Why I don't share in the enthusiasm for "Financial Inclusion"

Why I don't share in the enthusiasm for "Financial Inclusion"


I have four friends who lost their homes during the financial crisis, or who are in danger of losing them. In every case, they say, “We were naive. We shouldn’t have taken the mortgage (or the second mortgage). But it seemed like a good idea at the time. It was our fault, but it was also the banker’s fault. They misled us.

Four families, losing their homes.

The banks took the money and ran. They repackaged the mortgages and resold them. They got richer, and the poor got poorer. I was reminded of that by the crisis in Greece, where the poor Greeks have a terrible choice: stay in the Euro zone with severe austerity measures more or less forever, or go their own way with a new, worthless drachma. How did they get in this situation?

Duh. The banks helped them do that. Here’s part of Wikipedia’s description:

“Greece has had particularly precarious debt dynamics and Greece is the only member state that cheated with its statistics for years and years. It was revealed that Goldman Sachs and other banks had helped the Greek government to hide its debts. Other sources said that similar agreements were concluded in “Greece, Italy, and possibly elsewhere”. The deal with Greece was “extremely profitable” for Goldman.”

Let’s see: Very clever people from big banks mislead people and help them make bad decisions. Bankers are so clever in fact that they are able to get rich out of tragedy. People suffer. 

The poor suffer the most. 

Does this sound familiar? Is there a pattern here?

Now, I don’t deny it is handy to have a bank account. I have a couple, in fact. But I consider them necessary evils, and if I could spend the rest of my life without ever seeing a bank, I would. Maybe progress means that everyone on the planet will be “financially included”, and their resources will be under a pyramid of financial institutions with Goldman Sachs at the apex. 

What’s wrong with that picture? What could go wrong? How about, “everything”?

Maybe that’s inevitable, and if it is, I accept it. But I’m not happy about it, and I promise to keep looking for alternatives. I am saddened and amazed at the enthusiasm of many of my friends and colleagues, as they help herd poor people into formal financial institutions. Don’t you have any second thoughts about that?


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Reader Comments (7) 

Hi Paul, as long as people are not involved in credit, I think bank is handy for the poor: safe, excessive saving can be stored, and you can keep the money for as long as you want. 

But I agree that the world is promoting financial inclusion like a panacea for poverty. In a recent webinar on financial inclusion in World Bank, I saw people talking about the importance of usage of bank accounts as well as the access. One of the panelists said that the usage can be increased by transferring government cash transfers through bank accounts...! Shocking. That is not usage. Most people withdraw the cash transfers almost immediately once deposited. What does this "usage" have to do with poverty reduction?

I do not doubt that there are banks behind fueling this fad on financial inclusion.

Wed, July 15, 2015 | Jong-Hyon Shin

Paul, I agree entirely that financial inclusionistas need a more explicit treatment of the ethical basis for what they do: pushing poor people into relationships with big institutions that may not care too much for them; exposing them to banking and monetary risks they may not begin to understand and have no practical way of assessing; and incurring disproportionate penalties like getting shut off from formal credit for a number of years on the back of a negative credit report for failing to repay a small loan on which the borrower in any case collected a huge risk premium (I´m thinking the much touted M-Shwari here). I don´t think this can be boiled down to a good/bad or do/don´t issue, but there are definitely ethical issues that need to be grappled with that are routinely ignored.

Jong-Hyon, I couldn´t agree more with what you say. I do think that usage is a good measure of customer usefulness and hence customer value, but only when it is a voluntary behavior. Getting my welfare paid into an account and systematically withdrawing the cash is not an indicator that financial services are useful for me. It´s just what I have do to get paid.

Fri, July 17, 2015 | Ignacio

Hi Ignacio,

Thanks for that comment, and I appreciate your remarks. I do however have the feeling of being gently chastised when you say, "I don´t think this can be boiled down to a good/bad or do/don´t issue".

I wouldn't want to boil anything down (except perhaps for the Board of Citibank...). But I do think the worldwide growth of an oligarchy of the super-wealthy is the number one moral issue we face, and formal financial institutions are the belly of this beast. This oligarchy is blocking an effective response to climate change, is complacent in the face of social injustice, corrupts governments in just those places where good governance is most important, and perpetuates destructive conceptions of human beings as primarily "consumers". Well, the list goes on, and I'm sure you could complete it more eloquently and exhaustively than I.

Of course I could make this more nuanced: I gladly point out that I don't mean to confuse institutions and their workers, and I understand that some financial institutions, such as my own bank, seem really to put people before profits.

But, the point of my short blog post was indeed to stress the good/bad issue, and remind some of my colleagues that they are in bed with strange and dangerous partners.


Sat, July 18, 2015 | Paul Rippey

Hi Paul, I really did not mean any form of chastisement, I´m very sorry if it came across that way. My comment on good/bad, dos/don´ts related (rather cryptically, I see now) to the standard approach of addressing ethical issues via standard codes of practice or consumer protection principles. The ethical issues run much deeper, as you pointed out.

You raised the very real conflict that exists between two distinct societal challenges that we have ahead of us: controlling the super powerful and the banks that do their bidding, and extending the privileges and benefits that we enjoy (including access to banking services) to those who can´t. There´s no nuance required, we just need to make personal choices as to where we put our efforts.

Sat, July 18, 2015 | Ignacio

Thanks Ignacio,

That's just my Catholic upbringing, making me feel chastised.


Sat, July 18, 2015 | Paul Rippey

Thanks, everybody. I love reading these threads and learning from experts in a sector I don't know much about. 

I was just realizing that 'financial inclusion' is not a term we use in conjunction with development or poverty alleviation where I live in the US. Hasn't aggressive 'financial inclusion' been the problem?

Saving, however, resonates with me, even though I know the concept is unfamiliar to many people. I come from a modest family and thought I was a saver. Then I met my husband, whose Scots-Irish name I have. His ancestors came to the US in even more dire circumstances than mine. But they certainly passed down the saving habit, which acquired by marriage.

Mon, July 27, 2015 | Carol McCreary

A colleague just called me out for using the word "evil" to refer to banks that made millions of dollars coming up with clever schemes to separate people from their homes. He thought that the word "evil" was too strong.

Like most words, "evil" has multiple senses. Just to be clear about the nuances here, I meant "evil" in the dictionary sense of, "harmful or tending to harm: the evil effects of high taxes." I stand by that.

I wasn't trying to go so far as the other definition, "embodying or associated with the forces of the devil: we have been driven out of the house by this evil spirit." However, it's interesting that the example given is "driven out of the house..." So perhaps that sense applies also, but I don't know enough about the forces of the devil to assert that His Stinkiness is working through FSPs to break up homes.

My colleague also thought that I was contributing to a polarization of opinion, and I accept that also. But I want to share the blame here. My friends who have lost or may lose their homes feel polarized by the banks. In fact, they feel screwed by the banks. Perhaps the appropriate place to start de-polarization would be the billionaires. Just sayin'.


NB: Originally published November 12, 2015

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