Inclusive Finance, Shadow Banking and the Need for Financial Citizenship

banks-229440_1280Why are poor people offered financial inclusion products? One answer to this question is that the poor have unique financial needs and require financial institutions and instruments tailored for their particular conditions. This explanation sees poverty as the driver of demand for inclusive finance, but engages only superficially with the question of why mainstream financial institutions are unable to accommodate the poor.

The alternative explanation, which I examine in my research, is that the demand for inclusive finance is driven by practices known as ‘financial infrastructure withdrawal’: this is the very same process behind the rise of predatory lending in the Anglosphere (Leyshon and Thrift, 1995) and reveals that financial systems have inbuilt tendencies to be exclusionary (Dymski and Veitch, 1992).  Given these tendencies, scholars of financial exclusion in advanced capitalist countries, have argued for a concept of financial citizenship which notes that like countries, financial systems have an inside and an outside (Leyshon and Thrift, 1995).  Those who can access finance only in the form of, for instance, high-cost loans and not through mainstream banking institutions are relegated to the outside and are hence not financial citizens. The processes that underlie this relegation include the tendency of mainstream banks to cross-sell products within groups, privileging ‘blue-chip’ clients by offering them subsidies in exchange for brand-loyalty. Less wealthy clients, as a result, inevitably pay more for the same products and services than their more affluent counterparts.

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