Financial Exclusion

Abstract

Financial exclusion can be defined as the process by which people of low and moderate incomes are directly and indirectly excluded from the formal financial system and denied access to mainstream retail financial services. Financial exclusion plays an active part in the geography of poverty because those who experience difficulty in gaining access to formal financial services tend to belong to disadvantaged social groups undergoing multiple forms of social deprivation. Financial and social exclusion are often constituents of one another and the links between financial exclusion and social exclusion have been recognized by policymakers and various policy initiatives have been introduced to promote financial inclusion. Access to mainstream financial services within contemporary capitalist societies is recognized as significant because many economic exchanges are mediated through financial institutions, and the use of cash in contemporary capitalist societies has markedly declined. Without access to the financial system, individuals and households may find it more difficult and expensive to pay bills, while the lack of access to products such as insurance denies them the opportunity to shield against risk. Remuneration for paid employment usually requires a bank account into which wages and salaries are deposited and an inability to participate fully in the financial system has implications for income smoothing over time and wealth accumulation. There are distinctive geographies of financial exclusion at a range of geographical scales. In large parts of the developing world, the majority of the population may be excluded from the formal financial system, whereas in industrialized countries such as the US and the UK it is estimated that around one in ten of the population are financially excluded, concentrated mainly in inner-city areas and/or in public sector housing.