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Introduction
Financial exclusion is a global phenomenon estimated to affect over two billion people – approximately 70 per cent of the adult population in developing countries and 20 per cent in developed countries (Connolly, Reference Connolly2012). Financial exclusion is most commonly defined as the practices preventing individuals from accessing appropriate and affordable financial services and products such as a transaction account, general insurance, and a moderate amount of credit (Leyshon and Thrift, Reference Leyshon and Thrift1995; Burkett and Sheehan, Reference Burkett and Sheehan2009; Connolly et al., Reference Connolly, Georgouras, Hems and Wolfson2011). This is a problem as it puts people at greater risk of ‘poor economic, social and health outcomes’ (Muir et al., Reference Muir, Marjolin and Adams2015: 5) in areas such as ‘work, education, housing, cost of living and mental health’ (Muir et al., Reference Muir, Marjolin and Adams2015: 44). While the literature on financial exclusion is growing, its focus on products and services (Cnaan et al., Reference Cnaan, Moodithaya and Handy2012; Wentzel et al., Reference Wentzel, Yadavalli and Sundar2013) has led to three main assumptions: 1) Financial exclusion is the result of a lack of ownership of financial products and services; 2) Financial exclusion is a problem that is correlated to experiencing hardship; 3) Financial exclusion can be addressed by providing the financially excluded with the financial products and services they lack.
The emphasis of extant literature on the delivery and practical aspects of financial products (Leyshon and Thrift, Reference Leyshon and Thrift1995; Kempson et al., Reference Kempson, Whyley, Caskey and Collard2000; Chant Link & Associates, 2004; Burkett and Sheehan, Reference Burkett and Sheehan2009; Connolly and Hajaj, Reference Connolly and Hajaj2011) has largely isolated the context surrounding financial exclusion and contributed to simplifying the phenomenon. Such an access-point approach abstracts out ‘the situated socio-economic position of social groups and brings to the fore instead the central problem as being one of individual accessibility’ (Marron, Reference Marron2013: 791), thereby individualising the issue.
This paper uses social exclusion, resilience and a systems approach to critique and reconceptualise the current definition of financial exclusion. It asks: how can social exclusion, resilience and a systems approach help us better define and understand financial exclusion? This paper contributes to ongoing debates around the many approaches to financial exclusion and the differing assumptions they embody and provides a framework for reconceptualising financial exclusion that could be tested in future empirical research. It does this by examining financial exclusion through an ecological systems lens; exploring the roles different actors play in an individual's financial product ownership decision; considering concepts such as capability and resilience; and outlining a framework to further the understanding of financial exclusion in developed countries.
Financial exclusion defined
First appearing in 1995, the term ‘financial exclusion’ was used by two geographers to refer to processes preventing certain social groups from accessing the formal financial system (Leyshon and Thrift, Reference Leyshon and Thrift1995; see also Shehu, Reference Shehu2012). Leyshon and Thrift's (Reference Leyshon and Thrift1995) study investigated the effect of bank branches closing in the United Kingdom and argued that decreasing physical access to banking services ‘amplifies geographical differences in levels of income and economic development’ (Leyshon and Thrift, Reference Leyshon and Thrift1995: 314). Most recently, the meaning of financial exclusion has developed to refer to a lack of access to appropriate and affordable financial products and services – with a transaction account, general insurance, and a moderate amount of credit cited as the most desirable (Honohan, Reference Honohan2008; Burkett and Sheehan, Reference Burkett and Sheehan2009; Connolly et al., Reference Connolly, Georgouras, Hems and Wolfson2011; Cnaan et al., Reference Cnaan, Moodithaya and Handy2012). Those most at risk of exclusion are unemployed, on low income, single parents, recipients of social assistance, young, old, and those with a low educational attainment or other vulnerable characteristics, such as disability. People with family and friends that are excluded are also at a higher risk of exclusion (Gomez-Barroso and Marban-Flores, Reference Gomez-Barroso and Marban-Flores2013; Horska et al., Reference Horska, Szafranska and Matysik-Pejas2013; Marron, Reference Marron2013). People falling into these categories are more likely to be refused mainstream financial products due to negative account screening (e.g., overdrafts, and bounced cheques), and insufficient identification information, as well as poor credit history and low credit scores (Gomez-Barroso and Marban-Flores, Reference Gomez-Barroso and Marban-Flores2013; Marron, Reference Marron2013; Wentzel et al., Reference Wentzel, Yadavalli and Sundar2013).
Financial exclusion has been largely viewed as a demand and supply issue. On the demand side, people may suffer from self-exclusion (psychological, cultural and educational factors). On the supply side, people may suffer from: physical exclusion (no available local branches), access exclusion (do not fit selection criteria), condition exclusion (unsuitable products), price exclusion (unaffordable), and marketing exclusion (excluded from marketing strategies) (see Leyshon et al., Reference Leyshon, Knights and Burton2006; Cnaan et al., Reference Cnaan, Moodithaya and Handy2012; Gomez-Barroso and Marban-Flores, Reference Gomez-Barroso and Marban-Flores2013; Marron, Reference Marron2013). Evidence suggests financial exclusion can be addressed if demand and supply impediments are lifted (Leyshon et al., Reference Leyshon, Knights and Burton2006; Cnaan et al., Reference Cnaan, Moodithaya and Handy2012; Gomez-Barroso and Marban-Flores, Reference Gomez-Barroso and Marban-Flores2013; Marron, Reference Marron2013). As such, financial exclusion (or creating financial inclusion) has become a policy priority for many countries (Cnaan et al., Reference Cnaan, Moodithaya and Handy2012) with much of the focus on attempting to address supply and demand (Honohan, Reference Honohan2008). The European Commission (2011b) argues that participation in modern economic life and society is contingent on access to basic financial products and services (see also Honohan, Reference Honohan2008; Gomez-Barroso and Marban-Flores, Reference Gomez-Barroso and Marban-Flores2013). It further asserts that member states should ‘ensure that any consumer legally resident in the Union has the right to open and use a basic payment account. . . . Such a right should be applied irrespective of the consumer's financial circumstances’ (European Commission, 2011a). Some states have already made the switch: Finland, Denmark, Sweden and the Netherlands introduced the right to a bank account for everybody; Belgium to the unbanked population; and France to those who have been refused a bank account (Gomez-Barroso and Marban-Flores, Reference Gomez-Barroso and Marban-Flores2013).
Financial exclusion has predominantly been conceptualised in terms of overcoming practical impediments and as a ‘technical issue’ (Marron, Reference Marron2013: 792). Attempts at addressing financial exclusion have looked at removing barriers to access and ‘fitting individuals to the [mainstream] market’ (Marron, Reference Marron2013: 792). However, this paper questions whether a supply and demand view is sufficient to really improve financial inclusion and to reduce financial hardship. Honohan (Reference Honohan2008) for example, found no real evidence to corroborate the argument that access to financial products and services reduces financial hardship (Honohan, Reference Honohan2008). Anderson (Reference Anderson1999) noted that solely examining financial exclusion through a supply and demand approach simplifies the phenomenon; and Marron (2013) argued that it individualises the issue. According to Silver (Reference Silver2010), financial exclusion is ‘context-specific’ – ‘cultural difference’ (Hunter and Jordan, Reference Hunter and Jordan2010: 248), ‘economic circumstances’ (Russell et al., Reference Russell, Whelan and Maitre2012: 1) and social contexts, therefore, should be taken into account (Marron, Reference Marron2013). This paper begins to redress some of these contextual limitations in examining financial exclusion from a supply and demand perspective by drawing on the concepts of social exclusion, resilience and ecological systems thinking.
The role of the individual: social exclusion and financial capability
The concept of social exclusion may assist to further develop the definition of financial exclusion. Social exclusion enables a move away from an access point approach to understanding exclusion within context. Social exclusion is defined as ‘a progressive process of marginalization leading to economic deprivation and various forms of social and cultural disadvantage’ (Parodi and Sciulli, Reference Parodi and Sciulli2012: 1). It includes individuals ‘who are unable to participate in the basic economic and social activities of the society in which they live’ (Parodi and Sciulli, Reference Parodi and Sciulli2012: 1). Social exclusion is a phenomenon that is ‘multi-faceted’ and ‘constantly evolving’ (Saunders, Reference Saunders2011a: 185) – a process rather than an event (Hunter and Jordan, Reference Hunter and Jordan2010; Saunders, Reference Saunders2011a; Scutella et al., Reference Scutella, Wilkins and Kostenko2013; Gross-Manos, Reference Gross-Manos2014). It is ‘understood to refer to multiple and often intersecting disadvantages (including disparities in economic as well as socio-political resources) and as accommodating processes over time’ (Hunter and Jordan, Reference Hunter and Jordan2010: 245).
To address ‘issues of disadvantage and non-participation’, social inclusion provides ‘an alternative paradigm that focuses on how relationships, institutions, patterns of behaviour and other factors (including a lack of resources) prevent people from participating fully in the life of their community’ (Saunders, Reference Saunders2011c: 10–11). Most importantly, social exclusion theorists make the distinction between ‘those who do not have the items identified as essential because they cannot afford [or access] them and those who do not have the item because they do not want it. Only those in the former group are deprived, since only they face an enforced lack of socially perceived necessities’ (Saunders, Reference Saunders2011b: 88, emphasis in original). No distinction has thus far been made in the financial exclusion literature between people who are financially excluded through choice and those who are not. If viewed through a social exclusion lens, financial exclusion should be assessed on the following basis: Do people access mainstream financial products and services? If ‘no’, can they afford financial/products/services and/or can they access them if they want to? If ‘no’, the person is financially excluded.
For the group who answers ‘yes’ (i.e., they choose to be excluded), it may not be sufficient to stop here. Are people who ‘choose’ not to be included really exercising full agency and choice if they are constrained by a lack of financial capability or their mental model of the world (Craik, Reference Craik1943)? Individuals with high levels of financial capability have the ability to access acquired knowledge, as well as skills and tools to identify appropriate financial products and services and effectively manage their finances (Taylor, Reference Taylor2011; Serido et al., Reference Serido, Shim and Tang2013; Stumm et al., Reference von Stumm, O’Creevy and Furnham2013). Low levels of financial capability, however, can prevent individuals from understanding and accessing the products and services available. Their mental model can also impact the way they engage with the financial market (Craik, Reference Craik1943). The mental model contains the individual's idiosyncratic set of beliefs – real or perceived – that guides the way s/he represents, interprets and reacts to the world (Craik, Reference Craik1943; Forrester, Reference Forrester1971). These beliefs are not static but built upon past experiences and histories – the mental model guides the individual's willingness to ‘try out various alternatives, conclude which is the best of them, react to future situations before they arise, utilize the knowledge of past events in dealing with the present and the future’ (Craik, Reference Craik1943: 61). These beliefs provide insights into the individual's decision-making process and personal decisions. An individual's financial capability and their mental model may affect their ability and willingness to adopt and use financial products in relation to 1) their assessment and perception of their own financial status; and/or 2) their understanding of mainstream financial products and services.
First, an individual's own assessment of their financial situation can influence their willingness to engage with financial products. Studies have systematically shown that low levels of household income and financial resources are correlated with financial exclusion (see Carbo et al., Reference Carbo, Gardener and Molyneux2007; Collard, Reference Collard2007; Buckland and Dong, Reference Buckland and Dong2008; Devlin, Reference Devlin2009; Cnaan et al., Reference Cnaan, Moodithaya and Handy2012; Figart, Reference Figart2013). For example, some individuals might intentionally go without a savings or transaction account because they believe they do not have sufficient savings to warrant one (Figart, Reference Figart2013; Sinclair, Reference Sinclair2013). Some might not apply for a credit product because they believe they cannot offer sufficient security and/or collateral to qualify for one (Cnaan et al., Reference Cnaan, Moodithaya and Handy2012). While others might not apply for financial products because they think they do not have the financial resources to manage them (Fuller et al., Reference Fuller, Mellor, Dodds and Affleck2006; Cnaan et al., Reference Cnaan, Moodithaya and Handy2012; Sinclair, Reference Sinclair2013) or fear that their application will be rejected by mainstream financial institutions (Figart, Reference Figart2013). Some individuals might also prefer to handle cash because it gives them a greater sense of control over their finances – cash offers immediate access to money and less uncertainty with processing transactions (Collard, Reference Collard2007; Sinclair, Reference Sinclair2013). Individuals can therefore voluntarily disengage from the financial market based on perceived financial capabilities and personal preferences – a process also referred to as self-exclusion (Beck and Demirgüç, Reference Beck and Demirgüç-Kunt2008; Cnaan et al., Reference Cnaan, Moodithaya and Handy2012; Figart, Reference Figart2013).
Second, an individual's level of understanding of mainstream financial products and services can also influence their willingness to engage with the financial market. Studies have shown that financially excluded individuals are more likely to have lower levels of educational attainment (see Carbo et al., Reference Carbo, Gardener and Molyneux2007; Buckland and Dong, Reference Buckland and Dong2008; Devlin, Reference Devlin2009; Cnaan et al., Reference Cnaan, Moodithaya and Handy2012) and, by extension, poorer financial literacy skills (see Devlin, Reference Devlin2009). These individuals are more likely to be subject to ‘confusion exclusion’ – i.e., a preference to disengage with the financial market rather than be intimidated by the process of purchasing financial products (Devlin, Reference Devlin2009; Cnaan et al., Reference Cnaan, Moodithaya and Handy2012). They might also voluntarily exclude themselves from the financial market due to their poor understanding of the benefits associated with owning financial products and/or because they do not know that the financial product exists (Cnaan et al., Reference Cnaan, Moodithaya and Handy2012). For example, Sampson et al. (Reference Sampson, Dover, Mandell, Pant and Blanchard2007) found that older people in the UK were more susceptible to financial exclusion once the government began to directly transfer pensions to online bank accounts, as older people were more likely to encounter difficulties navigating the keypad system and remembering their four-digit personal identification number. To engage in the financial market, individuals thus need to be able to fully understand mainstream offerings as well as their benefits.
Though the effects of these personal barriers on financial product ownership are multi-faceted (Russell et al., Reference Russell, Whelan and Maitre2012), the way they can influence personal beliefs on financial product ownership is significant. Individuals are more likely to voluntarily exclude themselves from the financial market if they themselves believe their circumstances preclude them from taking part and if their level of financial capability prevents them from knowing about, understanding and accessing the products and services available (Taylor, Reference Taylor2011; Serido et al., Reference Serido, Shim and Tang2013; Stumm et al., Reference von Stumm, O’Creevy and Furnham2013). Financial exclusion, thus, is influenced by an individual's perceptions, beliefs (both internal and external), capabilities and decisions. But even if the group who chooses to be excluded is deemed to be affected by low levels of financial capability and/or particular mental models, is this a problem? The literature shows that financial exclusion can put people at greater risk of poorer outcomes (Muir et al., Reference Muir, Marjolin and Adams2015). However, in a climate of limited resources, where should policies, practices and resources be invested for change? A useful focus may be vulnerability and people's capacity to cope. To what extent are people able to cope in situations of financial adversity?
Beyond supply and demand: resilience and a systems approach
Many studies have emphasised the ‘capacity of human beings to overcome extreme adversity and to show positive adaptation in the face of that adversity, a phenomenon also described as resilience’ (Schoon and Bynner, Reference Schoon and Bynner2003: 21, emphasis in original). Resilience is a dynamic process that enables individuals to ‘bounce back’ after adverse experiences, to adapt to changing circumstances and to deal with environmental stress (Abbott-Chapman et al., Reference Abbott-Chapman, Denholm and Wyld2008: 612) by drawing on internal and external resources and supports (Muir and Strnadová, Reference Muir and Strnadová2014). Some studies have started looking into resource availability by investigating the time taken by individuals to raise emergency funds (Connolly, Reference Connolly2012), as well as measuring peoples’ financial capability (Taylor, Reference Taylor2011). Resilience refers to the ability of drawing on internal capabilities (skills, traits, behaviours, values) (see Craik, Reference Craik1943; Forrester, Reference Forrester1971) and appropriate, acceptable and accessible external resources and supports.
Individual characteristics can be inherent or adaptive (Rose, Reference Rose2004: 308) and rely on traits such as ‘optimism, mastery, self-efficacy, self-esteem, and perceived social support’ (Norris, Reference Norris2010: 22). External resources and supports may be formal (e.g., a credit card from a bank) (see Bhanot et al., Reference Bhanot, Bapat and Bera2012; Figart, Reference Figart2013), or informal (e.g., a loan from a family member) (see Datta, Reference Datta2009; Cnaan et al., Reference Cnaan, Moodithaya and Handy2012) or exist somewhere on the continuum between the two (e.g., an initiative developed and driven by a community) (see Affleck and Mellor, Reference Affleck and Mellor2006; Byrne et al., Reference Byrne, McCarthy and Ward2007; Collard, Reference Collard2007). While resilience is a learning process (Folke, Reference Folke2006; Cutter et al., Reference Cutter, Barnes, Berry, Burton, Evans, Tate and Webb2008; Buikstra et al., Reference Buikstra, Ross, King, Baker, Hegney, McLachlan and Rogers-Clark2010), individuals’ capacity to adjust to adverse events, take advantage of opportunities and cope with the transformation that occurs (Gallopin, Reference Gallopin2006) relies on access to appropriate resources.
Since resilience emphasises that the individual and their reliance on external resources and supports matter, it is critical to examine the iterative effects and the roles that different actors play in enabling individuals’ ability to function effectively in adverse financial situations (such as income or expense fluctuations through unexpected life events). A systems approach, which is characterised by interconnected elements that work together in a non-linear manner, can holistically take into account the way in which individuals interact with and react to their immediate and larger economic and social environment (Bronfenbrenner, Reference Bronfenbrenner1977, Reference Bronfenbrenner1994). These interconnected elements make up a whole that can be very different from the sum of the parts and that is interdependent with some larger environments, via a web of feedback loops (Anderson, Reference Anderson1999; Kirshbaum, Reference Kirshbaum2002; Boal and Schultz, Reference Boal and Schultz2007; Van Beurden et al., Reference Van Beurden, Kia, Zask, Dietrich and Rose2011). An ecological systems approach (Bronfenbrenner, Reference Bronfenbrenner1977, Reference Bronfenbrenner1994) provides a framework to take into account ‘the immediate settings containing the developing person but also the larger social contexts, both formal and informal, in which these settings are embedded’ (Bronfenbrenner, Reference Bronfenbrenner1977: 513).
Bronfenbrenner's (Reference Bronfenbrenner1977) external settings consist of: the microsystem – the immediate setting in which a person evolves; the mesosystem – the interaction of various microsystems each possessing a unique set of beliefs and constraints; the exosystem – the system encompassing the immediate setting in which the individual evolves; and the macrosystem – the overarching systems in which sub-systems evolve. Considering the individual within the system in which they live enables us to move beyond structural barriers and explore the roles that different actors play and how individuals interact with and react to their immediate and larger economic and social environment (Bronfenbrenner, Reference Bronfenbrenner1977, Reference Bronfenbrenner1994).
The individual and their immediate surroundings
The microsystem is made up of the social units that the individual is familiar with and interacts with on a recurrent basis (Bronfenbrenner, Reference Bronfenbrenner1977). It has a direct impact on an individual's decision as to whether they use a financial product based on the extent to which these products are accessible, appropriate and acceptable. These include: local banks (see Bhanot et al., Reference Bhanot, Bapat and Bera2012; Figart, Reference Figart2013), fringe lenders (see Fuller et al., Reference Fuller, Mellor, Dodds and Affleck2006; Byrne et al., Reference Byrne, McCarthy and Ward2007; Cnaan et al., Reference Cnaan, Moodithaya and Handy2012) and friends and family (see Datta, Reference Datta2009; Cnaan et al., Reference Cnaan, Moodithaya and Handy2012).
Formal financial institutions (e.g., traditional banks, microfinance institutions or credit unions) can invite or inhibit people from engaging with the financial system by the way they deliver their services (see Fuller et al., Reference Fuller, Mellor, Dodds and Affleck2006; Bhanot et al., Reference Bhanot, Bapat and Bera2012; Figart, Reference Figart2013). ‘Unfriendly’ and ‘intimidating’ banks where ‘there are many employees behind bullet-proof glass or large desks, and yet nobody to answer a question’, can deter individuals from applying for financial products (Figart, Reference Figart2013: 883). For example, participants in the Fuller et al. (Reference Fuller, Mellor, Dodds and Affleck2006) study on the financial needs of low-income areas in Newcastle identified service-related problems with building societies and banks such as the under-provision of staff and their level of professionalism. Due to these experiences, the participants expressed a desire for financial institutions to have ‘pleasant and friendly staff, who would live in the local area so that they would understand and be sympathetic to the kinds of issues and problems faced by their customers, and conversant in the languages used by all sectors of the local population’ (Fuller et al., Reference Fuller, Mellor, Dodds and Affleck2006: 265). These findings suggest that the provision of client-focussed services may increase the willingness of the financially excluded to engage with their local financial institution (Bhanot et al., Reference Bhanot, Bapat and Bera2012). It further suggests financial exclusion is not only about the what (i.e., what products and services are accessible and appropriate) but also the how (i.e., how acceptable and available they are).
The intimidating culture of banks may partly explain why individuals prefer to use informal financial products and services such as payday lenders, family and/or friends for financial assistance (Fuller et al., Reference Fuller, Mellor, Dodds and Affleck2006; Byrne et al., Reference Byrne, McCarthy and Ward2007). In contrast to the typical service provided by banks (Figart, Reference Figart2013), some individuals build such strong relationships with their money-lenders, through routine and dependency, that they consider them friends (Byrne et al., Reference Byrne, McCarthy and Ward2007). They consequently consider their interactions more meaningful than a business or financial transaction (Fuller et al., Reference Fuller, Mellor, Dodds and Affleck2006). There is also evidence that family and friends mutually agree to support each other in times of financial distress (Datta, Reference Datta2009; Cnaan et al., Reference Cnaan, Moodithaya and Handy2012). For example, Datta (Reference Datta2009) found that many UK migrants engage in informal lending networks, with one interviewee commenting: ‘I have an arrangement with a friend here that we lend money to each other when we need it but we don't charge interest’ (Datta, Reference Datta2009: 339). Thus, when facing a lack of appropriate product availability and delivery from formal institutions, individuals find informal ways to address their financial needs. These can either be beneficial or detrimental. Individuals who choose to use informal alternatives that are detrimental to themselves (e.g., non-cost-effective financial products) might do so because alternative providers have adapted their products to be more accessible and acceptable. While the availability of financial products and services is important, the way in which these services are provided as well as the way in which they are tailored to an individual's needs is significant. Individuals may not need or want to access formal finance because of its unacceptability or inappropriateness.
Beyond the individual's immediate surroundings
Structural barriers in the exosystem can affect an individual's ability and willingness to access and use financial products. Financial institutions, for example, directly impact access through their internal practices such as branch expansion or closure strategies – especially in rural areas (Devlin, Reference Devlin2009; Cnaan et al., Reference Cnaan, Moodithaya and Handy2012; Kumar, Reference Kumar2013). They also directly impact on appropriateness by the types of financial products they offer and the conditions under which they offer them (Collard, Reference Collard2007). Government, through its role as mediator between the public, private and third sectors and as the legislator of the financial sector can also influence access (Carbo et al., Reference Carbo, Gardener and Molyneux2007). These exosystems do not necessarily operate in distinct spheres. Rather, the government often informs the policies of financial institutions, and the practices of financial institutions often impel the government to intervene (see Collard, Reference Collard2007; Sinclair, Reference Sinclair2013).
First, the marketing and expansion strategies of, for example, traditional banks, credit unions or community development financial institutions, dictate whether it is possible for a financial institution to be part of the individual's microsystem. For example, Devlin (Reference Devlin2009) argues that financial institutions use geo-demographic information to help them select where to market and distribute their financial products (see also Bhanot et al., Reference Bhanot, Bapat and Bera2012). As a consequence, geographical areas containing a large portion of low-income individuals are more likely to have traditional bank branch closures in their neighbourhoods (Buckland and Dong, Reference Buckland and Dong2008). This is supported by several empirical studies that show that bank density and financial exclusion are negatively related (Devlin, Reference Devlin2009; Cnaan et al., Reference Cnaan, Moodithaya and Handy2012; Kumar, Reference Kumar2013). The criteria to qualify for certain financial products, imposed by financial bodies, can also influence the individual's financial product ownership decision (Collard, Reference Collard2007). For example, applicants are typically required to pass a risk assessment, often based on income, to qualify for mainstream credit products (Collard, Reference Collard2007; Datta, Reference Datta2009). Though such risk assessments might be motivated by profit-maximising or loss-minimising considerations, or even concerns about the individual's capacity to repay the credit product, it nonetheless represents a significant structural barrier preventing individuals from obtaining particular financial products. Thus financial institutions have a significant impact on the opportunity the individual has to engage with the financial market.
Second, the government, in its role as a ‘mediator’, can influence the individual financial product ownership decision by affecting the behaviour of the microsystem. Carbo et al. (Reference Carbo, Gardener and Molyneux2007) suggests that the government, as a mediator, encourages the public and private sectors to work collaboratively to address financial exclusion, nurtures the capacity of community financial groups and pushes for programmes that aim to improve the financial literacy and education of the financially excluded (see also Affleck and Mellor, Reference Affleck and Mellor2006; Byrne et al., Reference Byrne, McCarthy and Ward2007; Collard, Reference Collard2007).
For example, one of the aims of the UK's financial inclusion initiative is to increase the capacity of community lenders to deliver more affordable credit (Collard, Reference Collard2007). This sentiment is reflected in the UK's Policy Action Team (PAT 3) report, which recommends community lenders provide more advice and build knowledge to aid individuals’ pursuit of business ideas and establish a better culture of supporting enterprises. The government in Ireland similarly aims to strengthen the education role of credit unions, particularly regarding the provision of information on the practices of fringe lenders and budgeting advice (Byrne et al., Reference Byrne, McCarthy and Ward2007; Carbo et al., Reference Carbo, Gardener and Molyneux2007; Figart, Reference Figart2013).
Governments also play a ‘legislator’ role by mandating or regulating financial institutions in order to deliver specific products or behave within specific boundaries. For example, France instituted a Banking Act in 1984 that made access to a bank account a legal right; Germany has a ‘Current Accounts for Everyone’ initiative; Canada introduced ‘Access to Basic Banking Services Regulation’ in 2003; in Sweden all individuals have guaranteed access to a deposit account that does not have payment services; and in the Netherlands a bank cannot refuse to open a bank account to any customer (Gomez-Barroso and Marban-Flores, Reference Gomez-Barroso and Marban-Flores2013). Governments also regulate the cost of commercial and fringe credit (Collard, Reference Collard2007; Figart, Reference Figart2013). The role of governments as mediators and legislators is important in influencing and regulating the sector and in influencing individuals’ opportunities, choices and behaviours.
Financial exclusion, therefore, does not happen in a vacuum. While the individual and the ways s/he interacts with their immediate surroundings can have a significant impact on their financial product ownership decision, structural settings outside the individual's control can affect a person's financial capability – their ability to qualify for and use certain financial products – and the appropriateness and acceptability of the products and services available.
Overarching institutional patterns
The macrosystem contains the implicit ‘rules of the game’, that inform the behaviour and beliefs of the exosystem, the microsystem, and thus the individual. It influences the individual's financial product ownership decision in four ways, through informing: 1) the history of the society individuals reside in (Beck and Demirgüç, Reference Beck and Demirgüç-Kunt2008; Datta, Reference Datta2009; Figart, Reference Figart2013); 2) the individual's personal set of beliefs around external entities (e.g., financial institutions, governments, and religious institutions) (Datta, Reference Datta2009); 3) the society's prevailing conception of financial inclusion, including the importance it places on the issue (Carbo et al., Reference Carbo, Gardener and Molyneux2007; Cnaan et al., Reference Cnaan, Moodithaya and Handy2012; Sinclair, Reference Sinclair2013); and 4) society's ideological position towards the ‘market’ (Affleck and Mellor, Reference Affleck and Mellor2006; Sinclair, Reference Sinclair2013).
First, the history of the society and its resultant structures, institutions and culture, can influence the individual's willingness to own financial products. For example, Osili and Paulson (Reference Osili and Paulson2008) conducted a study on the determinants of financial market participation among immigrants to the United States. They found that immigrants from countries with stronger structures and institutions – particularly those that protect private property and encourage individuals to invest – are more likely to have a US bank account. They also found that the effect of these particular institutions, imparted from their previous place of residence, on the propensity to enter the financial market lasted at least 28 years after immigration. Datta (Reference Datta2009) obtained similar results from her interviews with immigrants to the United Kingdom. Regarding the risk associated with not owning financial products, she concluded that it is largely ‘socially constructed’ (Datta, Reference Datta2009: 332). ‘Migrant communities have their own understandings of risk which critically shapes their engagement with financial institutions and services (. . .) the costs of being financially excluded/included are balanced against and shaped by their migration histories, immigration status and transnational lives’ (Datta, Reference Datta2009: 332). The individual's decision regarding financial product ownership can, therefore, be influenced by their country of birth's culture, economic and political system. These beliefs and values may be so strongly imbued that the mind-set stays with the individual after migration.
Second, the individual's personal set of beliefs around external entities such as financial institutions, governments, and religious institutions, can also influence their willingness to adopt and use financial products. For instance, Datta (Reference Datta2009) found that Somali migrants did not want to leave money in their bank account for they feared the government would stop giving them benefits. Some respondents, moreover, generally did not trust people within financial institutions: ‘I don't think people who work with statistics can be trusted (. . .) giving out too much information makes me nervous’ (Datta, Reference Datta2009: 337). Religion can also inform the individual's mental model of financial product ownership. Under Islam, charging interest is prohibited (Abou-Zaid and Leonce, Reference Abou-Zaid and Leonce2014). For example, ‘The Islamic view, it's like if they [the financial institution] give you 1,000 pounds they gonna expect 1,100 pounds something (. . .) so that 100 pound is called riba [interest in Arabic] in Islam which is illegal, you can't allow this to take that kind of money’ (Datta, Reference Datta2009: 337). The broader context individuals find themselves in and their beliefs (which may be deeply engrained in culture, religion and tradition) can therefore influence their decision to access and use financial products.
Third, societies’ prevailing conceptions of financial inclusion, particularly the emphasis they place on its importance, can inform the type of policy that governments implement. Sinclair (Reference Sinclair2013), for instance, argues that financial inclusion is ‘a culturally relative phenomenon, as the necessity of access to particular financial services varies between societies, reflecting the extent and nature of financialisation, i.e., the extent to which formal financial services are essential to undertake everyday transactions and meet basic needs’. Carbo et al. (Reference Carbo, Gardener and Molyneux2007: 21) similarly argues: ‘Policy has evolved to suit specific countries needs and remains somewhat ad hoc’. For example, in many European countries more than 90 per cent of households own a bank account, in Australia 99 per cent of adults own a bank account but, in many developing countries, less than half of all households have an account (Beck and Demirgüç, Reference Beck and Demirgüç-Kunt2008). Differences in the necessity of financial product ownership in order to fully integrate in society might explain why governments tackle financial exclusion in distinct ways (Carbo et al., Reference Carbo, Gardener and Molyneux2007; see also Cnaan et al., Reference Cnaan, Moodithaya and Handy2012). Cnaan et al. (Reference Cnaan, Moodithaya and Handy2012), in particular, argues that governments in developed countries typically mandate banks to provide affordable banking services, such as the delivery of basic bank accounts. This suggests the importance of, and means of attaining, financial inclusion depends on the country's culture. While financial exclusion appears a global phenomenon, the emphasis countries place on its importance, and the methods of addressing it, are culturally relative.
Fourth, society's ideological stance towards the ‘market’ can inform the type of policy the government promotes and influence a certain mindset. The push towards improving the financial literacy of individuals, for instance, is considered by some authors to be the consequence of the free market ideology, where financial exclusion is due to human deficiencies rather than market deficiencies (Affleck and Mellor, Reference Affleck and Mellor2006; Figart, Reference Figart2013; Sinclair, Reference Sinclair2013). The individual is thus responsible for their own wellbeing, rendering the government's role one that empowers individuals to improve their financial capability, rather than to regulate the financial sector (Sinclair, Reference Sinclair2013). Figart (Reference Figart2013), in particular, attributes this ideology to ‘part of a larger cultural and structural shift in the US political economy that has reduced the size and role of social welfare programs since the 1970s’. This is supported by Affleck and Mellor (Reference Affleck and Mellor2006), who argue that the emergence of community development financial institutions in the United Kingdom is motivated by the government's push towards a more ‘enterprise-based and market-oriented approach’ in order for ‘the community and voluntary sector to be less reliant on grant-funding’ (Affleck and Mellor, Reference Affleck and Mellor2006: 304). This suggests a country's economic philosophy can influence its government's intervention and further supports our point above that financial inclusion is culturally relative and subject to structural barriers.
The individual's financial product ownership, therefore, is also dependent on the country's cultural, economic and political contexts in which the individual finds himself or originates from. Indeed, the contexts within which one evolves can highly influence, if not create, one's mind-set – for example, the context of the global financial crisis may have had an impact on people's levels of trust in mainstream institutions and the financial products and services they offer (Shiller, Reference Shiller2012).
Discussion
This paper has used social exclusion, financial capability and mental models to critique the current definition of financial exclusion and has drawn from the concepts of resilience and ecological systems to point the way to new approaches to social policy research and practice in this area.
Individuals’ willingness to engage with the financial market is influenced by the actual and perceived accessibility, appropriateness and acceptability of financial products and services. An individual's set of personal characteristics, beliefs, financial capability and decisions (e.g., the individual's own assessment of their financial situation, their level of understanding of mainstream financial products and services, and how appropriate and acceptable these services are for their situation) are critical. But, importantly, individuals are also highly influenced by the external resources, supports and structures around them (e.g., the culture and internal practices of financial institutions, the availability and location of services and supports, the way services are provided, the affordability of products and services, the roles of government and institutions and the context and culture of the country the individuals reside in).
Structural elements and individual behaviours are not mutually exclusive. For example, an individual's decision to choose not to use a particular financial product may interact with societal structures, such as a very low income or geographic availability. Different actors within the system play different roles and intersect to affect a person's financial exclusion. At the microsystem level, the individual's immediate surroundings are made of multiple social units each possessing an idiosyncratic set of beliefs regarding financial product ownership, which can influence the individual's mental model and therefore decision. These microsystems interact with each other to inform, challenge or reinforce the individual's mental model. The interaction of these microsystems forms the mesosystem. The set of beliefs, values and constraints within the microsystems are in turn influenced by the exosystem; while the macrosystem provides the meta-narrative that informs the beliefs and actions of the entire ecology. The individual is therefore confronted with a decision process requiring them to filter, interpret, reject or comply with different sets of beliefs and constraints so as to make a financial product ownership decision. Examining the financial exclusion process using a linear approach ignores the iterative effects and the roles that different actors play in enabling individuals’ ability to function effectively in adverse financial situations. Thus a supply and demand approach, which looks only at the availability and take-up of financial products, is not sufficient to improve financial inclusion. Furthermore, a focus on financial literacy, which firmly positions the individual as the limitation rather than the market, is insufficient.
Social exclusion emphasises the need to differentiate between those who do not have access to financial products and services but want to; and those who do have access but choose not to use financial products and services. Is a person really financially excluded if they choose not to access/use financial products and services? People's choice and agency should be respected. However, thinking about an ecological model, it is important to determine the extent to which an individual has the agency to make an informed choice. Given the difficulty of determining this, perhaps the more important question is: does it matter if an individual does not wish to access formal financial products and services? It may not matter if their level of financial capability is high and they can access appropriate and acceptable resources and supports that enable them to cope and adapt in adverse financial circumstances. On the other hand, it matters if they are vulnerable and that vulnerability is further exacerbated; as previous research has found, there is a correlation between compounding social and economic disadvantage and financial exclusion. For example, a young person who is still living within the family home may not have access to formal credit and would therefore be defined as ‘financially excluded’. They will be at little to no risk if they have resources and supports they can draw from, such as their parents, if they get into a difficult financial situation. They will be at significant risk, however, if they cannot draw on appropriate, affordable and accessible resources and if they are marginalised in other areas.
Thus the focus of the current definition concerns the delivery and practical aspects of financial products and services should shift to considering resilience. In practice this would mean asking: What appropriate, affordable and accessible resources and supports do people have to draw on at times of financial adversity? Do they have the internal and external resources to assist them to cope in adverse financial circumstances? Resilience enables an asset-based approach and recognises that situations and an individual's ability to cope can shift and change over time and rely on the context, structures and supports that surround them. Resilience, together with an ecological systems approach, recognises and values the contributions of all actors (individuals, families, community organisations, not-for-profit organisations, enterprises, industry, regulators, and governments) in shaping an individual's ability to bounce back from adverse financial events. It recognises that vulnerabilities and adverse situations will continue to exist and enables us to position access to appropriate and acceptable financial products and services as one part of the resources people may draw on, rather than the endpoint in itself.
Conclusion
This paper extends our understanding of financial exclusion, challenges some of the limitations of the current definition and paves the way for future empirical research around its re-conceptualisation. It presents a need for a more holistic approach blending notions of social exclusion, financial capability, mental models, resilience and ecological systems. Together these concepts provide a meaningful lens to analyse and better understand financial exclusion, and could potentially transform the way financial exclusion is being addressed in developed countries. This paper has challenged the individualistic focus and technical problematisation of financial exclusion in the literature by considering financial exclusion within a holistic context. It suggests moving away from asking the question of whether people are excluded or not to asking whether they have access to accessible, acceptable and appropriate resources and supports in adverse financial circumstances. Further research is required to better understand how individuals bounce back from adverse financial events and the resources and supports they draw on. A better understanding of these dynamics could assist the development of effective policy, and help to determine where resources can and should be invested to assist people to cope with financial adversity and increase financial resilience.
