Financial Inclusion

Samuel Kirwan

• Publisher: Agenda Publishing
• Year: 2021
• ISBN:
  9781788214315
• Topic: Personal Development
• Subtopic: Personal Finance

Without access to mainstream financial services, people pay more for goods and services and have less choice. The impacts of exclusion are not just financial but also affect education, employment, health, housing, and overall well-being.

Limited access to financial services also impedes economic development in impoverished communities, which has prompted policy-makers, private institutions and NGOs to develop strategies to address financial inclusion. Drawing on a series of illustrative case studies – from India's micro-credit industry to mobile banking in South Africa – Samuel Kirwan examines the various types of policy implementation in developed and developing countries, and considers the social impact and efficacy of such economic intervention. While acknowledging the risks and pitfalls of government-backed and private financial inclusion practices, the book makes a strong case for the value of financial inclusion both as a conceptual term for clarifying the stakes of material poverty and as a policy tool that creates a space for meaningful changes in economic practices.

The book provides valuable insight into the role of government policy in combatting inequality and is a welcome resource for researchers examining the socio-economic dimensions of poverty and attempts to address it.

1

Introduction

OUR GOAL: To help people in the world’s poorest regions improve their lives and build sustainable futures by connecting them with digitally-based financial tools and services.

(Bill and Melinda Gates Foundation 2017)

We seek a world in which people have the financial ability to deal with and adapt to climate change, gender inequality, and data opportunities and risks.

(Centre for Financial Inclusion 2020)

Such ambitions, voiced on a global scale in the Maya Declaration on Financial Inclusion (AFI 2012) and the World Bank’s Financial Inclusion Global Initiative, play an increasingly important role in current debates on sustainable development. The goal of Banking the World (Cull et al. 2013) not only identifies a form of development that, bringing together the governmental, financial and NGO sectors, benefits from significant support; it also claims solidarity with the dreams and ambitions of the poor. From being a fringe discourse within human geography in the mid- to late 1990s (see Leyshon & Thrift 1994, 1995, 1996), financial inclusion has become a dominant and relatively unchallenged framing of both the problem of poverty and its potential solutions in the developing and developed worlds.

This book serves as an introduction for readers in the social sciences to the concept of financial inclusion. Despite playing a key role in shaping policy decisions across multiple national domains, as well as understandings of inequality and development globally, analysis and critique of the concept has been for the most part confined to the fields of economics and development studies. Importantly for this book, it has rarely been taken seriously as a concept in relation to class, gender and material poverty in different national settings.

The book follows the development and application of financial inclusion within various policy contexts. It introduces readers to the different roles the concept has played as well as the complex and unexpected ways in which initiatives have reshaped socio-economic practices. It traces and analyses key differences of interpretation, notably that between how the term has been used in developing and developed countries, as well as its relation to the sister terms financial exclusion, financial capability, financial literacy and others.

My aim is both to introduce and to challenge the concept of financial inclusion from a social scientific perspective. The guiding questions for the book are concerned less with the success of financial inclusion than they are with the distinct and common features of the different initiatives and programmes that are brought together under this term. What does it mean to designate exclusion from financial services – rather than education, housing or any other aspect of life – as the key space of social policy intervention? And how are family and other relations affected by attempts to enable or facilitate access to financial services? While the social sciences have, with good reason, been suspicious of definitions of poverty seemingly framed and led by the financial sector, the book seeks to ask whether there is something to be retained in this particular definition of inclusion and exclusion, given that it names a condition that most social scientists would recognize, namely that it costs more to be poor.

The book engages with the growing body of critique regarding financial inclusion as both a concept and an area of intervention. Indeed, indications of the changing status of the term are difficult to miss; R. V. Reddy, one of the initial key voices promoting the application of the concept in India, has stated that financial inclusion is “not an end in itself” (The Hindu 2016); responses to the United Kingdom Select Committee on Financial Exclusion urged the commission to “be a bit more honest” about the overriding challenge of poverty (House of Lords Select Committee on Financial Exclusion 2017: 16), and the most widely known financial institution involved in financial inclusion, the Grameen Bank in Bangladesh, has been subject to a wave of criticism since the early 2010s (Kazmin 2014), including a prominent accusation that microcredit represented a “death trap” for the poor of Bangladesh (Ahmad, quoted in Melik 2010).

Drawing upon a growing body of critical perspectives on financial inclusion, the book invites reflection upon how a sphere of well-meaning activity, rooted in the real needs of individuals and with significant potential for improving lives, might nonetheless deepen existing power structures and exacerbate forms of inequality. Financial inclusion, for many, is a term through which entrenched conditions of poverty can be ignored, or indeed fostered, as social and economic policy are aligned to expanding the customer base and profitability of financial services by drawing in poor and rural populations.

Each of the five stories of financial inclusion presented in the book brings together these intertwined dimensions of financial inclusion: how inclusion and exclusion from finance are defined; how initiatives and programmes are developed and implemented; and how critical literatures can challenge and deconstruct established assumptions and narratives, seeking to reveal the wider structural forces at play in each setting. Each story also explores, through the work of economic anthropologists, the material impacts of being financially included: how individuals, families and households responded to and were affected by specific policies, technologies and services.

As the book brings these material impacts together, it is clear that the financially included subject neither fits the model of the empowered entrepreneur found in NGO literatures, nor of the exploited consumer found in the most critical perspectives within political economy. I argue that the concept of financial inclusion does indeed bring an overdue recognition of the creativity and resilience of poor and marginalized groups. Yet it often ignores these subjects’ existing relationships with debt and money, thus missing how inclusion might reshape, rather than replace, ongoing financial relationships and obligations. I show how, conversely, critical perspectives identify the commercial interests and power relationships that shape the financial inclusion field and its everyday effects. Yet there is a risk that, by situating financial inclusion as the root cause of the financial difficulties faced by marginalized groups, one misses how financial inclusion might equally be an opportunity to mitigate or deal with processes of economic and social change that are already affecting their lives.

The book has three key goals. First, it seeks to give a rounded view of financial inclusion, reducing it neither to an institutional field, a specific concept, nor a set of interventions. By addressing multiple such modalities of financial inclusion, I hope to give a broader view of what is meant by this complex term. Second, by drawing upon social scientific concepts and research I seek to challenge the assumptions, grounded in abstract economic theory, that have hitherto guided the financial inclusion field. As a reflection of this, the book seeks to combine a top-down approach to financial inclusion, tracing the institutional and conceptual changes that shape the financial inclusion field, with a ground-up perspective: how it is lived and experienced. Third, the book proposes an agenda for critical financial inclusion. This would recognize and support the valuable work done within the financial inclusion field, while orienting evaluations of success away from the false binaries of exclusion/inclusion and formal/informal financial services, and towards the task of giving marginalized groups a meaningful role in shaping the role of finance in their lives.

Structure of the book

Chapter 2 presents an introduction and overview of financial inclusion as a concept and an institutional field. The chapter sets out: key definitions of the term; how uses differ between geographic and institutional settings; relationships with related terms; and the key institutions and other actors that make up the financial inclusion field. Having established this institutional and conceptual terrain, Chapters 3 to 7 present five different stories of financial inclusion: diverse accounts of how financial inclusion has been implemented and approached across five continents. Each story is used as the basis for an exploration of a different modality of financial inclusion: a particular way in which financial inclusion appears or occurs.

Addressing the field of microcredit and microfinance, Chapter 3 explores how the provision of small loans, with a particular focus upon lending to women in rural communities through the group lending structure, became the go-to solution for issues of rural poverty in the Global South. It explores accounts of the experience of microcredit in Bangladesh and India, detailing how microcredit reshaped existing structures of power and was used alongside other forms of debt.

Chapter 4 explores the history of redlining and reverse redlining in the United States. It continues a theme begun in Chapter 3, namely of financial inclusion as the creation of new markets, and new sites of profit, from formerly excluded groups. It describes how processes of financial inclusion, by seeking to overturn forms of historic discrimination, can continue this discrimination through the deleterious terms on which excluded groups are included. Through the concept of the feminization of finance, the chapter explores how the inclusion of women is often a double-edged sword, bringing possibilities but also new responsibilities and risks.

Chapter 5 addresses the development of financial capability training in the United Kingdom. It notes how, in the Global North, the focus of financial inclusion has been upon changing individual habits and knowledge. The chapter charts the changing contours of this idealized financial subjectivity in the UK, noting distinct tensions between the narratives of asset-based welfare and a financial capability regime focused upon debt avoidance and frugality.

Chapter 6, looking at conditional cash transfer systems in Latin America, explores how financial inclusion can be a political project for remaking the behaviours and habits of specific populations over long periods of time. This chapter addresses a key question that is rarely asked in financial inclusion discussions, namely that of the meaning of money. If money is being presented as the answer to peoples’ problems, how does this sit in tension with existing financial practices?

In the final story of financial inclusion, presented in Chapter 7, I turn to the development and use of mobile money in Kenya and across sub-Saharan Africa. Unlike the other chapters, in this setting the direction of the financial inclusion process was driven not by governmental or financial institutions (although these had a role), but rather by the creative uses to which consumers were putting a new technology to meet a specific financial need. The chapter addresses how financial inclusion is used as a measure of the changes created by mobile money, but in a way that does not grasp the fundamental shifts in financial practices and relationships that it has enabled.

The concluding chapter of the book brings together the different critical themes explored across these stories of financial inclusion. It addresses the key challenges to the financial inclusion concept, presenting a series of questions that need to be asked wherever financial inclusion is raised as the solution to societal problems. The chapter finishes by setting out the beginnings of an agenda for critical financial inclusion, based upon a call to include marginalized populations in shaping ongoing processes of financial change.

2

What is financial inclusion?

Defining financial inclusion

Considering the diversity of actors and interventions that draw upon the term, as well as the range of spaces and contexts in which it is applied, it is not surprising that there are ongoing tensions over what financial inclusion actually means. The task of defining financial inclusion has been the subject of an ongoing project led by the Centre for Financial Inclusion (discussed further below), recognizing the agreement among key actors for a strategic need for an effective definition, in particular given the bold claims made in the Maya Declaration and elsewhere for its transformative effects.

[We] recognize the critical importance of financial inclusion to empowering and transforming the lives of all our people, especially the poor, its role in improving national and global financial stability and integrity and its essential contribution to strong and inclusive growth in developing and emerging market countries.

With this in mind, it is useful to start with two canonical definitions.

Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.

(World Bank 2020)

Full financial inclusion is a state in which all people who can use them have access to a full suite of quality financial services, provided at affordable prices, in a convenient manner, and with dignity for the clients. Financial services are delivered by a range of providers, most of them private, and reach everyone who can use them, including disabled, poor, rural, and other excluded populations.

(CFI 2010)

There are clear resonances and similarities between these definitions. Both highlight access rather than use, foregrounding the importance of consumer choice; both are keen to make clear that financial inclusion includes a range of services and not simply the provision of credit. Yet there are subtle differences between them that highlight key questions for further exploration. The first concerns who the subject of financial inclusion is: is it individuals and businesses, or the unbanked? The former suggests that strengthening the private sector is a key aspect of financial inclusion: enabling people to invest and trade rather than simply manage their money.

Furthermore, there is an important difference between an emphasis upon the dignity of clients, and responsible and sustainable delivery. Should the measure of true financial inclusion be based upon the experiences and needs of the consumer or those of the provider? Such considerations highlight the potential for inclusion to not necessarily be positive. If there are explo...

Table of contents

• Cover
• Half Title
• Series Information
• Title Page
• Copyright Page
• Contents
• 1 Introduction
• 2 What is financial inclusion?
• 3 Financial inclusion as a tool of poverty eradication: the case of microcredit
• 4 Financial inclusion as the production of new markets: the case of reverse redlining
• 5 Financial inclusion as financial subjectivity: the case of financial capability in the UK
• 6 Financial inclusion as political project: the case of conditional cash transfers
• 7 Financial inclusion as transformations in financial practice: the case of mobile money
• 8 Conclusion
• References
• Index