From financial exclusion to overindebtedness: The paradox of difficulties for people on low incomes?

Abstract

How is it possible that at the same time, in the same country2, people on low incomes have no access to credit while others with a similar profile find themselves weighed down with debts? Is that not a strange paradox? We do not think so. If there is a paradox, it is more due to the fact that a distinction is made between overindebtedness and financial exclusion, although this is only one of the aspects of the problem. While overindebtedness is generally considered a phenomenon separate from the rest of financial exclusion, this is mainly because of its visibility. The consequences of banking problems connected with a deposit account or non-cash means of payment are not as spectacular as those connected with credit can be. But the deprivation of all or part of financial services (from a bank account to loans and savings products) and overindebtedness are two sides of the same coin. These are components of the social phenomenon known as financial exclusion. Our hypothesis is that financial exclusion can be defined with regard to the social consequences of the banking problems of which it consists. From this viewpoint, overindebtedness is one of the consequences of banking problems which affect, in particular, but not only, people on low incomes. Likewise, difficulties in accessing various financial services lead to various social consequences which reinforce the process of social exclusion. However, on the one hand the banking difficulties that we are talking about are not limited only to difficulties of access but also include difficulties of use, and on the other hand, the consequences of these difficulties are broader than mere overindebtedness. The objective of this paper is to propose an analysis of financial exclusion for private individuals which structures these various types of problems and their consequences, and shows their similarities. To achieve this objective, we will firstly examine the main definitions of financial exclusion which have appeared over the last 15 years († 5.2). This analysis will enable us to highlight the aspects for understanding financial exclusion that are decisive but are frequently overlooked. This mainly concerns consideration of the difficulties in use along with difficulties in access, and the role of these difficulties in the development of the broader process of social exclusion. In fact financial exclusion is both cause and effect of social exclusion defined as "all the mechanisms of breakdown, both in symbolic terms (stigma or negative attributes) and from the viewpoint of social relations (a break in the various social links which bind people together). Exclusion is both a process and a state which enshrines a lack of integration". (Loisy, 2000, p. 42). Then in order to go beyond certain fragmented analyses which treat overindebtedness as being merely the result of increased precariousness and poverty or poorly considered individual choices, we analyse financialisation of social relationships within modern societies. The fact that it is possible to talk today about financial exclusion is due to the unavoidable nature of these services for people to live a normal social life. Thus in France, to receive a salary and social benefits, it is necessary to have a bank account. With regard to credit, matters are less clear: recourse to credit is often presented as a choice (sometimes ill-considered), as much as a constraint. However, as for a bank account or means of payment, borrowing is partly linked to the organisation of social relationships. So to contend with the ups and downs of life or to fulfil certain aspirations, borrowing increasingly appears an essential resource († 5.3). Finally, based on the preceding elements, we shall endeavour to show that the constraints placed on customers with modest incomes by financial institutions contribute directly to financial exclusion. These various constraints, which we shall describe in detail afterwards, make the implementation of high quality financial services a particularly delicate matter, as they need to reconcile adequate access for the customer and profitable transactions for the bank. The modes of response chosen to deal with the constraints explain both the difficulties of access and the difficulties in use and therefore overindebtedness, so there is no paradox in these different situations occurring concurrently († 5.4). © Springer-Verlag Berlin Heidelberg 2007.