The importance of shadow banking sector entities for population affected by credit exclusion

Abstract

The entities included in shadow banking sector, referred to as alternative financial services providers, render services similar to banking ones. They are neither covered by banking law regulations nor subject to state supervision, but create a parallel banking system. The institutions attract clients originating mainly from the group of financially excluded individuals, rejected by banks as the result of their insufficient creditworthiness, or negative history of previously contracted debts. The objective of hereby paper is to identify advantages and threats resulting from activities performed by entities functioning in the shadow banking sector with reference to people suffering credit exclusion. Among advantages the following have to be listed: the provision of financing sources for consumer expenditure which facilitates household finances management; entrepreneurship promotion among the unemployed or the deprived of an opportunity to start their own business. Among threats the following should be emphasized: the danger of getting into the spiral of debt; inability to take advantage of consumer bankruptcy procedure; the threat of advancing poverty in such households which do not manage to have proper control of personal finance owing to poor knowledge and the absence of financial skills.