MUTHINJA: Lack of access to key financial services comes in many forms

A number of countries consider the aancement of an inclusive financial system to be a policy priority and as a result they have devoted significant resources towards this end.

In an inclusive financial system, individuals are not excluded from financial services or from the financial system.

According to Mandira Sarma there are five forms of financial exclusion namely access exclusion, condition exclusion, price exclusion, marketing exclusion and self-exclusion.

Carbo et al argue that the factors resulting in denial of financial services effectively deprive the group or individuals of the benefits from said services.

The study argues that financial exclusion also implies social deprivation and social standing and is therefore not limited to denial or failure to access financial services.

Access exclusion occurs where individuals are excluded from financial services due to credit risk management efforts of the financial system or remoteness of their residences.

This situation creates physical access problems, especially where banks close branches due to high operating costs or losses. The global ICT trends have seen banks prefer to install ATMs in some locations instead of opening new branches.

Condition exclusion occurs where the conditions of some people prevent them from accessing financial services, for example, due to poverty, religion or gender.

In most countries, Know Your Customer is widely practiced in the banking sectors. This practice requires that banks obtain documents which legally identify their account holders in an attempt to prevent money laundering and financing of terrorism.

Price exclusion occurs where individuals cannot afford the cost of the financial products on offer. Most banks charge exorbitant amounts for failure to maintain a minimum balance and for making over-the-counter transactions.

Marketing exclusion occurs where the financial system or providers of financial products exclude some individuals from the sales and marketing campaigns aimed at promoting the financial products.

Self-exclusion occurs where the fear of refusal andor other psychological barriers cause individuals to exclude themselves from financial services.

So who are the excluded? Some people are at a higher risk of exclusion than others, irrespective of the level of exclusion.

According to Daniel and Simon, individuals with the lowest levels of income are twice as likely to be without a bank account as the average. Such people have minimal engagement with their banks.

In sum, financial exclusion is a global challenge facing both developed and developing countries with low income and minority groups as the major culprits.

The writer is a lecturer at St Paul’s University.