Financial Exclusion

Closely linked to social exclusion, the “financial exclusion” refers to the situation where people have difficulties in accessing suitable financial services within the traditional market. Financial exclusion, over the last decade, has increasingly come to the attention of European governments and the European Union, as a dimension to be taken into account in the fight against poverty and social exclusion.

Financial exclusion can be defined as the unavailability of banking services to people with low or non income. It is believed to be one factor preventing poor people leave out  poverty. Since European companies have moved into virtual money-depend economies, simple tools such as a credit card and a bank account for pay have become prerequisites for many activities of daily living. Lack of access to these tools and services and/or lack of use of these represent a serious obstacle to economic and social integration of a person.

 

Microfinance means offering financially excluded people (on low incomes) and microentrepreneurs basic financial services, like credit, savings and insurance. These services give people an opportunity to protect their families against financial risks and invest in new or existing economic initiatives. Such services are provided by specialized institutions that can be classified as banks (cooperative, commercial, microfinance or savings banks) and non-banks (financial cooperatives, non-profit companies and NGOs). All categories of institutions seek to use the market approach to solve the problems of financial exclusion, while in many cases non-banks provide additional non-financial support services for their clients.[1]

The fight against social exclusion has been a major concern of EU policy since the early 1990s.Unemployment is the major factor contributing to social exclusion as employment and job security promises an income to satisfy basic needs and provides social integration and identity. The causes of unemployment in Eastern and Western Europe are linked to restructuring andshifts in the economy, especially significant in Eastern Europe during the 1990s. Since then, microfinance programmes in the EU have been addressing social and financial exclusion by enabling the unemployed to gain access to microloans of €25,000 or less for self-employmentand microenterprise creation[1].




[1] From exlusion to inclusion through microfinance (PDF)




[1] Microfinance providers can also be categorised by the different target groups they reach: bankable and non-bankable clients. The bankable group includes traditional start-ups and established microenterprises, while the non-bankable group reaches mainly financially excluded,  ow-income people.  As far as credit is concerned, the loan amounts are typically very  small. However, it is within the context of the EU they can reach up to €25,000 depending on the target group and type of activities.

 

 

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