Abstract
Whenever a household faces lack of banking payment services and access to funding, it often constraints their everyday activities and the chance to avail the financial services again. Our study explores the possible explanations of why a household becomes financially excluded in an underdeveloped area of Northern Hungary. By using a questionnaire (n = 502) in the spring of 2019, we conducted a covariance-based SEM analysis for detecting the key reasons. We find that the low level of income, high ratio of financial problems and high intensity of short-term borrowings equally and directly contribute to the financial exclusion of the households. Furthermore, we could not confirm any direct effects of the banking service availability, although bank services significantly influence an intermediary factor, which is the increasing repayment problem in the social environment. Our results verify the responsibility of the regulation in lending and debt collection to achieve a better social policy.
Highlights
Financial services are elementary tools of households in achieving their everyday life goals
Our study focuses on the access of finance, we note that the willingness to use may imply financial exclusion, Highways to Hell? Paths Towards the Formal Financial Exclusion:
The third is the drawbacks of information asymmetry. We identify this phenomenon under the negative consequences of default in the social network, which indicates that the social environment of a household experiences more negative consequences with loan repayment problems
Summary
Financial services are elementary tools of households in achieving their everyday life goals. Among the most vulnerable people in the society, debt overhang often results in financial exclusion, which is defined as ‘a process whereby people encounter difficulties accessing and/or using financial services and products in the mainstream markets that are appropriate to their needs and enable them to lead a normal social life in the society in which they belong’ Bhalla and Lapeyre (1999) shed light on globalisation leading to social polarisation in Hungary and Poland Their examples demonstrate that a large number of people trapped in precarious and often informal forms of work in parallel with unemployment become socially excluded and impoverished. This phenomenon still exists 20 years later in the low-income part of the society. Household members face uncertainty around their employment, social isolation and the disadvantages of spatial distribution in rural areas
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