Financial Exclusion Essay Example | Topics and Well Written Essays - 1500 words

Financial Exclusion - Essay Example Now while no bank advertises that it will not extend it's banking facilities to mothers on welfare , there are various barriers which would present that. The income level of that person may be so low that banking guidelines would not permit giving them credit facilities . They may not have any established credit because they pay everything in cash, or they may even have bad credit , because they just may not have given too much thought to payment on time and they just pay when they have the money. Or simply they may not just know , how the financial and credit system works. So a certain group of people are excluded from the financial system , so how is this bad and most importantly , how does this effect you and me After all we are not a socialist or a communist country where everybody should have access to everything and we besides we already know that system has failed. This is not about trying to establish a socialist welfare society. There are real damaging consequences to a modern free market economy from lack of financial inclusion of a certain group of people. First of all a whole group of people have been excluded from the mainstream economy , that cannot be good for the economy. The people themselves will enter a vicious cycle of paying high interest rates for credit and since these people are already in varying degrees of poverty it just pushes them further into it. Finally poverty breeds instability , violence and crime. The inner cities, slums and ghettos all of this in common that they consist of financially excluded people and are breedin g ground of poverty and crime. But should Financial Institutions take the burden of providing credit facilities to people who do not meet their credit guidelines Don't they have a responsibility to make sound investment decisions on behalf of their shareholders Certainly they do. In fact the current sub prime crisis may not have happened if a few banks had behaved in a prudent manner in lending. You cannot and should not lend to the unlendable. But understand this , these people already borrow money , they pay a very heavy interest for it. So the banks must design products to capture this market rather than asking this group of people to meet their existing guidelines which may be difficult , if not impossible. If Bangladesh can have a successful micro loan program with Grameen bank , why could U.K. which has a much smaller problem with financial exclusion not come up with solutions. Indeed An interesting feature which emerges from the international practice is that the more developed a society is, the greater is the thrust on empowerment of the common person and low-income groups. In U.K The first review of the problems of financial exclusion in 1999 stimulated both debate and development. The government set out its strategy, Promoting financial inclusion, in 2004, identifying three priority areas - access to banking, access to affordable credit, and access to free face-to-face money advice for people who are financially excluded. UB or Universal banking was setup partly because of this effort , this opened up access to bank accounts at post offices. And this was a very good idea , because bank may look