Although a lot of progress has been made in promoting financial inclusion, billions of people in developed and emerging markets remain financially underserved. 54% of adults in developing economies had an account in 2014, up from 41% in 2011 – but 2 billion adults remain unbanked.
Starting with the 1990s, financial inclusion and financial exclusion began to become popular in theory and in practice, mainly in Europe and international organisations. The United Nations, the International Labour Organisation, the European Union’s commissions, and others have developed programmes which built their social strategies on these concepts.
The term financial exclusion is used in different ways but is most often defined as a broad concept describing a lack of access to, and use of, a range of financial services. Statistics usually differentiate between the ‘unbanked’ (those who do not use any financial services at all) and ‘underbanked’ (those who have limited access to financial services).
Financial exclusion, the opposite to financial inclusion: it is a state where individuals cannot access the financial products and services that they need.
Financial exclusion can have different roots, stemming from high-interest rates, low-income consumers’ lack of access to suitable financial products, disability, non-existent information, cultural and language barriers, and others. Despite them, low income and poverty are often proven to be the main causes.
Financial exclusion can be either voluntary or involuntary. Voluntary exclusion occurs when people have access to various financial resources but choose not to use them. This is based on cultural or religious reasons or a lack of need. Involuntary exclusion, on the other hand, results from a number of reasons mentioned above. Usually, those who suffer most from financial exclusion are women, people working on minimum wage, part-timers, the unemployed, the disabled, retirees, students, and monoparental families.
Although financial exclusion is indeed more prevalent in developing and emerging countries, it is stubbornly persistent in many developed markets, leaving huge swaths of populations unbanked or underbanked. In 2008, the EC (European Commission) released the Financial Services Provision and Prevention of Financial Exclusion overview; it focused on where financial exclusion happens and what determines it from a socio-demographic point of view. The EC found that financial exclusion is characterised by involuntary motives. It happens when someone doesn’t have access to a bank account or credit, insurance, or savings. The report found multiple access levels to bank accounts and differentiated between appropriated and unappropriated credit.
In Europe, North America, Australia, and Southeast Asia, there are movements for providing people with access to banking services. The basis for these movements comes from more bank branches disappearing, financial institutions’ high profits and inherent social responsibility, and overall social inclusion needs. This problem can only occur when most of the population uses bank accounts. In this situation, those left on the outside find that it is costly and exclusive.
The repercussions of financial exclusion are just as evident in developed countries and the harsh realities of exclusion are just as real. The financial crisis has exacerbated this situation, as many households have found themselves unable to refinance their mortgages or access loans to buy household goods.
63 million American adults are either unbanked or underbanked. Across Europe, the figures vary widely by country. Already in 2008, the European Commission proposed an overview of the stance: Financial Services Provision and Prevention of Financial Exclusion (2008), focusing particularly on geographical zones and sociodemographic determinants of financial exclusion. Through the Eurobarometer survey, the European Commission concluded that 1 in 10 Europeans does not have access to an account. In 2008 there were ten new countries admitted to the EU, and in those countries the percentage grew to 47%. Total exclusion in the EU at the time (15 member countries) was 7%, with Italy recording 16% as opposed to France having 2% (3% in Germany and 8% in Spain). Not surprisingly, the report concluded that financial exclusion was caused by age, education level, low income, living in disadvantaged areas, unemployment, immigration, and single parenthood.
Often, the first step to social and economic inclusion is having a formal bank account, as it is needed to get paid and it provides access to savings and liquidity. Bank accounts are useful in cutting down transaction costs; they allow people to gain access to credit, help women gain financial autonomy, and cut down fraud risks.
However, if financial inclusion can be defined, at a first level, as the access to financial services, generally associated with the ownership of a bank account, it is useful and especially relevant for developed countries to take into account broader definitions of financial exclusion.
Access to financial services continues to be, in the vast majority of cases, conditional on having primary access to a payment account, which is generally offered by a bank, but not exclusively. For this reason, all of the existing barriers in accessing a payment account can in turn affect access to other products and services.
The World Bank defines the key areas that are considered essential and therefore ones to which all in society should have access:
The real effect of financial exclusion is felt by society when accessing other services beyond opening a bank account. These other dimensions of financial exclusion constitute the real issue for societies.
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