What are the specific economic gains from improved financial inclusion? A tentative methodology for estimating these gains

Abstract

Financial exclusion has emerged as a concern for policymakers on both sides of the Atlantic in recent years. A broad definition of financial exclusion is 'the inability to access necessary financial services in an appropriate form. Exclusion can come about as a result of problems with access, conditions, prices, marketing or self-exclusion in response to negative experiences or perceptions' (Sinclair, 2001). In Europe, the widespread process of financial deregulation has increased the range of financial services and products for certain societal groups but it has also exacerbated for some others. The problem of financial exclusion is not marginal. The percentage of the adult population that does not even have access to a banking account in some countries appears high - Italy (22.4%), Greece (17.9%), Ireland (16.8%), Portugal (16.7%), Austria (13.5%) and UK (10.6%). Since financial exclusion is an important dimension of social exclusion it represents a key source of inequality that European policymakers (to varying degrees) have sought to address. The widespread process of financial services liberalization and the subsequent intensification of bank competition may, at least partially, explain why financial exclusion has become more visible over the last decade or so. Many of the strategies of financial intermediaries have resulted in a considerable segmentation of their products towards wealthier customers (flight to quality). Since most banks only seek to maximize profits or stock value, the implementation of standardised and rigid practices in screening customers (credit scoring) and formulating profitable financial contracts (loans, deposits) has made it difficult for certain population groups to access financial services, or, has caused the exclusion of those economic agents whose profile does not fit within the current standards (Boyce, 2001). This paper outlines the nature and causes of financial exclusion, briefly highlights the extent of exclusion across Europe and discusses the various policy/industry responses to tackling financial exclusion. We then move on to discuss a framework for measuring the impact of financial exclusion. This focuses on a framework that has recently been developed to analyse the impact of regulation on tackling financial exclusion (ex-post and exante) using both direct and indirect measures. © Springer-Verlag Berlin Heidelberg 2007.