Financial Services the participants discussed the Anglo-Saxon quantitative approach to financial services. Everybody should have access to financial services - this was the old demand and still the major impact of this study.
The participants learned that such a thesis is dangerous.
1 - Such a quantitative approach is easily turned around and used to legitimate easy access for banks and other providers of financial services to all especially poor people. This has heavily favoured predatory lending practices and a political move towards deregelutation in financial services which finally has created the subprime dilemma and the increase in poverty through irresponsible lending practices.
2 - Financial services are not bread and butter. They are means for people to achieve certain goals in labour and consumption. Whether they are needed or not depends on many factors describing modern economies like amount of money transfers, developed markets etc. If in economically underdeveloped markets access to credit is enforced like for example in rural India it has devastating effects since it exploits the needs of poor people and makes them dependent on high interest credit. This was historically called usury and still is. There was a good reason why socially minded religions addressed all credit as usury in societies where direct access to consumption and labour was still predominant.
3 - Even where there is a need to use financial services and this need is empirically assessed the welfare provided by access to financial services depends on its quality. Financial services may be more costly than its productive effects so that also microlenders in the UK or Bangladesh may have reverse effects on the economy of the poor which would show up only if the first assessment study would compare alternative scenarios instead of repayment rates. Irresponsible lending is today one of the major causes of overindebtedness such services are by no means a weapon against it.
4 - Asking for alternative offers in financial services accepts the logic of the market economy that the market can only serve the wealthy and not the poor people. It also accepts another terrible market law that poverty was rounded up into a ghetto requires higher prices for the poor and thus exploits only the poor for coping with poverty in general which is much more due to the behaviour of the wealthy than of those who are trapped into the scoring systems of the financial services providers.
This insight led us already in Gothenbourg 2000 to swear that the next conference should focus on the quality of financial services. It is no suprise that the EU stopped sponsoring the next conference and it was only in 2006 that we founded ECRC and held our Brussels conference on the Responsible Financial Services which have to be fair and sustainable for all. The figures now published by the EU Commission throw us back into ideologies of the last millenium. They are outdated and scientifically meaningless but politically highly welcome where further market liberalisation is promoted.
BACK TO THE NINTIETH? - THE FINDINGS OF THE EU ON FINANCIAL EXCLUSION WITHOUT REGARD TO FINANCIAL NEEDS
Financial inclusion – Ensuring adequate access to basic financial services
The study “Financial Services Provision and Prevention of Financial Exclusion” prepared for the European Commission aims at identifying and analysing the most effective policy measures to prevent financial exclusion of people facing poverty or social exclusion.
What is financial exclusion?
Access to financial services has become a necessary condition for participating in economic and social life. Yet, in most countries, many people encounter difficulties accessing or using appropriate financial services in the mainstream market. Financial exclusion is deeply linked to social exclusion. Poor people or socially excluded people are generally denied access to financial services and the lack of access to financial services reinforces the risk of social exclusion.
How many people are affected?
In the EU-15 countries, two adults in ten lack access to transaction banking facilities; around three in ten have no savings and four in ten have no credit facilities, although rather fewer (less than one in ten) report having been refused credit.
In contrast, one third of people in the new Member States are financially excluded, more than half have no transaction account, a similar proportion have no savings and almost three quarters have no immediate access to revolving credit.
Who is most likely to be financially excluded?
People living on low incomes are primarily affected, and consequently those who are unemployed, lone parents caring full-time for children and people who are unable to work through sickness or disability. Migrants are also particularly affected.
Living in a deprived area increases the likelihood of being financially excluded as does living in a rural area in new member states. This reflects the scarcity of financial service provision in such communities.
Financial exclusion forms part of a much wider social exclusion, faced by some groups who lack access to quality essential services such as jobs, housing, education or health care.
Percentage of population lacking access to a basic transaction account (unbanked) or only limited access (marginally unbanked)
[ Figures and graphics available in PDF and WORD PROCESSED ]
Source : Financial Services Provision and Prevention of Financial Exclusion Study
What are the causes of financial exclusion?
Societal trends such as ageing combined with the technological gap serve to increase financial exclusion.
In addition, many factors are related to supply and demand for services: banks refusing to open full transaction accounts for certain groups of people; lack of accessibility; bad service delivery; high costs of services. In addition, some people mistrust financial institutions or fear a loss of financial control and are therefore deterred from using a bank account.
Financial exclusion is closely linked to social exclusion. Indeed, access to and use of basic financial services such as a bank account and simple transactions are key to social integration; for example in access to work.
Main causes of financial exclusion
[ Figures and graphics available in PDF and WORD PROCESSED ]
Source : Financial Services Provision and Prevention of Financial Exclusion Study
To what extent is financial exclusion an issue at national level?
In half of the countries studied (AT, BE, DE, FR, IE, IT and UK), a national debate on financial exclusion has been led by various players (national governments, consumer organisations, academics...) and governments have responded with different measures.
But in the other half, there has so far been only limited debate about financial exclusion, or none at all. In only three of them, can this situation be justified by either high (ES) or very high (NL and NO) levels of financial inclusion.
The four new Member States covered by the study (BG, LT, PL and SK) all reported a lack of any national debate on financial exclusion. These countries are currently evolving from a situation where many people are not served by financial service providers (minimising the adverse consequences of not being served) to a more 'financialised' society, where the need to tackle the problem of financial exclusion will become more and more acute.
How can we tackle the problem?
Financial services providers have adopted a wide range of responses in the fourteen countries studied, to address both problems of access and use.
Mainstream commercial providers have developed simple, low cost transaction bank accounts to meet the needs of people on low and unstable incomes (BE, DE, IT and UK) or implemented partnerships to assist other types of providers in setting up their own banking services (BE, UK and NL).
Social-oriented providers, including savings banks, post offices and other mutual co-operative providers, have been even more active than private banks in developing new products and alternative financial services (co-operative and savings banks in DE, post offices in IE, IT and UK). In some cases, they have been the sole providers of these services in their country (savings banks in AT and ES, postal bank in BE, FR and PL).
The banking sector has developed voluntary charters and codes of practices to provide for “basic” bank accounts in six out of the fourteen countries studied.
In addition, governments have acted as a facilitator to financial inclusion. They have encouraged banks to offer basic bank accounts (in BE, DE and UK as a first step) and promote easier access to basic financial services. In some cases, they directly provide financial services for low income people or education and training to people reluctant to use financial services.
What are the main policy recommendations?
First, governments should develop clear indicators of the extent of the financial exclusion problem and be able to assess the efficiency of measures implemented and their impact on financial exclusion.
Second, the situations and needs of vulnerable groups should be fully taken into account in policies to ensure financial capability of banking institutions, consumer protection and transparent relationships between financial service providers and customers.
Finally, over-indebted people should be guaranteed access to basic bank services; financial education and advice should be developed; and financial institutions' social responsibility should be encouraged and monitored.
Background
The study "Financial services provision and prevention of financial exclusion" has been achieved in 2007-2008 by a European consortium led by Réseau Financement Alternatif. The study covers transaction accounts, savings and credit facilities. The final report is based on Eurobarometer data, reports assessing in details the situation in fourteen countries (Austria, Belgium, Bulgaria, France, Germany, Ireland, Italy, Lithuania, The Netherlands, Poland, Slovakia, Spain, United Kingdom and Norway) and ten thematic papers:
1. Financial exclusion problem in New EU countries in comparison to EU-15
2. Legislative action by governments to promote financial inclusion
3. Migrants and financial services
4. Social, economical and financial consequences of financial exclusion
5. The link between financial exclusion and over-indebtedness
6. Indicators of financial exclusion to be used in EU poverty monitoring
7. Alternative Financial Credit Providers in Europe
8. The Role of Credit Unions in dealing with financial exclusion in New EU countries
9. The Role of Corporate Social Responsibility to promote financial inclusion
10. Tackling financial exclusion in Europe: The market response |
| ID: |
41520 |
| Author(s): |
UR |
| Publication date: |
10/07/08 |
|
|
|
|
| | |
Created: 16/07/08. Last changed: 16/07/08.
Information concerning property and copy right of the content will be given by the Institut For Financial Services (IFF) on demand. A lack of explicit information on this web site does not imply any right for free usage of any content. |
