Financial inclusion: a strong critique

Ozili, Peterson K (2021): Financial inclusion: a strong critique. Forthcoming in:

Abstract

This article presents some criticisms of financial inclusion. It notes that (i) financial inclusion is an invitation to live by finance and leads to the financialisation of poverty; (ii) some of the benefits of financial inclusion disappears after a few years; (iii) financial inclusion ignores how poverty affects financial decision making, (iv) it promotes digital money which is difficult to understand, (v) financial inclusion promotes the use of transaction accounts; (vi) digital money is difficult to understand; and that (vii) some financial inclusion efforts bear a resemblance to a campaign against having cash-in-hand. This study will help policymakers in their assessment of the economic, social, political and cultural factors that hinder financial inclusion as well as the consequence of financial inclusion for society. For academics, this study will provide a critical perspective to on-going financial inclusion debates in the large positivist literature on financial inclusion

• Item Type: MPRA Paper
• Language: English
• Keywords: : financial inclusion, criticism, poverty, digital money, digital finance, financial literacy, financial education.
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements

References

Allen, F. Demirguc-Kunt, A., Klapper, L. & Peria, M.S.M. (2016). The foundations of financial inclusion: Understanding ownership and use of formal accounts. Journal of Financial Intermediation, 27, 1-30.

Aslan, G., Deléchat, C., Newiak, M. M., & Yang, M. F. (2017). Inequality in financial inclusion and income inequality. International Monetary Fund.

Beck, T., Demirgu¨c-Kunt, A., & Levine, R. (2007). Finance, inequality and the poor. Journal of Economic Growth, 12(1), 27-49.

Better Than Cash (2014). Is Cash the Enemy of Financial Inclusion? Media Communication. Available at: https://www.betterthancash.org/news/blogs-stories/is-cash-the-enemy-of- financial-inclusion

Berger, P. L., Luckmann, T., & Zifonun, D. (1967). The social construction of reality.

Berry, C. (2015). Citizenship in a financialised society: financial inclusion and the state before and after the crash’, Policy & Politics, 43 (4) 509-525.

Brunnermeier, M. K., James, H., & Landau, J. P. (2019). The digitalization of money (No. w26300). National Bureau of Economic Research.

Chakrabarty, K. C. (2011). Financial inclusion and banks: Issues and perspectives. RBI Bulletin, November.

Chauvet, L., & Jacolin, L. (2017). Financial inclusion, bank concentration, and firm performance. World Development, 97, 1-13.

Chipere, M. (2018). Virtual currency as an inclusive monetary innovation for the unbanked poor. Electronic Commerce Research and Applications, 28, 37-43.

Clark, C., Dyson, A., Millward, A., & Robson, S. (1999). Theories of Inclusion, Theories of Schools: deconstructing and reconstructing the ‘inclusive school ‘. British educational research journal, 25(2), 157-177.

Cole, S., & Shastry, G. K. (2008). If You Are So Smart, Why Aren’t You Rich? The Effects of Cognitive Ability, Education, and Financial Literacy on Financial Market Participation.” Paper presented at 2009 Federal Reserve System Community Affairs Research Conference, WA, DC.

Collard, S. (2007). Toward financial inclusion in the UK: Progress and challenges. Public Money and Management, 27(1), 13-20.

Cull, R., T. Ehrbeck, & N. Holle, 2014. “Financial Inclusion and Development: Recent Impact Evidence.” CGAP (Consultative Group to Assist the Poor) Focus Note 9/2014.

Demirguc-Kunt, A., Klapper, L., & Singer, D. (2013). Financial inclusion and legal discrimination against women: evidence from developing countries. The World Bank.

Demirguc-Kunt, A., Klapper, L., & Singer, D. (2017). Financial inclusion and inclusive growth: A review of recent empirical evidence. The World Bank.

Dev, S. M. (2006). Financial inclusion: Issues and challenges. Economic and political weekly, 4310- 4313.

Donovan, K. (2012). Mobile money for financial inclusion. Information and Communications for development, 61(1), 61-73.

Dyson, B. & Hodgson, G. (2016). Digital cash: why central banks should start issuing electronic money. Positive money. Available at: https://positivemoney.org/publications/digital-cash/

Gale, W. G., & Levine, R. (2010). Financial Literacy: What Works? How Could It Be More Effective? Paper presented at the First Annual Conference of the Financial Literacy Research Consortium, WA, DC, November 18.

Gonzales, C., Jain-Chandra, S., Kochhar, K., Newiak, M., & Zeinullayev, T. (2015). Catalyst for change: empowering women and tackling income inequality. FMI. http://www. imf. org/external/pubs/ft/sdn/2015/sdn1520. pdf.

Hakura, M. D. S., Hussain, M. M., Newiak, M. M., Thakoor, V., & Yang, M. F. (2016). Inequality, gender gaps and economic growth: Comparative evidence for sub-Saharan Africa. International Monetary Fund.

Hathaway, I., & Khatiwada, S. (2008). Do Financial Education Programs Work? Federal Reserve Bank of Cleveland Working Paper 0803.

Lichtfous, M., Yadav, V., & Fratino, V. (2018). Can blockchain accelerate financial inclusion globally. From a core transformation/technology perspective. Part 02. Inside Magazine, Issue 19. Available at: https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/technology/lu- blockchain-accelerate-financial-inclusion.pdf

Khan, H. R. (2012). Issues and challenges in financial inclusion: Policies, partnerships, processes and products. Korea, 18(250.29), 84-17.

Luhrmann, M., Serra-Garcia, M., & Winter, J. (2018). The impact of financial education on adolescents' intertemporal choices. American Economic Journal: Economic Policy, 10(3), 309-32.

Mader, P. (2015) The Political Economy of Microfinance: Financialising Poverty, Washington DC: Palgrave Macmillan.

Mader, P. (2018). Contesting financial inclusion. Development and Change, 49(2), 461-483.

Mallory, B. L., & New, R. S. (1994). Social constructivist theory and principles of inclusion: Challenges for early childhood special education. The Journal of Special Education, 28(3), 322- 337.

Mandell, L., & Klein, L. S. (2009). The impact of financial literacy education on subsequent financial behavior. Journal of Financial Counseling and Planning, 20(1).

Mohan, R. (2006). Economic growth, financial deepening, and financial inclusion. Dynamics of Indian Banking: Views and Vistas, 92-120.

Mullainathan, S. & Shafir, E. (2013) Scarcity: why having too little means so much. New York: Macmillan

Ozili, P. K. (2018). Impact of digital finance on financial inclusion and stability. Borsa Istanbul Review, 18(4), 329-340.

Ozili, P. K. (2020a). Financial inclusion research around the world: A review. In Forum for social economics, (pp. 1-23). Routledge.

Ozili, P. K. (2020b). Theories of financial inclusion. Available at SSRN 3526548.

Prabhakar, R. (2019). Financial inclusion: A tale of two literatures. Social Policy and Society, 18(1), 37-50.

Reese, B. (2015). Why you should care about digital money, May 4. Available at: https://medium.com/@byrnereese/why-you-should-care-about-digital-money-ec32d6e11562

Rucker, D. D. & Galinsky, A. D. (2008). Desire to acquire: powerlessness and compensatory consumption, Journal of Consumer Research, 35, 257–67

Sarma, M. (2012). Index of Financial Inclusion–A measure of financial sector inclusiveness. Centre for International Trade and Development, School of International Studies Working Paper Jawaharlal Nehru University. Delhi, India.

Sapovadia, V. (2018). Financial Inclusion, Digital Currency, and Mobile Technology. In Handbook of Blockchain, Digital Finance, and Inclusion, 2, 361-385). Academic Press.

Sheehy-Skeffington, J., & Rea, J. (2017). How poverty affects People's decision-making processes. York: Joseph Rowntree Foundation.

Sivanathan, N. & Pettit, N. C. (2010). Protecting the self through consumption: status goods as affirmational commodities’, Journal of Experimental Social Psychology, 46(3), 564–70.

Soederberg, S. (2013). Universalising financial inclusion and the securitisation of development. Third World Quarterly, 34(4), 593-612.

South, S. J. & Crowder, K. D. (1997). Escaping distressed neighborhoods: Individual, community, and metropolitan influences, American Journal of Sociology, 102(4), 1040–1084.

Subbarao, D. (2009). Financial inclusion: Challenges and opportunities. Address delivered at the Bankers Club in Kolkata on December, 9.

Teater, B. (2015). Social Work Theory, p. 813-820. United Nations. (2016). Digital financial inclusion. international telecommunication union (itu), issue brief series, inter-agency task force on financing for development, July. United Nations. Available at: http://www.un.org/esa/ffd/wp-content/uploads/2016/01/Digital-Financial- Inclusion_ITU_IATFIssue-Brief.pdf. (Accessed 10 November 2017).

Wagner, U. & Zick, A. (1995) ‘The relation of formal education to ethnic prejudice: its reliability, validity and explanation’, European Journal of Social Psychology, 25(1), 41–56.

Willis, L. E. (2008). Against financial-literacy education. Iowa L. Rev., 94, 197.