Mainstream Financial Services Research Articles

A systematic conceptual review of financial access

AbstractFinancial access is used in practice and research as an important concept relevant to financial capability and financial well‐being. This study examines the literature on individual financial access and develops a conceptualization, definition, domains, and proposed items. Following a systematic conceptual review method, the review is based on 171 articles published during January 2012–August 2022 retrieved from Scopus and Dissertation and Thesis Global. Using grounded theory, data were coded related to financial access definition, concepts, measurement, and associated content. The domains identified were Mainstream Financial Products and Services, Institutional Practices of Available Mainstream Financial Service Providers, Individual Resources and Intrinsic Qualities and Abilities, and Individual Financial Action and Perceptions. Financial Products or Services Utilized by Social Programs to Provide Benefits was added. Study implications include the need to broaden the focus of policies and practices beyond ownership of financial products and services. Directions for future research are discussed.

Political freedom and financial inclusion: Unraveling social trust and political rent-seeking

This paper delves into the role of political rights in shaping financial inclusion. Despite the acknowledged significance of political institutions in influencing financial systems, there remains limited understanding of the economic origins of the impact of political institutions on financial inclusion. Utilizing data from the 2021 Global Findex database, the study finds that weak political rights significantly reduce the likelihood of individuals possessing financial accounts and using digital financial services. Robustness tests employing an instrumental variable and the difference-in-differences framework confirm that inadequate political rights have a detrimental effect on financial inclusion. By exploring the reasons for financial exclusion and moderating factors, this study provides supportive evidence for the mechanisms of eroded social trust and political rent-seeking as the key constraints that hinder inclusiveness in providing mainstream financial products and services.

Financial inclusion: a catalyst for financial system development in emerging and frontier markets

PurposeThis study aims to examine the relationship between financial inclusion and financial system development in emerging and frontier markets.Design/methodology/approachUsing data across 35 countries over 19 years (2004–2022), the improved GMM estimation technique reveals that financial inclusion significantly contributes to the development of financial systems.FindingsThe study uses a segmented approach, dividing financial development indices into subindices: financial depth, financial access and financial efficiency. Indicators of bank financial inclusion show a positive and highly significant relationship with bank depth and access but a negative relationship with bank efficiency. Similarly, indicators of the debt market and stock market financial inclusion demonstrate positive relationships with market depth and access but negative relationships with debt and stock market efficiency. The study further examines composite indexes of financial inclusion for bank, debt and stock market segments, finding strong and highly significant relationships with market development. These results underscore the importance of promoting financial inclusion across all segments of the financial sector to achieve an inclusive financial system.Practical implicationsThe implications of this research highlight the need for policymakers and practitioners to implement policies and regulations that enhance financial inclusion and foster the development of robust financial systems. By extending access to mainstream financial instruments and services, financial institutions can stimulate financial intermediation and support, thereby accelerating the development of the banking, debt and stock markets.Originality/valueThe study is robust to the use of several indicators of financial inclusion and financial development, and it forms part of the early studies that examine the close relationship between the two variables.

Financial Inclusion Through Banking for the Poor: A Study on Cycle Rickshaw Pullers in West Bengal

Financial services actively contribute to the economic development of society. This leads to social safety that protects people from economic shocks. The present study seeks to ascertain whether cycle rickshaw pullers of West Bengal have bank accounts and to also investigate if bank account awareness among cycle rickshaw pullers are affected by different socio-economic factors. The study has been conducted on 170 rickshaw pullers who belong to the poor and marginalized sections of society. The study uses logistic regression to estimate important factors that influence the opening of a bank account. The goodness of fit of the model is checked in terms of the Hosmer–Lemeshow test. A large percentage of this group of rickshaw pullers is excluded from banking services. Among the 10 explanatory variables, the study finds that the number of years pulling cycle rickshaws, the monthly income and social participation are the factors that significantly influence the opening of a bank account. It has been observed that the respondents have meager incomes, low levels of health care and personal well-being, lives entrapped in poverty and are, on the whole, excluded from the mainstream. To include them in the mainstream financial services, the study suggests valid recommendations to draw the attention of the regulators and banks towards financial inclusion. JEL Codes: G21, G29

Improving Youth Financial Literacy: A Profile of Middle School Camp Attendees

The purpose of this paper is to present a profile of middle-school-age youth who participated in a week- long experiential residential camp focused on helping campers learn about and interact with money, personal finance topics, and mainstream financial service providers. Based on pre- and post-test data, it was determined an experiential real-world camp experience can increase the financial confidence and goal-setting abilities of young people.

The Lived Experience of Financialization at the UK Financial Fringe

AbstractThe financialization of everyday life has received considerable attention since the 2008 global financial crisis. Financialization is thought to have created active financial subjects through the ability to participate in mainstream financial services. While the lived experience of these mainstream financial subjects has been the subject of close scrutiny, the experiences of financial subjects at the financial fringe have been rarely considered. In the UK, for example, the introduction of High-Cost, Short-Term Credit [HCSTC] or payday loan regulation was designed to protect vulnerable people from accessing unaffordable credit. Exploring the impact of HCSTC regulation is important due to the dramatic decline of the high-cost credit market which helped meet essential needs in an era of austerity. As such, the paper examines the impact of the HCSTC regulation on sixty-four financially marginalized individuals in the UK that are unable to access payday loans. First, we identify the range of socioeconomic strategies that individuals employ to manage their finances to create a typology of financial subjectivity at the financial fringe. Second, we demonstrate how the temporal and precarious nature of financial inclusion at the financial fringe adds nuance to existing debates of the everyday lived experience of financialization.

The relationship between vulnerable financial consumers and banking institutions. A qualitative study in Spain

The financial exclusion phenomenon has been approached from different perspectives. After reviewing the recent literature, we adopt a financial ecology approach and propose a comprehensive framework to analyse the different types of difficulties (access, use and perception) that vulnerable financial consumers face in relationships with banking institutions as well as their underlying causes. We consider financial inclusion as the sustainable provision of financial services and products and an adjustment to individual needs. We examine a special group of urban vulnerable consumers: underbanked people facing poverty and social exclusion. Data were obtained from focus groups and were coded and analysed using qualitative data analysis software. The results show that use difficulties predominate, followed by perception difficulties. Bank pressure and lack of financial training stood out among the main causes of these financial difficulties. We conclude that poorer neighbourhoods constitute a distinctive financial ecology produced by the ‘discrimination’ of a significant number of their inhabitants in the use of mainstream financial services. The study provides evidence of the socio-spatial nature of the exclusion process and calls for further research on the role of policy responses to restrict abusive practices.

Financial Capability and Financial Planning at the Verge of Retirement Age

Financial capability is an important public policy concern, particularly as it relates to retirement preparedness. Almost one-third of older adults in the United States, those over the age of 55, have neither retirement savings nor accumulated pension benefits. Focusing on low-income adults who are nearing retirement, we explore the relationship between financial-planning behaviors (paying bills on time, emergency savings, and retirement planning) and two key components of financial capability, financial education and financial inclusion. Using data from the 2015 National Financial Capability Study, the results point to the role of financial inclusion for financial-planning behaviors. Having access to mainstream financial services was more strongly associated with the three financial-planning behaviors than was participating in financial education in the workplace. These results for low-income older adults held for the middle-income groups but were weaker for higher-income households. The results highlight efforts targeting financial inclusion for the financial planning of low-income older adults nearing retirement age. Policy implications include suggestions for interventions to facilitate financial inclusion for those nearing retirement age.

Informal Borrowers and Financial Exclusion: The Invisible Unbanked at the Intersections of Race and Gender

Previous work has found that predominantly Black and Hispanic neighborhoods continue to have less access to mainstream financial services and a greater prevalence of high-cost alternatives. Less attention has been dedicated to the other financial tools available to financially excluded households. Borrowing from friends and family is one widely used yet under-examined strategy for coping with emergency expenses. The literature provides preliminary evidence that informal borrowing and the costs of such borrowing are unequally distributed by race and gender. Drawing on data from the Survey of Household Economics and Decisionmaking, this article identifies predictors of planned informal borrowing use and examines whether this borrowing is symptomatic of financial exclusion using a bivariate probit model. Women of color are disproportionately likely to plan on using informal borrowing as their sole strategy for coping with an emergency expense. Black women in particular are twice as likely to do so as White respondents. While this informality occurs among the banked and unbanked, unobserved factors such as limited access to bank branches link financial exclusion and informal borrowing.

Asset-building and social inclusion: A qualitative analysis of families’ perspectives

SummarySocial inclusion has historically been one of the key goals of the welfare state. Over the past two decades, an increasing number of policies have aimed to promote inclusion by connecting low-income families to mainstream financial services and enabling them to save and acquire assets. Building on the concept of the “paradox of inclusion,” this article examines whether and how policies that aim to include low-income families in asset accumulation do so in ways that risk reinforcing their exclusion. The article focuses on a case study of a matched savings program in the heart of a major American city, gathering evidence through in-depth interviews with 24 clients in the program and ethnographic observations at the agency implementing the program.FindingsFindings show that the program enhances families’ feelings of social inclusion, but it also creates the possibility for social exclusion in two distinctive ways: teaching families to save even under challenging circumstances and encouraging them to pursue the risky venture of homeownership.ApplicationThis research suggests that addressing the structural sources of poverty and training social workers to be more sensitive to low-income families’ distinctive circumstances are necessary to ensure that they are included as full members of society.

The Community Reinvestment Act (CRA) and Bank Branching Patterns

ABSTRACTThis article examines the relationship between the Community Reinvestment Act (CRA) and bank branching patterns, measured by the risk of branch closure and the net loss of branches at the neighborhood level, in the aftermath of the Great Recession. Between 2009 and 2017, there was a larger decline in the number of bank branches in lower income neighborhoods than in more affluent ones, raising concerns about access to mainstream financial services. Once we control for supply and demand factors that influence bank branching decisions, we find evidence that the CRA is associated with a lower risk of branch closure, and that the effects are stronger for neighborhoods with fewer branches, for larger banks, and for major metropolitan areas. The CRA also reduces the risk of net bank losses in lower income neighborhoods. The evidence from our analysis is consistent with the notion that the CRA helps banks meet the credit needs of underserved communities and populations by ensuring the continued presence of brick-and-mortar branches.

Employing Islamic Microfinance in Addressing Poverty Challenges in Brunei

Countries within the Asian region are continuously struggling to improve the living standards of their citizens. Some of them are still facing a plethora of challenges due to the ever-increasing levels of both relative and absolute poverty. This is especially among the poorest of the poor who have no access to the mainstream financial services. The conventional microfinance institutions have been greatly criticised for their dubious acts of charging exorbitant interests. Islamic microfinance has therefore, been seen as one of the viable alternatives to meeting the challenges of poverty and as an opportunity in the livelihoods of the people in the Asian region. This article analyses the magnitude at which Islamic microfinance can play a fundamental role in alleviating insignificant poverty levels in Brunei Darussalam through using a proposed Mudarabah financing model.

Financing decisions of migrant family businesses: the case of a Ghanaian-owned shop in Kent

PurposeThe purpose of this paper is to examine how a Ghanaian migrant family business in Kent makes financial decisions and measures business growth within the framework of Social Network theory and focussing on influences such as family, cultural and social factors.Design/methodology/approachCase study: migrant Ghanaian family business owner in Kent, first generation who migrated to the UK after the year 2000. The business is a small and medium enterprise and running the business as a family.FindingsThe narrative highlights important aspects of cultural and social factors that are not usually considered in credit analysis or applications for a relationship with a mainstream financial services institution. It is also indicated that family and personal attributes and culture had the most social capital for the shop owner to use or explore in taking her financial decisions. The discussions provide a basic framework for future research.Originality/valueThere is a gap in the research of Ghanaian migrant family businesses in the UK, in particular of their financial decision making process.

Analyzing the relationship between institutional framework and financial inclusion in rural Uganda

PurposeThe purpose of this paper is to report the findings on the mediating effect of social network in the relationship between institutional framework and financial inclusion in rural Uganda.Design/methodology/approachThe study employs a cross-sectional research design to collect data used to test for mediation under this study. Structural equation model (SEM) through use of bootstrap in the Analysis of Moment Structures (AMOS) was adopted to establish the existence and type of mediation by social network in the relationship between institutional framework and financial inclusion.FindingsSocial network had a partial mediating effect in the relationship between institutional framework and financial inclusion. In addition, institutional framework through its regulative, normative and cultural-cognitive pillars also exhibited a significant direct effect on financial inclusion. Besides, social network had a positive and significant effect on financial inclusion. This suggest that there exist both a direct effect of institutional framework on financial inclusion and an indirect effect of institutional framework through social network on financial inclusion.Research limitations/implicationsWhile the sample for this study was big enough, it limited itself to only poor households in rural Uganda. Besides, the current study adopted cross-sectional design, thus, leaving out longitudinal design to investigate the characteristics in the sample over time.Practical implicationsThe study makes significant empirical contribution and implications to financial inclusion policy makers on evidence of the critical role played by social network in indirectly enhancing the relationship between institutional framework and financial inclusion of the poor who are vulnerable to exclusion by main stream financial services’ providers.Originality/valueThe study recommends that social network, which acts as a conduit through which useful information flow and can be shared, plays a critical role in mediating the relationship between institutional framework and financial inclusion in rural Uganda. Therefore, the study contributes to existing body of literature by highlighting the mediating influence of social network in the relationship between institutional framework and financial inclusion, especially in rural Uganda.

A Different Kind of Subprime: Risk Management in Microcredit Lenders and their Implications on Debtors

Microfinance is a movement which aims to promote financial inclusion and empower individuals through small loans (as well as other services) to finance business ventures in the developing world and beyond. Microfinance aims to meet the financial needs of individuals who are left out of the scope of more mainstream financial services, while avoiding the perceived shortfalls of traditional aid such as dependence. Along with the expansion of microfinancial institutions (MFIs) since the turn of the century and the proliferation of the internet, diligent and prudent management of these institutions has never been of greater importance. Though there is a lot of research on entrepreneurship, business, finance, andmanagement concerning more mainstream practices, it is clear that microfinance is at a frontier of modern commerce. Risk is basic to all business (as well as life in general) and in order for the microfinance movement to maintain its growth, it must be self-sustaining while maintaining its ability to assist meaningful development. This presentation will compare the risk management practices standard to MFIs now, as well as look at how risk is fundamentally different to small entrepreneurship in developing regions in comparison to developed economies. In doing so, it should shed light on the financing needs and realities of target individuals and see how MFIs in the status quo are able to meet them. From this we should seewhere the shortfalls currently lie and where things may be improved.

The Governance of Blockchain Financial Networks

Since the emergence of the virtual currency Bitcoin in 2009, a new, internet-based way of recording entitlements and enforcing rights has increasingly captured the interest of governments and the Real economy. The technology is commonly called ‘blockchain’, which also comprises the concept of the ‘smart contract’. The global financial industry, including literally all systemically relevant institutions, is now exploring ways of using the technology in mainstream financial products and services, such as securities, payments and derivatives business. Acceptance of blockchain and smart contract technology will, however, not depend solely on its operational efficiency and reliability but also on its effective governance. No comprehensive conceptual framework has yet been developed, neither at a domestic nor at an international level. Fundamental questions include the relationship between State law and internal governance, the regulation of systemic risks and the ineffectiveness of anti-money-laundering laws. Furthermore, the new technology raises questions as regards the enforceability of rights to financial assets in the event of insolvency, and the survival of the contractual framework for risk mitigation on which the modern financial industry is built. The picture is further complicated by the fact that blockchain networks naturally encompass the idea of unrestricted, internet-wide activity, independent from jurisdictional boundaries and State regulation. This article develops a conceptual framework for the governance of blockchain-based networks in financial markets. It attempts a vision of how public and private law should limit the potential of this technology in order to protect market participants and societies at large, while at the same allowing for the necessary room for innovation.

Is there a trade-off between social and financial performance of public commercial banks in India? A multi-activity DEA model with shared inputs and undesirable outputs

Indian public commercial banks play a crucial role in the financial support for the economic development, poverty alleviation, and women's empowerment. As social banks, they have dual performance objectives of financing the vulnerable sections of society as well as providing mainstream financial services. Balancing these twin missions is the biggest challenge for these hybrid enterprises. To date, no study has been published giving evidence on whether these banks are efficient in both facets of their dual goals. For this reason, this paper adds to the literature by measuring the social and financial efficiency of a sample of 26 Indian public banks over 2011–2014 by using an innovative Multi-activity Data Envelopment Analysis (MDEA) model with shared inputs and undesirable outputs. Our study also examines whether there is a conflict or trade-off between socially responsible and for-profit banking practices. We find that Indian public banks have managed their dual mission relatively well, but on average, they have been much more efficient in social (99.4%) than conventional banking (81.9%) activity. Moreover, this study shows a significant synergy effect between social and financial performance. However, when regional differences across India are considered by comparing the social and financial efficiency scores for different degrees of economic and human development in Indian states, the significant synergy effect is only confirmed in those public banks located in less more economically developed Indian states.

Mobile Money Landscape in the 12 SADC Countries using FinScope Survey Data

There is no doubt that mobile money is bringing the under-served and the excluded population into the main stream financial services corridors. Based on the FinScope surveys, mobile money is becoming one of the enablers of financial inclusion. In an increasing number of developing countries, a number of poor people are using basic mobile phones to transfer money, paying for goods and accessing some basic financial services. According to the World Bank, mobile financial services are amongst the most promising mobile applications in the developing world. Although FinScope results show that mobile money usage is relatively low (23%) in the SADC region, the trend of usage is coming up fast. FinScope results show that close to 7 in 10 mobile money users are using it as a remittances/money transfer vehicle while 54% for buying airtime. It is encouraging that about 7 million adults (24% of mobile money) store value or save money in their mobile money accounts. Some barriers to mobile money relate to: affordability, perceived cost of mobile money, lack of understanding of mobile money/lack of awareness and no access to cell phones. Besides these barriers, mobile money is becoming a game changer for the landscape of financial inclusion in the SADC region.

Use of Bank and Nonbank Financial Services: Financial Decision Making by Immigrants and Native Born

This study examines the joint decisions made by immigrant and native‐born families about whether or not to have a bank account and to use nonbank financial services (NBFS). Immigrant families, especially those from Mexico or other Latin American countries, have a higher probability of using NBFS than native‐born families, regardless of their banking status. Residing in concentrated ethnic enclaves or being a US citizen, however, lowers the probability of using these services. Similarly, native‐born Black and Hispanic families are more likely to use these services than native‐born White families. Our findings support continued efforts to encourage mainstream participation among immigrant and minority native‐born families. Having access to mainstream financial services can help these families establish financial stability and economic mobility. To our knowledge, this is the first comprehensive study of immigrant families' joint decision making about using NBFS and bank account ownership.

Southern Bancorp, Inc.: Reviving the Rural Economy Through Financial Products and Community Involvement

The case features Southern Bancorp, Inc. (Southern), a family of community development financial institutions (CDFIs) consisting of Southern Bancorp Bank, one of the largest and most profitable community development banks in the United States, and Southern Bancorp Community Partners, a nonprofit affiliate. Although the bank was expected to be profitable, the entire organization put community, not the financial interests of its shareholders, first; therefore, it was driven by mission rather than profit. Based in Arkadelphia, Arkansas, Southern served low-income populations in disadvantaged markets in the rural South and worked on a difficult task of revitalizing high-poverty communities. Even though Southern had implemented profitable operations, at one point the organization suffered substantial loan losses that threatened its existence. The case focuses on the CEO's decision regarding two loan portfolios: that of residential mortgages and small teacher-certification loans. The CEO must decide whether his organization can afford to continue offering those loans. Excerpt UVA-ENT-0203 Jun. 18, 2014 SOUTHERN BANCORP, INC.: REVIVING THE RURAL ECONOMY THROUGH FINANCIAL PRODUCTS AND COMMUNITY INVOLVEMENT In 2014, Darrin L. Williams, the newly appointed CEO of Southern Bancorp, Inc., (Southern) was reviewing two loan portfolios: one of homeowner mortgages Southern offered in rural Arkansas and Mississippi, and one of small teacher-certification loans offered in the Clarksdale Municipal School District in Mississippi. Southern operated in distressed rural markets that were underserved by traditional financial institutions such as banks and credit unions. As a result of a lack of access to mainstream financial services, low-income consumers in those markets were vulnerable to the exploitative lending practices of the minimally regulated alternative financial sector. In 30% of its markets, Southern was the only bank offering affordable financial services, including transactional accounts, microloans, small-business loans, consumer credit, and residential mortgages. As a community development financial institution (CDFI) consisting of a for-profit bank and a nonprofit affiliate, Southern had a double bottom line because it cultivated both financial and community investments. Although the bank was expected to be profitable, the entire organization put the community interest rather than the financial interest of its shareholders first; therefore, it was not profit but mission driven. During its nearly 30-year existence, Southern had implemented profitable operations while serving low-income populations in disadvantaged markets in the rural South and working on the difficult task of revitalizing high-poverty communities. In the beginning, Southern had not always displayed its current disciplined focus on its core value of “no margin, no mission” and suffered substantial loan losses that threatened its existence. . . .