The term financial exclusion was first coined in 1993 by geographers who were studying the impact bank closures had on those left unable to access basic banking services. During the 1990s there was a significant increase in research focusing on people experiencing difficulties accessing modern financial services. By the turn of the millennium financial exclusion began to be applied in a broader sense to denote people whose access to mainstream financial services was restricted.
[Photograph of the IFSC by Eoin McNamee]
Today, there are a variety of definitions of financial exclusion. For many, financial exclusion is seen simply as a lack of accessibility experienced by certain sections of the population when trying to get basic financial products such as current accounts, credit and debit cards and so forth.
However, financial exclusion can be better understood as a process or a continuum measuring the extent of difficulties an individual might encounter both in obtaining access to as well as using financial services, and which result in causing them problems in leading a normal life.
Therefore, as Georges Gloukoviezoff explains, both access and use difficulties need to be taken into account. Access difficulties relate to the lack of or insufficient access to basic financial services experienced by certain social categories. Such problems can arise, for instance, when a potential financial service user is either refused access to a particular or all financial products, is unable to access a particular financial service due to the characteristics of the particular financial products such as fees or other requirements or due to a lack of knowledge on the part of the applicant.
Use difficulties, on the other hand, refer to the fact that the financial services that are available are inappropriate to the needs of those experiencing financial exclusion.
Access and use difficulties need to be examined separately in terms of their respective contribution to financial exclusion. This will facilitate the precise identification of the specific obstacles impeding financial inclusion as well as the development and implementation of the most appropriate responses.
Financial exclusion might therefore be defined as:
"...a process whereby people encounter difficulties accessing and/or using financial services and products in the mainstream market that are appropriate to their needs."
Studies of the root causes of financial exclusion have generally tended to focus on the particular financial relations between financial institutions and the lower incomes levels of those 'excluded´. For Gloukoviezoff this is too limited an approach. He argues that research should take into account the two following factors:
- Quality of the financial relationship which includes the appropriateness of the services provided as well as the individual´s financial situation and general background;
- The financialisation of society, which has led to the introduction of norms and rules that render financial products indispensable if households wish to participate normally in society.
The current almost complete state of financialisation of society is of critical importance in tackling financial exclusion, given its impact upon financial relationships. It is almost obligatory for every household to have access to financial services, given the increased cost in paying certain bills and accessing consumer credit plays a crucial role in meeting unexpected expenses. This is of particular importance given the low level of social protection and public services available in Ireland.
At the same time, financial service providers are also subject to the current financialisation of society and operate under the imperative of maximising their profits. They are therefore naturally, if highly inequitably, oriented towards attracting wealthier clients by developing products and supports for them and generally neglecting the less well-off sections of society. When financial services are introduced for the less well-off, they are frequently subject to relatively high fees and charges in order to make them profitable.
There is therefore clearly an urgent need for action to tackle this situation. One action which could and should be taken immediately is the introduction of basic, universal bank accounts. As Paula Clancy, the TASC Director pointed out at the launch of their 2010 Life and Debt Report:
"When the bank recapitalisation scheme was originally announced in December 2008, it included a requirement to 'provide and promote' basic bank accounts, but there has been virtually no progress on implementation of this requirement since. Unless we tackle this issue, many people will continue being forced to access financial products at prices they cannot afford. Such 'services' range from high-cost credit to expensive cheque-cashing facilities."
There can be no excuse for the government failing to honour its commitment to the most vulnerable members of our society while shovelling ever increasing heaps of cash into the insatiable maw of the financial sector.
Furthermore, in accordance with Article 86 of the EC Treaty, the government should be actively engaged in ensuring the provision of basic banking services as services of general economic interest. These services should be backed by a range of other supports including the development of targeted special saving schemes, the provision of social lending for low-income members of the public and the establishment of affordable credit options adapted to their needs.
A Steering Committee on Financial Inclusion, involving all the key stakeholders, should also be established. Its key role should be the development, coordination and monitoring of a national strategy to promote financial inclusion as well as liaising with relevant groups.
This should be supported by a regulatory framework that ensures low-income population groups are able to establish basic low-cost bank accounts. Given the amount of public investment in the Irish banks and consequent virtual ownership, even if they are stubbornly refusing to nationalise them, the government should not be requesting banks to open such accounts but instructing them to do so.
Greater financial information, advice and guidance should be provided to low-income groups, particularly those who have had little or no interaction with financial institutions. This information ought to be made available at times and locations that are convenient to the financially excluded. Sessions should also be used to obtain feedback on the appropriateness of the financial services available and where they might be improved to increase uptake.
Finally, financial exclusion is part of a much broader social exclusion, faced by various social groups who lack access to jobs, housing, education or health care. There is an urgent need for an holistic policy to tackle such exclusion and the current crisis should not be used as an excuse to delay action.
However, at present, it would appear the only 'financial inclusion´ the government and their cheerleaders, both domestic and international, wish to promote is the imposition of taxes on those whose incomes were previously regarded as too low for taxation.