Financial Inclusion [1 ed.] 9781788211192, 9781788211178

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Financial Inclusion

The Economy | Key Ideas These short primers introduce students to the core concepts, theories and models, both new and established, heterodox and mainstream, contested and accepted, used by economists and political economists to understand and explain the workings of the economy. Published Austerity John Fender Behavioural Economics Graham Mallard Bounded Rationality Graham Mallard Cultural Economics Christiane Hellmanzik Degrowth Giorgos Kallis Economic Anthropology James G. Carrier Financial Inclusion Samuel Kirwan The Gig Economy Alex De Ruyter and Martyn Brown The Informal Economy Colin C. Williams The Living Wage Donald Hirsch and Laura Valadez-​Martinez Marginalism Bert Mosselmans Productivity Michael Haynes The Resource Curse S. Mansoob Murshed

Financial Inclusion Samuel Kirwan

© Samuel Kirwan 2021 This book is copyright under the Berne Convention. No reproduction without permission. All rights reserved. First published in 2021 by Agenda Publishing Agenda Publishing Limited The Core Bath Lane Newcastle Helix Newcastle upon Tyne NE4 5TF www.agendapub.com ISBN 978-​1-​78821-​117-​8 (hardcover) ISBN 978-​1-​78821-​118-​5 (paperback) British Library Cataloguing-​in-​Publication Data A catalogue record for this book is available from the British Library Typeset by Newgen Publishing UK Printed and bound in the UK by TJ Books

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Contents

1 Introduction 

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2 What is financial inclusion? 

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3 Financial inclusion as a tool of poverty eradication: the case of microcredit

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4 Financial inclusion as the production of new markets: the case of reverse redlining

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5 Financial inclusion as financial subjectivity: the case of financial capability in the UK

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6 Financial inclusion as political project: the case of conditional cash transfers

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7 Financial inclusion as transformations in financial practice: the case of mobile money

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8 Conclusion

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References  Index 

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Introduction

OUR GOAL: To help people in the world’s poorest regions improve their lives and build sustainable futures by connecting them with digitally-​based financial tools and services. (Bill and Melinda Gates Foundation 2017) We seek a world in which people have the financial ability to deal with and adapt to climate change, gender inequality, and data opportunities and risks. (Centre for Financial Inclusion 2020) Such ambitions, voiced on a global scale in the Maya Declaration on Financial Inclusion (AFI 2012) and the World Bank’s Financial Inclusion Global Initiative, play an increasingly important role in current debates on sustainable development. The goal of Banking the World (Cull et  al. 2013) not only identifies a form of development that, bringing together the governmental, financial and NGO sectors, benefits from significant support; it also claims solidarity with the dreams and ambitions of the poor. From being a fringe discourse within human geography in the mid-​ to late 1990s (see Leyshon & Thrift 1994, 1995, 1996), financial inclusion has become a dominant and relatively unchallenged framing of both the problem of poverty and its potential solutions in the developing and developed worlds. This book serves as an introduction for readers in the social sciences to the concept of financial inclusion. Despite playing a key role in shaping policy decisions across multiple national domains, as well as understandings of inequality and development globally, analysis and critique of the concept has been for the most part confined to the fields of economics and development studies. Importantly for this book, it has rarely been taken seriously

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Financial Inclusion

as a concept in relation to class, gender and material poverty in different national settings. The book follows the development and application of financial inclusion within various policy contexts. It introduces readers to the different roles the concept has played as well as the complex and unexpected ways in which initiatives have reshaped socio-​economic practices. It traces and analyses key differences of interpretation, notably that between how the term has been used in developing and developed countries, as well as its relation to the sister terms financial exclusion, financial capability, financial literacy and others. My aim is both to introduce and to challenge the concept of financial inclusion from a social scientific perspective. The guiding questions for the book are concerned less with the success of financial inclusion than they are with the distinct and common features of the different initiatives and programmes that are brought together under this term. What does it mean to designate exclusion from financial services –​rather than education, housing or any other aspect of life –​as the key space of social policy intervention? And how are family and other relations affected by attempts to enable or facilitate access to financial services? While the social sciences have, with good reason, been suspicious of definitions of poverty seemingly framed and led by the financial sector, the book seeks to ask whether there is something to be retained in this particular definition of inclusion and exclusion, given that it names a condition that most social scientists would recognize, namely that it costs more to be poor. The book engages with the growing body of critique regarding financial inclusion as both a concept and an area of intervention. Indeed, indications of the changing status of the term are difficult to miss; R. V. Reddy, one of the initial key voices promoting the application of the concept in India, has stated that financial inclusion is “not an end in itself ” (The Hindu 2016); responses to the United Kingdom Select Committee on Financial Exclusion urged the commission to “be a bit more honest” about the overriding challenge of poverty (House of Lords Select Committee on Financial Exclusion 2017: 16), and the most widely known financial institution involved in financial inclusion, the Grameen Bank in Bangladesh, has been subject to a wave of criticism since the early 2010s (Kazmin 2014), including a prominent accusation that microcredit represented a “death trap” for the poor of Bangladesh (Ahmad, quoted in Melik 2010). 2

Introduction

Drawing upon a growing body of critical perspectives on financial inclusion, the book invites reflection upon how a sphere of well-​meaning activity, rooted in the real needs of individuals and with significant potential for improving lives, might nonetheless deepen existing power structures and exacerbate forms of inequality. Financial inclusion, for many, is a term through which entrenched conditions of poverty can be ignored, or indeed fostered, as social and economic policy are aligned to expanding the customer base and profitability of financial services by drawing in poor and rural populations. Each of the five stories of financial inclusion presented in the book brings together these intertwined dimensions of financial inclusion: how inclusion and exclusion from finance are defined; how initiatives and programmes are developed and implemented; and how critical literatures can challenge and deconstruct established assumptions and narratives, seeking to reveal the wider structural forces at play in each setting. Each story also explores, through the work of economic anthropologists, the material impacts of being financially included: how individuals, families and households responded to and were affected by specific policies, technologies and services. As the book brings these material impacts together, it is clear that the financially included subject neither fits the model of the empowered entrepreneur found in NGO literatures, nor of the exploited consumer found in the most critical perspectives within political economy. I argue that the concept of financial inclusion does indeed bring an overdue recognition of the creativity and resilience of poor and marginalized groups. Yet it often ignores these subjects’ existing relationships with debt and money, thus missing how inclusion might reshape, rather than replace, ongoing financial relationships and obligations. I show how, conversely, critical perspectives identify the commercial interests and power relationships that shape the financial inclusion field and its everyday effects. Yet there is a risk that, by situating financial inclusion as the root cause of the financial difficulties faced by marginalized groups, one misses how financial inclusion might equally be an opportunity to mitigate or deal with processes of economic and social change that are already affecting their lives. The book has three key goals. First, it seeks to give a rounded view of financial inclusion, reducing it neither to an institutional field, a specific concept, nor a set of interventions. By addressing multiple such modalities of financial inclusion, I hope to give a broader view of what is meant by this complex term. Second, by drawing upon social scientific concepts 3

Financial Inclusion

and research I seek to challenge the assumptions, grounded in abstract economic theory, that have hitherto guided the financial inclusion field. As a reflection of this, the book seeks to combine a top-​down approach to financial inclusion, tracing the institutional and conceptual changes that shape the financial inclusion field, with a ground-​up perspective: how it is lived and experienced. Third, the book proposes an agenda for critical financial inclusion. This would recognize and support the valuable work done within the financial inclusion field, while orienting evaluations of success away from the false binaries of exclusion/​inclusion and formal/​informal financial services, and towards the task of giving marginalized groups a meaningful role in shaping the role of finance in their lives. Structure of the book Chapter 2 presents an introduction and overview of financial inclusion as a concept and an institutional field. The chapter sets out:  key definitions of the term; how uses differ between geographic and institutional settings; relationships with related terms; and the key institutions and other actors that make up the financial inclusion field. Having established this institutional and conceptual terrain, Chapters 3 to 7 present five different stories of financial inclusion: diverse accounts of how financial inclusion has been implemented and approached across five continents. Each story is used as the basis for an exploration of a different modality of financial inclusion: a particular way in which financial inclusion appears or occurs. Addressing the field of microcredit and microfinance, Chapter 3 explores how the provision of small loans, with a particular focus upon lending to women in rural communities through the group lending structure, became the go-​to solution for issues of rural poverty in the Global South. It explores accounts of the experience of microcredit in Bangladesh and India, detailing how microcredit reshaped existing structures of power and was used alongside other forms of debt. Chapter 4 explores the history of redlining and reverse redlining in the United States. It continues a theme begun in Chapter 3, namely of financial inclusion as the creation of new markets, and new sites of profit, from formerly excluded groups. It describes how processes of financial inclusion, by seeking to overturn forms of historic discrimination, can continue this 4

Introduction

discrimination through the deleterious terms on which excluded groups are included. Through the concept of the feminization of finance, the chapter explores how the inclusion of women is often a double-​edged sword, bringing possibilities but also new responsibilities and risks. Chapter 5 addresses the development of financial capability training in the United Kingdom. It notes how, in the Global North, the focus of financial inclusion has been upon changing individual habits and knowledge. The chapter charts the changing contours of this idealized financial subjectivity in the UK, noting distinct tensions between the narratives of asset-​based welfare and a financial capability regime focused upon debt avoidance and frugality. Chapter 6, looking at conditional cash transfer systems in Latin America, explores how financial inclusion can be a political project for remaking the behaviours and habits of specific populations over long periods of time. This chapter addresses a key question that is rarely asked in financial inclusion discussions, namely that of the meaning of money. If money is being presented as the answer to peoples’ problems, how does this sit in tension with existing financial practices? In the final story of financial inclusion, presented in Chapter 7, I turn to the development and use of mobile money in Kenya and across sub-​ Saharan Africa. Unlike the other chapters, in this setting the direction of the financial inclusion process was driven not by governmental or financial institutions (although these had a role), but rather by the creative uses to which consumers were putting a new technology to meet a specific financial need. The chapter addresses how financial inclusion is used as a measure of the changes created by mobile money, but in a way that does not grasp the fundamental shifts in financial practices and relationships that it has enabled. The concluding chapter of the book brings together the different critical themes explored across these stories of financial inclusion. It addresses the key challenges to the financial inclusion concept, presenting a series of questions that need to be asked wherever financial inclusion is raised as the solution to societal problems. The chapter finishes by setting out the beginnings of an agenda for critical financial inclusion, based upon a call to include marginalized populations in shaping ongoing processes of financial change.

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What is financial inclusion?

Defining financial inclusion Considering the diversity of actors and interventions that draw upon the term, as well as the range of spaces and contexts in which it is applied, it is not surprising that there are ongoing tensions over what financial inclusion actually means. The task of defining financial inclusion has been the subject of an ongoing project led by the Centre for Financial Inclusion (discussed further below), recognizing the agreement among key actors for a strategic need for an effective definition, in particular given the bold claims made in the Maya Declaration and elsewhere for its transformative effects. [We] recognize the critical importance of financial inclusion to empowering and transforming the lives of all our people, especially the poor, its role in improving national and global financial stability and integrity and its essential contribution to strong and inclusive growth in developing and emerging market countries. With this in mind, it is useful to start with two canonical definitions. Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs –​transactions, payments, savings, credit and insurance –​delivered in a responsible and sustainable way. (World Bank 2020) Full financial inclusion is a state in which all people who can use them have access to a full suite of quality financial services, provided

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Financial Inclusion

at affordable prices, in a convenient manner, and with dignity for the clients. Financial services are delivered by a range of providers, most of them private, and reach everyone who can use them, including disabled, poor, rural, and other excluded populations. (CFI 2010) There are clear resonances and similarities between these definitions. Both highlight access rather than use, foregrounding the importance of consumer choice; both are keen to make clear that financial inclusion includes a range of services and not simply the provision of credit. Yet there are subtle differences between them that highlight key questions for further exploration. The first concerns who the subject of financial inclusion is: is it individuals and businesses, or the unbanked? The former suggests that strengthening the private sector is a key aspect of financial inclusion: enabling people to invest and trade rather than simply manage their money. Furthermore, there is an important difference between an emphasis upon the dignity of clients, and responsible and sustainable delivery. Should the measure of true financial inclusion be based upon the experiences and needs of the consumer or those of the provider? Such considerations highlight the potential for inclusion to not necessarily be positive. If there are exploitative and harmful forms of inclusion, how are they to be recognized and challenged? It is useful to note also the rather different definition provided by the central bank of Tanzania, for whom financial inclusion means: “The regular use of financial services, through payment infrastructures to manage cash flows and mitigate shocks, which are delivered by formal providers through a range of appropriate services with dignity and fairness” (quoted in AFI 2017). The Bank of Tanzania definition focuses upon regular use of services rather than access to them, recognizing the fact that while consumers may have the choice to use certain services, other factors may affect and restrict this. It also specifies that the primary needs of consumers are to manage cash flows and mitigate shocks. This is important, as it specifies that financial inclusion objectives concern subjects being able to manage expected and unexpected fluctuations in income, rather than to invest in (micro-​) entrepreneurial ventures. These definitions can be further contrasted with the introduction to the UK government report on financial inclusion released in 2018. 8

What is financial inclusion?

This government is committed to building an economy where everyone, regardless of their background or income, can access the financial services and products they need. Financial inclusion enables people to fully participate in the economy and empowers them to achieve their goals in life, whilst offering them protection in the face of adversity. (HM Treasury 2019) They can also be contrasted with the more fine-​grained definition given by Elaine Kempson and Sharon Collard of the Personal Finance Research Centre. Everyone should have access to, use and retain: • an appropriate account, or equivalent product, into which income is paid, can be held securely and accessed easily; • an appropriate method of paying, and spreading the cost of, household bills and other regular commitments; • an appropriate method of paying for goods and services, including making remote purchases by telephone and on the Internet; • an appropriate means to smooth income and expenditure. They should be able to use these transaction services without the risk of losing financial control or incurring excessive or unexpected charges. These services do not necessarily need to be provided in a single account. (Kempson & Collard 2012: 1) In the UK government’s definition, the boundary between exclusion and inclusion is linked to background and income. This leads to the focus of the report on financial capability, discussed further in Chapter  5, and the presumption that it is the social positioning of certain consumers that leads them to not be able to make best use of the choices available to them. The focus in this definition on enabling “people to fully participate in the economy” reflects a belief that it is the subject, rather than the economy, that is in need of reform. It articulates also a desire that all sections of society be able to profit from the economy (whether through starting businesses or investing in property), and as such that the financial barriers that separate rich and poor be brought down. 9

Financial Inclusion

In contrast, Kempson and Collard’s definition begins with a need for specific services that will mitigate the effects of poverty; there is no mention here of investment or other profit-​making services. It foregrounds also the fact that financial inclusion is not merely a matter of services, but also of inequalities in the terms on which those services are offered. The reference to “excessive or unexpected charges” indicates the possibility that, even once included, there might be new ways in which life is made difficult for marginalized groups. With these tensions and differences in mind, I  propose three axes across which definitions of financial inclusion, as well as programmes, interventions, initiatives and instruments, can be positioned. At one end of the first axis is an emphasis upon reforming conditions. There are multiple such conditions that require transformation in different settings: the geographic exclusion of rural communities requiring a mixture of technological and procedural changes; or the exclusion of women and ethnic minorities requiring transformations of the ingrained patriarchal and racist prejudices within institutions and society as a whole. At the other end of the axis is a focus upon reforming the subject. As in the UK examples cited above, a key goal of financial inclusion initiatives for the UK government is to inform and empower its marginalized citizens, enabling them to choose between and make best use of available financial services. While issues such as the availability of basic bank accounts remain prominent in this official literature, these share prominence with the need to reshape the financial subjectivity of the poor. Borrowing from the work of Philip Mader, the second axis describes the difference between intertemporal mediation (at the top of the axis) and inter-​ class mediation (at the bottom). In the first case, intertemporal mediation means that the primary objective of financial inclusion is to enable people to move money between periods of plenty and periods of lack –​elsewhere this is known as consumption smoothing. This could be through borrowing to meet essential needs in the present on the understanding that one’s income will be higher in following seasons, saving (or paying insurance) in these latter periods to prepare for an unknown shock, or through putting money aside across the life-​course to prepare for old age in the form of a pension. “Inter-​spatial inter-​class mediation”, in contrast, describes the easing of trade and services between different groups in society. Here the assumption

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What is financial inclusion?

is that the principal check upon poverty alleviation is the inability of the poor to establish businesses that might draw in value from wealthier areas, or to profitably invest their money. Providing loans and investment services to marginalized groups will as such free up the movement of capital across society, thus levelling out financial inequalities. The third axis describes the difference between financial inclusion as the increased use of specific services, or as the reduction of inequalities in the terms on which those services are used. Considering definitions of financial inclusion, at one end of this axis are those that foreground people’s use of credit, savings, insurance, payment and other services, leaving to one side (or as an issue for market development) the question of whether people are paying more for these services or taking on enhanced levels of risk due to their marginalized social position. At the other end are definitions that assume a certain level of access to financial services and foreground the need to minimize the additional costs that poorer consumers are typically subject to when using them. In terms of interventions and programmes, the position on this axis indicates how much attention is paid to the potentially exploitative nature of new or expanded services, and to the possibility that inclusion might mask new forms of exclusion.

Key distinctions In addition to being a highly contested term, financial inclusion names a variety of different policy areas, initiatives and actors. While this book seeks to bring together these diverse areas and perspectives, it is important to note some key conceptual and operational distinctions in its use. Exclusion versus inclusion The first such distinction is between financial inclusion and exclusion. As discussed in Chapter 4, academic discussion of financial exclusion emerged from analyses of bank branch closures and spatial inequalities in the United Kingdom (Leyshon & Thrift 1996; Kempson & Whyley 1999). Financial exclusion remains in use as an exploration of dynamics of spatial inequality

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Financial Inclusion

across the globe, and still frames the debate in the United Kingdom, being, for example, the conceptual reference point for the House of Lords Select Committee on Financial Exclusion (2017). As discussion of financial exclusion became more prominent within academic and other discussions in the UK in the 1990s, financial inclusion described the state of those on the right side of this boundary (see, e.g., Alexander & Pollard 2000); more importantly, it described the interventions for tackling this dynamic of poverty (Fuller 1998). In the early 2000s it was this optimistic, practice-​oriented aspect of financial inclusion that became the term used to frame and justify interventions, social policies, programmes and technologies in the Global South. Global South and Global North This leads us to the second key distinction, namely that between use of the term in developing and developed contexts that I  refer to as the distinction between the Global North and Global South. While there are important crossovers –​see, for example, Kempson et al.’s (2014) work on policy sharing between diverse national contexts and concerted attempts to provide a unifying measure of financial inclusion across sectors (Sarma 2010) –​there remain fundamental differences in use of the term, not only in forms of intervention, but also in the very problems named by the term financial inclusion. In the Global South, definitions of financial inclusion retain key aspects of the analysis of poverty, and dynamics of exclusion, developed by Leyshon and Thrift: communities in rural locations lack access to formal banking services; the more expensive and less flexible services they can access cement enduring forms of inequality; and the regulation and governance of financial services tend to create a retrenchment of services that only deepens these dynamics of poverty (see Leyshon & Thrift 1996). Yet the subject idealized within these development literatures is radically different, and indeed forms the key line of division between understandings of the term in the Global North and Global South. This subject is defined by two key characteristics. First, they hold considerable knowledge both about how to better organize their lives financially, and second about how to create new value through novel entrepreneurial 12

What is financial inclusion?

projects. In contrast to the geographically and technologically marginalized subject described in the early UK literature, they are of working age and hold clear ideas for how financial services might improve their lives. Second, the subject is predominantly female. The transformative potential of financial inclusion has not been limited to tackling poverty, but also to redrawing gender relations in rural communities characterized by patriarchal hierarchies. As is discussed in Chapter 3, the predominance of informal modes of lending in particular are seen to be most damaging for gender relations, locking women into shameful and exploitative subjugation to local moneylenders. Financial inclusion in the Global South has as such become a question of reshaping access to financial services, enabling female subjects in particular to: find cheaper and more effective and flexible financial solutions to protect themselves against future uncertainty; to act upon entrepreneurial ambitions they already hold; and to do this in ways that do not exploit their existing subordinate position within the social hierarchy. It is a question of removing the barriers enacted by history, financial services and geography to the ability of the world’s poorest citizens to realize their full potential. In the words of Muhammad Yunus, “Let us join hands to give every human being a fair chance to unleash their energy and creativity” (Yunus 2006). Indeed, the clearest marker of the distinction between approaches in the Global South and Global North is the way in which, in the Global South, financial inclusion programmes tend to focus upon changing conditions, whether geographical, technological, sociological or to do with the approach and practices of financial services, while in contrast, in the Global North, the predominant focus in policy programmes has been upon changing the financial subject. If the subject of financial inclusion in the Global South is presumed to already know how to organize their lives, marginalized populations in the Global North are presumed to have greater access to the best options in credit, insurance, pensions and other services, but not always to know how to access or use them. As is described in Chapter 5, in the UK financial exclusion and inclusion have become intertwined with questions of financial capability and programmes of financial education. Across the Global North, enabling financial inclusion has meant overcoming barriers of knowledge, addressing technological and financial ignorance within marginalized populations.

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A further aspect of this distinction is the way in which financial inclusion as a policy area in the Global South is inextricable from the field of microcredit, a relationship I  discuss further in Chapter  3. Indeed, as Chapters 5 and 6 display, the development of very different financial inclusion initiatives elsewhere in the Global South was nonetheless procedurally intertwined with the spread and provision of microcredit. As I describe in Chapter 3, financial inclusion programmes have gained prominence in India, Bangladesh, Mexico and elsewhere as microcredit and microfinance institutions have attracted criticism regarding institutional practices and effects of credit agreements. For critical observers, this is simply a matter of public relations; financial inclusion has enabled a broader framing of the problems of poverty, marginalization and deprivation, while retaining the attachment to microcredit as a potential solution to these. For advocates of this turn, the increasing prominence of financial inclusion represents a welcome recognition among major NGOs and banks that the needs and lives of these communities are more diverse than simply a need for accessible credit. Concept, intervention and assemblage Third, we can distinguish between financial inclusion as a descriptive concept, a space of intervention and an institutional assemblage. In early academic discussions of financial exclusion and inclusion, the terms were used in conceptual terms: reference points for understanding how marginalized individuals and communities are excluded from financial services and the social transformations associated with enhanced access to the formal financial sector. As is detailed in Chapter 4 particularly, this concept became the focus of a rich field of policies and programmes deployed across diverse geographic settings. Rather than a tool for describing forms of exclusion and the transformations associated with the “financialization of daily life” (Martin 2002), financial inclusion had become a term for how governments, NGOs and others should intervene into the lives of the poor. As Rajiv Prabhakar (2019) has detailed, this led to something of a division between theoretical and policy approaches to the term. As this institutional focus grew, Anke Schwittay (2011) recognized the need to refer, in a different register, to the financial inclusion assemblage: the

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What is financial inclusion?

network of NGOs, governments and major financial institutions with a stake in promoting financial inclusion. Use of the term assemblage recognizes the fact that this set of diverse actors at the inter-​and intra-​national scales displays a distinct way of seeing and understanding problems of poverty, a mode of interpreting the world that exists and is reproduced within the conferences and other fora organized by the actors discussed below. This book brings these different levels of financial inclusion together. Each of the five stories of financial inclusion details a distinct space of intervention, presenting five very different narratives of how poverty alleviation has been approached in terms of increased access to financial services. Each story paints a subtly different picture of the concept of financial inclusion and indicates the variety of institutions that have become involved in this area of policy. Across these chapters, the book shows how it is that concept, policy and assemblage are thoroughly intertwined. I  describe:  how conceptual descriptions of the social transformations associated with financial inclusion are increasingly defined by the official measurements of the World Bank’s Global Findex data; how the financial inclusion assemblage has had to change its areas of focus and terms of reference as certain forms of intervention have been shown to have adverse effects; and how, within particular spaces, financial inclusion policy changed in line with shifting understandings of what constitutes exclusion and inclusion. In the concluding chapter I  return to financial inclusion as a concept. I  bring together the critical perspectives on financial inclusion explored across the book, organizing these around challenges to the key assumptions of financial inclusion policy. Yet I argue that we should also not lose sight of the ways in which financial inclusion and exclusion name specific forms of poverty and transformative processes that do indeed enrich and improve people’s lives. I emphasize in the final chapter forms of transformation that are often left out of such discussions: the reduction of stress; the facilitation and enhancement of relationships; and, finally, gaining the resources and power to challenge forms of structural discrimination and exploitation. At the end of the book I  bring these further dimensions of the concept together into an agenda for critical financial inclusion.

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Financial Inclusion

Key players Accion Accion is a non-​profit organization focusing on advocacy for and investment in financial inclusion initiatives. The organization was established in the 1960s as part of development work in Venezuela (Accion 2020), and over time became focused on the need for better financial services among its target populations. Accion stakes a claim to being the true home of microfinance, given the importance accorded to access to affordable credit in the early decades of its work in Latin America (Accion 2020). Accion funds and supports initiatives across the globe, with a particular emphasis on financial technology (fintech) solutions to issues of financial inclusion. The Center for Financial Inclusion at Accion (CFI) is a think tank housed within the organization. The CFI serves to provide ideas and best practices, to provide fora in which different initiatives can share thoughts and experiences, and also to create frameworks for improving microfinance and protecting consumers, the most recent of which are the Standards for Digital Credit (CFI 2019) concerning use of online microcredit loans. In 2010 the CFI launched the Financial Inclusion 2020 project, aiming to achieve full financial inclusion in the ensuing decade. The Alliance for Financial Inclusion The Alliance for Financial Inclusion (AFI) is a network of policymaking institutions from developing and emerging nations. The network seeks to bring together central banks, government institutions and financial services with a stake in serving marginalized populations, principally through the Global Policy Forum, to share ideas and promote “evidence based policy solutions” (AFI 2020a). The AFI inaugurated the Maya Declaration in 2011 (AFI 2012), setting out a shared commitment to financial inclusion and a set of ideas for how to achieve this. The declaration sought to act as a commitment platform for members, providing a framework for sharing experiences through ongoing progress reports (see AFI 2020b). The shared commitments are discussed further below in discussion of the definitions of financial inclusion. 16

What is financial inclusion?

The Bill and Melinda Gates Foundation The world’s largest philanthropical organization has long held a key interest in the potential role of financial services in tackling poverty, and as such the Bill and Melinda Gates Foundation (BMGF) has played a significant role in shaping the financial inclusion agenda as it has developed in the 2000s and 2010s. Under the Financial Services for the Poor strategy, one of four strategies in the Foundation’s Global Growth and Opportunity programme, the BMGF seeks to fund projects that expand access among the world’s poor to “affordable and reliable financial services” (BMGF 2020). Representatives of this strategy provide reports to the G20 and G7 on ongoing financial inclusion challenges. Funding objectives and reporting from the strategy show a distinct recent turn towards better understanding of the use of digital payments in poor and rural areas (see BMGF 2019). The BMGF has not only played a key role in funding research into, and discussion around, microcredit and microfinance, but has also facilitated the growth of the financial inclusion assemblage, most prominently through $38 million of grants awarded to microfinance institutions in 2010 (BMGF 2010). Accion, the AFI, FINCA1 and Grameen all received major grants from the BMGF. Many schemes, such as the Financial Inclusion Global Initiative, are partnerships between the BMGF and the World Bank (World Bank 2019). For some observers, the significant influence of the BMGF, and its increasingly interventionist approach into the projects it funds, has served to homogenize approaches and ideas across development contexts (Fejerskov 2015). The Grameen Bank Alongside the US-​based FINCA bank, which operates across 20 countries (FINCA 2020), The Grameen Bank of Bangladesh is the most prominent and well-​known microcredit institution. Its founder, Muhammad Yunus, has achieved globally recognized status as a leader in poverty alleviation through micro-​lending. In the 1990s and 2000s, Yunus and Grameen were 1. FINCA stands for Foundation for International Community Assistance, but is typically referred to by its acronym alone. 17

Financial Inclusion

considered within the development community and elsewhere as a beacon for a new kind of development approach; Yunus was awarded the Nobel Peace Prize in 2006, a year after the UN launched its International Year of Microcredit. Building upon its growing worldwide status, the Grameen Foundation was established in 1997 to carry out advocacy for microcredit as a tool of poverty elimination and to work with partners to provide microcredit across the world. The US-​based Grameen Foundation works in 16 anchor countries and 13 partner countries, alongside financial services providing agricultural services, projects to strengthen organizations, regional programmes and public education (Grameen Foundation 2019). The World Bank The lynchpin in the financial inclusion assemblage is the World Bank. Financial inclusion sits at the centre of its goals for tackling poverty globally; it works with other transnational institutions such as the G20 (which houses its own Global Partnership for Financial Inclusion) in shaping global poverty goals, houses key initiatives such as the Global Findex Database, and shapes the direction of financial inclusion thinking and research, most recently through its goal for “Universal Financial Access”. The World Bank also houses the Consultative Group to Assist the Poor (CGAP), set up initially within the World Bank to facilitate the growth of microfinance institutions and now acting as one of the foremost think tanks focusing upon financial inclusion. Key questions If the above sections address the who and what of financial inclusion at the macro scale, the following chapters seek to address a more nuanced, complex and site-​specific set of questions. What are the lived effects of financial inclusion interventions in different spaces, how does this differ between groups, and how does this relate to existing forms of power and inequality? What exactly is the form of life that the poor and excluded are being invited to inhabit, and how does this relate to their existing practices? What are the 18

What is financial inclusion?

consequences for women particularly of not being able to live up to the ideal of financial subjectivity presumed by financial inclusion interventions? And finally, in what ways have poor and marginalized consumers found their own ways of appropriating and negotiating the services and initiatives packaged in financial inclusion terms? The following chapters explore these questions by working through five different stories of financial inclusion, each addressing a different modality of financial inclusion. As the book moves through these five very different spaces, a set of shared assumptions and consequences of financial inclusion begin to take shape –​themes the book explores in Chapter 8.

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Financial inclusion as a tool of poverty eradication: the case of microcredit

This document’s writers advocate that “access to finance” rather than “poverty eradication” should drive the strategies governments adopt to build inclusive financial sectors. Evidence suggests this approach results in more prudent financial sector policies and decisions, while simultaneously and decisively aligning financial sectors to achieve the [Millennium Development Goals]. Nevertheless, broad and deep financial sectors that promote access to finance, in particular microfinance, are the bedrock of poverty eradication. Microfinance directly provides low-​income people the tools to protect, diversify and increase their sources of income. (UNCDF 2005) This bold statement, presented in the context the 2005 Year of Microcredit, was included in a United Nations Capital Development Fund (UNCDF) document emphasizing the role to be played by financial services in eradicating extreme poverty and hunger (the first of the Millennium Development Goals). The statement indicates a belief in a complete transformation in how international development could be conceived and approached. Gone would be the paternalistic focus upon eradicating poverty through charities, NGOs and other well-​meaning actors telling people what they needed. The financial sector could be considered an ally in achieving the Millennium Development Goals, so long as it was approached on its own terms. As displayed in the second half of the quote, the foundation of this optimism was the apparent success of the microfinance movement. I begin the stories explored in this book with the area of financial inclusion that has both the highest profile and has been subject to the most consistent criticism. Among these criticisms, as I discuss further in Chapter 8,

21

Financial Inclusion

is the charge that financial inclusion is itself, in large part, a term used to continue the microcredit project while masking its inherent problems. The chapter studies the microcredit and microfinance industry in India, routinely referred to as the leading microfinance market in the world (Navin & Sinha 2019), and in Bangladesh, initially the most widely discussed microfinance market, largely due to the role of the Grameen Bank and its founder, Muhammad Yunus. While I explore further below the difference between the terms microcredit and microfinance, in simplest terms, microcredit denotes the narrow lending of small sums to poor borrowers, while microfinance describes the broader field, including insurance, savings and other services. While microcredit and microfinance name a wide variety of lending agreements and other services, I will specify what common characteristics they hold, and why they were held to be so revolutionary with regard to existing models of development and of banking. The chapter describes the initial growth and spread of microcredit initiatives across Bangladesh, the Indian subcontinent and the Global South more broadly. The chapter covers the commercial turn that has seen a shift from NGO-​and government-​led initiatives towards a profit-​making and self-​sustaining field, and assesses the extensive criticisms levelled at microcredit and microfinance institutions. The chapter incorporates a strong focus upon anthropological studies, foregrounding microcredit as a specific form of borrowing that reshaped existing relationships and practices in unexpected ways. From microcredit to microfinance The distinction between microcredit and microfinance is a contested one. For authors such as Marguerite Robinson, for whom microfinance promised a revolution in development thinking, it was essential that growing interest in microcredit be expanded to include the broader field of financial services that could also be made available to poor and rural populations in the Global South. Microcredit would be seen as one strand of a broader microfinance revolution, encompassing also increased access to savings, insurance and other services (Robinson 2001). For Robinson and other authors, the ongoing shift towards microfinance represented the necessary development and maturation of the microcredit 22

The case of microcredit

field. An undercurrent of this narrative was that microfinance also described a more self-​sufficient sector; microfinance institutions (MFIs) would not require government or NGO funding, but would make enough profit to operate independently (Robinson 2001). The most prominent opponent of this shift has been Muhammad Yunus, whose advocacy for a human right to credit and criticism of the increasing focus on profits over poverty-​reduction objectives (Yunus 2011) has set him against the ongoing turn to microfinance. As powerful figures in the field  –​including major donors, who sought a more sustainable model  –​were wedded to the term microfinance rather than microcredit, it was only at the insistence of certain governments that the UN did not change the Year of Microcredit to the Year of Microfinance under pressure from these quarters (Bruck 2006: 8). It is clear, however, that this shift in terminology did take place across the 2010s; with the key exception of the Grameen Bank, surveying the field of institutions offering micro-​loans in the present, it is rare for the term microcredit to be used. Critical observers have stated that the implication of consumer choice and flexibility represented in the term microfinance is misleading; for Mader (2015), the increased provision of savings, insurance and other services to poor and rural populations hides the fact that the core of the microfinance business model remains that of lending to populations and subjects otherwise outside of formal banking mechanisms, with profit being drawn from high rates of interest and the particularly effective modes of repayment enforcement discussed below (Mader 2015). The microcredit model In simplest terms, microcredit is a form of intertemporal mediation; funds can be drawn upon in the time when the borrower needs them, on the understanding that at a future date (or set of dates) the borrower will be able to repay the money (plus added interest). Ideally it is the initial funds that generate the ongoing repayments; the money is put to productive use in the form of a business investment. The prefix “micro” recognizes that there should be no lower limit on this service; these are requirements of all sections of society, not only those that are able to access the formal banking system. 23

Financial Inclusion

The narrative that emerged around microcredit in the 1980s and 1990s, placing it at the centre of discussions in international development, has three key strands. The first is that the arrival of microcredit services offers an effective way of drawing rural populations away from informal forms of finance, most notably the local moneylender. This latter figure is presumed to charge high levels of interest, to enforce debts through social and physical violence and to encourage debt-​fuelled spending on non-​ productive costs, such as dowries and weddings. Their role is held to be a drain both upon financial resources, given the high interest rates attached to such loans and the opportunity costs associated with accessing them, and to hamper gender equality through their enforcement practices, thus restricting the community’s human capital by curbing the productive power of women. Through the group lending model described below, microcredit allowed these same communities to access formal and affordable lending services. The second strand concerns an emphasis upon productive uses of money. The provision of microcredit was not simply a case of assisting the poor to protect themselves against unexpected events and smooth consumption over lifetimes or unstable yearly schedules; it would also enable poor populations to lift themselves out of poverty. The attraction of the Grameen model as a narrative of development was in a reframing of the rural poor as entrepreneurs. For advocates of this approach, this was a critical narrative; the microcredit movement would recognize the creativity and resilience of poor populations, characteristics that were routinely written out of the lives of the poor (Collins et al. 2010). Marguerite Robinson describes the ideal subject of microcredit. Microentrepreneurs accomplish all of this despite severe obstacles, since they typically lack capital, skills, legal status, and business security. But they generally have strong survival skills:  shrewd business sense, long experience of hard work, knowledge of their markets, extensive informal support and communication networks, and a fundamental understanding of flexibility as the key to microenterprise survival. (Robinson 2001: 12) This emphasis upon the entrepreneurial character of poor and rural populations begins from an assumption that borrowers are seeking to 24

The case of microcredit

invest their micro-​loans into new or existing micro-​enterprises (Khanam et  al. 2018). The route out of poverty, in this model, involves productive and speculative investment through which new sources of income can be generated. The third strand concerns gender. Microcredit was presented as an initiative that specifically assisted and drew upon the resources of women. The group lending model, described below, was based upon the forms of trust, mutual assistance and responsibility that characterized women’s friendship networks. It was held both to empower women to take control of their home and working lives, and to draw upon a historically under-​used resource (Garikipati 2010; Allon 2014) –​women’s priorities being assumed to be better aligned to the wellbeing of the household and of children (Rahman 1999:  69). Grameen pioneered this gender focus in the 1980s. By reinventing the bank as one that primarily served women, it was able to capitalize upon the growth of the “women and development” discourse that had grown in the 1970s and 1980s, as represented in the UN’s Decade of Women (which ran from 1976 to 1985) and the 1973 Percy Amendment in the US, which required specific attention to be paid to the inclusion of women in aid distribution (Karim 2011: 71). Similar organizations, such as the Kashf Foundation of Pakistan, a non-​profit Micro Finance Institution (MFI) founded in 1996, have taken this focus further, not only primarily lending to women but also achieving greater gender diversity in their own workforce (Kashf Foundation 2020). Microfinance in Bangladesh The poster child, and enduring image, of this model of lending remains that of the Bangladeshi Grameen Bank. The “religious fervour” (Karim 2011: xiii) around microcredit in the first decade of the twenty-​first century stemmed from the extraordinary success of Grameen up to this point. In a country ranked 140th in the Human Development Report, the bank could boast a 98-​per cent repayment rate from its female borrowers (Karim 2011: xiv), all based on the innovative way in which it drew upon the resources, resilience and creativity of poor communities. The narrative of Grameen and its founder, Muhammad Yunus, frequently recited in the reports of the NGOs and other institutions became 25

Financial Inclusion

well known far beyond the spheres of development and lending. Grameen and Yunus enjoyed considerable success and public support, culminating in Yunus receiving the Nobel Peace Prize and the United Nations naming 2005 as the Year of Microcredit. Building upon the Comilla model of co-​operative, small-​scale lending in rural areas that had been present in Bangladeshi rural communities in the 1960s and 1970s, Yunus created the Grameen Bank in 1976, lending small amounts to rural communities. The bank was formalized as a banking entity in 1983, shortly after the time that it carried out a shift towards serving women rather than men. Karim (2011: 71–​2) notes that the bank had had problems in achieving high repayment levels among men; the shift to lending to women not only resulted in vastly improved repayment rates, but also fed into growing gender narratives within development, presenting Grameen as an innovative institution for women (Karim 2011:  72). Indeed, being able to display both extraordinarily high levels of repayment and make impressive claims for the number of rural women in particular it had lifted out of poverty, the bank started to receive large amounts of attention and funding from international NGOs and the Bangladeshi central bank (Karim 2011: 72). A further key turning point in the development of the Grameen Bank as such a striking success story concerned how women made these repayments. Yunus realized that the existing repayment model, which relied on borrowers making payments as part of their regular visits to local shopkeepers, was not working. Without external witnesses, arrangements would often break down amid claims and counterclaims of payment or non-​ payment (Dowla & Barua 2006: 18). Yunus’s solution was a lending contract based on group repayments; meetings would be organized following Friday prayers at which borrowers witnessed each others’ borrowing and repayments. Through the group lending arrangement, borrowers would guarantee each others’ repayments through existing networks of friendship and obligation (Dowla & Barua 2006: 18). The particular importance of the group lending model cannot be understated. In a group lending contract, borrowers from existing friendship networks undertake the monitoring of one another’s activity, stand as guarantors for each other and as such have a stake in everyone’s ongoing payment and participation. It was the group lending contract that formed a key part of the basis for the success and initial excitement around microcredit, providing a different model for poverty alleviation that drew 26

The case of microcredit

upon women’s friendships and peer support. It also, from the lenders’ point of view, enabled financial services to reach a new customer base: borrowers who did not hold collateral in the form of assets. This was because, under a group lending contract, borrowers would undertake the monitoring, chasing and enforcement work typically undertaken by the lender. The leverage held over them did not take the form of a loss of assets, but rather a loss of standing, respectability and relationships. Grameen’s role as both lender and poverty-​focused NGO was established, in a quasi-​constitutional fashion, in the form of the Sixteen Decisions (Grameen Bank 2020), discussed further below. These dictated the general goals and ideals of Grameen, including a commitment to keeping families small and a specific opposition to the practices of dowry –​the most established non-​productive use of credit that was seen to both represent and entrench the marginalization of women. As Grameen continued to grow in size (from 2.7 million borrowers in 1998 to almost 7 million in 2007 (Karim 2011: 66)) and status through the 1990s and 2000s, the microcredit market in Bangladesh diversified as other major NGOs, notably BRAC, Proshika and ASA, shifted their working models to incorporate microcredit lending, becoming “NGOs-​ turned-​ microfinance institutions” (Khanam et al. 2018). As Karim (2011) describes, these institutions have become extremely powerful in Bangladesh; many people who had never met a government official would know multiple microcredit NGO representatives. What she terms “NGO governmentality” describes the shift in governance in Bangladesh whereby MFIs have become something akin to a “shadow-​state”. Microfinance in India If Grameen and its success in Bangladesh played a key role in placing microcredit at the centre of development discussions in the 1990s and 2000s, it was, until the early 2010s, India that was routinely described as the largest microfinance market in the world, with particularly high levels of market saturation in the southern state of Andhra Pradesh (Rozas 2009). In India microcredit was initially organized around Self-​ Help Groups (SHGs), a version of the group lending contract pioneered in Bangladesh. SHGs, typically comprising 15–​20 members, are built on the existing practices of 27

Financial Inclusion

rotating savings clubs (ROSCAs); members regularly paid in a set amount in a group setting and could withdraw money when they needed it (Pathak 2008:  450). Under the microcredit SHG model, the groups worked with banks in the formal sector to fund micro-​loans to group members (Guérin 2014: 43). If such micro-​loans operating through SHGs, typically based in rural areas, formed the established field of microcredit in India, this was supplanted during the 2000s with a breathtaking growth of private MFIs. There was a dizzying variety of microfinance institutions that would lend small amounts, typically to urban borrowers, outside of the group lending model. The growth of these private MFI lenders led to growing concerns at the end of the decade that the sector resembled a classic bubble (Rozas 2009, 2010; Chandrashekhar 2010), with investor confidence not being matched by the levels of repayment. As described further below, it was the problems with the microcredit market in India, and in Andhra Pradesh particularly, that led to the highly visible fall from grace of microcredit as a development tool (Roy 2010). The commercial turn A key strand of critiques of the Grameen model focused upon the fact that it relied upon funding from state and NGO sources; it exemplified a model of development in which the development sector buys into the idea that households can lift themselves out of poverty through the provision of affordable credit, and that the state and NGO sectors have a responsibility to support and back such lending. What Ghosh (2013), describing the development of the field, identifies as the “development oriented Non-​ Governmental Organization phase” was pejoratively labelled by others the “poverty lending” period (Robinson 2001). For Marguerite Robinson, the poverty lending approach would always be limited due to its dependence on donors; the sector needed to move to a financial systems approach, which would emphasize, among other things, managing, regulating and harnessing the benefits of greater competition between different lenders (2001: xl). This approach was promoted particularly by the World Bank, and as noted above in the case of India, the revolution in microcredit envisaged by Robinson did, in many ways, take place. The growth of the profit-​making 28

The case of microcredit

MFI sector, and the particular dynamics of multiple profit-​seeking MFIs serving the same populations, has been a defining feature of the growth of microcredit across Latin America and elsewhere. While these “new wave MFIs” (Bateman 2010) built upon key aspects of the Grameen model, focusing upon women and making reference to poor, rural borrowers and group lending contracts, the commercial turn saw a distinct move away from these borrowers towards wealthier, urban consumers (Bastiaensen et al. 2013), with profitability and shareholder value taking precedence over development goals. What defined the commercial turn most of all was multiple lenders moving into similar markets, with consequences of multiple borrowing and other specific impacts being reported in multiple domains (Mia 2017). A key marker of the commercial turn was the 2007 IPO of Compartamos, a Mexican microfinance institution, with clear roots in the Grameen model (Compartamos meaning “let’s share”), which had been heralded as bringing the practice and ethics of microfinance to Latin America (Aitken 2010). The IPO made enormous wealth for the founders of the business and sent a clear message that the practices of microfinance –​high interest rates based upon group lending to women –​could be constituted as objects to be traded and speculated upon (Aitken 2010; Mader 2013a). The IPO led to Muhammad Yunus raising serious concerns about the direction of microcredit, refusing to recognize Compartamos as a microcredit institution and stating that “Microcredit was created to fight the money lender, not to become the money lender” (Yunus, cited in Bloomberg 2007). The lived experience of microcredit Amid the vast amounts of academic and other literatures celebrating the growth and potential of microcredit, there is a remarkable lack of discussion of debt –​namely credit as it was experienced by borrowers. While the argument was made that the creativity and hopes of the poor had been written out of development narratives, there is a corresponding danger that the experiences of the poor in paying back their loans will be similarly written out in favour of positive stories about benefits gathered from their investments. This is particularly important given the potentially misleading nature of this entrepreneurial figure presumed to be the typical microcredit 29

Financial Inclusion

borrower. As David Hulme noted in an early critique of MFI lending, “Clients have to pretend that they want micro-​enterprise loans (when they need to pay school fees, cope with a medical emergency, buy food, etc.)” (Hulme, cited in Ghosh 2013). For this reason, to understand microcredit as a tool of financial inclusion it is essential to turn to anthropological studies, which detail the conditions in which loans were taken out (including which other debts were held by borrowers), what the loans were used for and how familial and other relationships were affected by these new forms of debt. I draw in this section on two key ethnographies of microfinance in Bangladesh, namely those of Lamia Karim (2008, 2011, 2014) and Aminur Rahman (2001), and the work of Isabelle Guérin and colleagues in India (2014; Guérin et al. 2012). There is a clear commonality across these studies; all observed only a limited amount of entrepreneurial use of money obtained through for microcredit. While NGO literature is filled with borrowers who have opened small shops or begun new farming ventures, far more common were uses that actually fitted with women’s existing needs:  education for their children, healthcare costs and paying off other debts. Beginning in Bangladesh, Rahman’s work described a notable difference between the “public transcript” of microfinance (a different perspective on this distinction is given by Roy 2010) and a “hidden transcript”. The most prominent symbol of this public transcript within Bangladesh were the Sixteen Decisions, the set of ideals and goals that were meant to guide the decisions of fieldworkers and regional managers when making lending decisions, and which were designed to both improve the health and prosperity of rural populations and improve the status of women. Karim (2011) notes that, in reality, these decisions had very little impact upon everyday practice. Indeed, she observed that regional managers routinely put pressure on fieldworkers to explicitly ignore these decisions in the interest of issuing more loans and guaranteeing profitability. The most important decision in this respect is Number 11: “we shall not take any dowry at our sons’ weddings, neither shall we give any dowry at our daughters’ wedding” (Grameen Bank 2019). Renouncing the dowry system of marriage was key to the social justice aims of Grameen (Rahman 1999: 93), given the ways in which the practice devalued the role of women. It also represented a highly unproductive use of money: the polar opposite of money that is invested in a profit-​making business. Yet Karim (2011: 83–​4) 30

The case of microcredit

observed that not only was this decision ignored; severely poor householders were actively encouraged to borrow from MFIs to pay their daughters’ dowries. Karim argues that, far from ending dowry payments, microfinance has expanded their scope. Whereas existing lenders would have needed collateral in the form of physical assets such as land, as MFIs relied only upon the communal stigma and censure attached to non-​repayment, they were as such able to finance dowry payments for those without material assets. For both Rahman and Karim, the key modality of this distinction between the public transcript and the hidden transcript concerned the inclusion of women. As Rahman argued, while Grameen almost exclusively gave loans to women, it did so under the understanding that these would be considered household resources to be controlled and used by men; it was a model that worked with the existing patriarchal structures of rural Bangladeshi society (Rahman 1999: 151). Karim calls this the “gentlemen’s handshake” that enabled Grameen and others to grow and gain international recognition while still serving their traditional male customers (2011: 71). Despite the fact that the vast majority of microfinance loans are issued to women, she notes that, from her accounts, around 95 per cent of these were then handed to husbands or other male relatives (2011:  87). As Rahman observed, “women borrowers often lose control over their loans but bear the consequences of the debt burden in their households and loan centers” (1999: ix). Yet the problematic nature of women’s involvement in microcredit goes beyond this lack of control. As Rahman notes of the role of gender in the hidden transcript, women were particularly useful as borrowers due to their positional vulnerability (1999: 69) within a patriarchal social structure. In this way Karim and Rahman turn the narrative of microfinance around; far from being an initiative that empowers women, whether by drawing upon existing structures of maternal care, familial co-​dependence or female budgeting skills to realize women’s own dreams, they argue that it is a system that draws upon structures of patriarchal oppression and the entrenched vulnerability of women to guarantee repayment. In the early literature produced by the World Bank (see Pitt & Khandker 1996) and others celebrating the success of Grameen and the microcredit and microfinance movements, claims regarding the empowerment and improved material conditions of women were often separated from claims on the success of repayment rates. The first was a narrative shaped 31

Financial Inclusion

for audiences in international development; the second for donors, banks and other audiences seeking assurances on the financial viability of microcredit schemes. As noted above, this separation allows for a skirting over the question of whether the high rates of repayment achieved through the group lending framework had been achieved at the expense of women’s wellbeing. In both Rahman and Karim’s experience, far from drawing upon women’s mutual care, microcredit schemes were effective because they drew upon longstanding practices of shaming women. Microcredit was in large part a capitalization of this shame: a mode of using existing structures of gendered violence, obligation and deference to generate profit. She describes a range of practices used by lenders, such as starting sexualized rumours or removing cooking equipment, that specifically targeted the already-​ precarious positions of women. Both Rahman and Karim observe the effect that these practices had upon intimate relationships. Rahman notes that existing violence within the home –​something commonplace in rural society and that women accepted as normal –​was in 70 per cent of borrowers’ cases reported to have been made worse by their involvement with Grameen. Rather than seeking to unpick patriarchal structures of social control, both Rahman and Karim’s experience of microfinance arrangements was that they amplified and escalated them, creating a new space in which women bore the emotional, social and physical risks of loans over which control was typically exerted by male relatives. The stories that did align with the positive accounts of women’s empowerment through microcredit tended to concern those in wealthier, urban areas. Karim notes a widespread perception of increased social mobility for women brought by microfinance –​a perception that microfinance allowed women “places to go” –​yet noted that this had been predominantly created by the experiences of middle-​class women (Karim 2011: 104). Turning to India, I focus here upon the work carried out by Guérin and colleagues (2012, 2014) among rural communities in Tamil Nadu, where the majority of microfinance lending takes place through Self-​Help Groups (SHGs). While Karim’s ethnographic work focused upon the existing forms of oppression and marginalization that shaped borrowers’ experiences, Guérin et  al. shine considerable light upon how microcredit related to existing forms of lending (of which there was already a complex array of options). They display how women used and understood microfinance in 32

The case of microcredit

relation to these other forms, and through this how the group lending contract recomposed delicate and changing relationships between and within households that were already defined by debt. The initial starting point for understanding the growth and sedimentation of microcredit in India is that almost all households are already involved in a number of different forms of debt, each of which have particular purposes, experiences, emotional dynamics and forms of enforcement. Among these forms of credit, Guérin et al. (2012) cite mobile moneylenders, pawnbrokers, friends and family, as well as local well-​known persons, who tend to lend for ceremonies, and for whom there are expectations of respect, labour (lending being a key form of recruiting and regulating workers) and political allegiance, in addition to repayment (Guérin et al. 2012: 134). While positive narratives of microcredit emphasized the creativity and resilience of households, they tended to gloss over the forms of debt and obligation in which these households were already entwined and how microcredit might be used in relation to these, assuming a firm separation between formal and informal credit. Microcredit would, it was assumed, reduce and eventually wipe out the reliance on informal sources, which were only used because there was no alternative. In a situation in which income levels are low and highly volatile, it should not be surprising that a complex set of borrowing practices already existed, and that microcredit might take its own place within this complex interweaving of credit options, rather than supplanting it. Guérin (2014) describes how borrowing through SHGs played an increasingly important role in women’s practices of juggling debts. This term recognizes the ways in which managing household budgeting involves balancing not only the different interest rates and timescales of certain debts, but also their varied social dynamics. This latter point is key; microcredit loans were taken on to pay off other debts not simply because the interest rate might be lower or because the timescales of repayment were more in keeping with employment cycles (principally cycles of agriculture)  –​ indeed, microcredit was shown to be deleterious for women on both of these factors –​but also because, in its publicness, it provided a more legitimate form of borrowing. When a woman borrows from a male outside the circle, she risks incurring damage to the gendered image of purity she is expected to uphold; among the multiple costs in such borrowing is the duty to explain it to the male householder. As Guérin notes (2014: 547): “microcredit plays 33

Financial Inclusion

a role of legitimization: it is one of the sources of borrowing for a significant amount that is considered acceptable and does not threaten women’s honor”. Yet for some debts the reverse was also true; the publicness of microcredit could also pose problems for borrowers. Guérin et al. (2012) noted that women had long employed “clandestine” methods for managing household finances, keeping their husbands and others out of the loop as to the bonds and obligations in which the household was held. For these and other reasons the loans taken on by women needed to be discreet, the terms unknown to the wider community. While the unwritten rules of local, informal lending practices acknowledged this, borrowing through SHGs specifically relied upon other community members knowing the full details and purpose of the loan. With these variations in mind, Guérin et al. (2012) are broadly equivocal about microcredit. While debt can be a site of shame and stigma, they note that it can also structure networks of respect and reciprocity and can be a key site of self-​worth; certain forms of being-​in-​debt confer importance and respectability upon the household (Guérin et al. 2012: 130). Microcredit, they note, is neither a straightforward form of poverty alleviation nor a simple case of the ongoing exploitation of the poor through predatory lending, but rather a specific form of lending drawn upon for specific purposes. Nonetheless they are clear that microcredit resolutely fails on all of the goals and promises set out above. It did not offer cheaper forms of credit, nor enable an entrepreneurial spirit among women; these aspirations fundamentally misunderstood how microcredit fitted into existing lending options and the nature and temporalities of household need. However, they note that this was not to say that the typical uses to which micro-​loans were put –​paying off other debts, paying for education or healthcare, funding weddings and dowries –​were necessarily unproductive. Even the latter uses, they note, can be shown to potentially assist the family financially over the long term (Guérin et al. 2012: 123). Furthermore, they question whether microcredit on its own would be able to make gender relations more equal, or to enable those from deprived or marginalized backgrounds –​otherwise ignored by the formal sector –​to achieve financial equality. While microcredit “does little” to challenge either of these structures of discrimination, what it did do, they argue, was create new forms of social control and pressure exerted by group members upon others (Guérin et al. 2012: 132). 34

The case of microcredit

Most critically, echoing other observations of microcredit in India (see Garikapati et al. 2017), Guérin et al. suggest that the microfinance boom allowed the Indian state to ignore other obligations; in seeming to provide a silver bullet for geographic, caste and gender inequalities, it absolved the state of responsibility for providing a collective safety net or of seeking to create stable employment (2012:  134). Returning to Bangladesh, Karim argues that, on these measurements, the ready-​made garment industry has proved a far more effective space than microcredit for women’s empowerment, in particular inasmuch as it created new support networks for women outside of their immediate social circles (Karim 2014: 153–​4). The fall of microcredit A combination of factors led to the dramatic fall from grace that befell microcredit in the early 2010s. The first was a series of MFI collapses. In 2009, Daniel Rozas, a commentator based in Belgium, produced startling statistics on the unsustainable levels of multiple borrowing1 in Andhra Pradesh, the state with the highest levels of microfinance borrowing, noting that “this is about the strongest evidence of a bubble one could hope to find using publicly available data” (Rozas 2009). Eleven months later, the bubble had indeed turned into a crisis (see Mader 2013b for an overview); an equally visible crisis would soon follow in Nicaragua (see Bastiaensen et al. 2013). At the same time, the human costs of microcredit arrangements were becoming increasingly visible. India witnessed a series of suicides among microcredit borrowers, with numbers in Andhra Pradesh again making headline news (see Biswas 2010). Microcredit lenders, NGOs and think tanks quickly reoriented their branding and literatures to microfinance and financial inclusion (Bateman 2012; Mader 2018). The turn away from microcredit was also represented in academic literature, with a series of critical books (including Lamia Karim’s text discussed above) challenging the claims for poverty alleviation and gender equality that had become so prominent over the previous decade. Milton Bateman’s 1. Where the same borrowers are taking out loans from multiple lenders, often using one loan to pay off another. Rozas (2009) was particularly critical of the irresponsibility of lenders in Andhra Pradesh for wilfully ignoring borrowers’ existing debts. 35

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(2010) book Why Doesn’t Microfinance Work? The Destructive Rise of Local Neoliberalism was particularly critical of “new wave MFIs”: profit-​oriented microcredit services whose actions were held to have resulted in considerable suffering and to be inhibiting, rather than promoting, poverty alleviation. Furthermore, high-​profile texts within development economics such as Karlan and Appel’s (2011) More Than Good Intentions: Improving the Ways the World’s Poor Borrow, Save, Farm, Learn and Stay Healthy also recognized the limitations of the microcredit model. Reviewing this critical wave of texts, David Roodman (2010) of the Center for Global Development argued that these authors relied upon a straw man of microcredit that bore little reality to practices on the ground. Roodman was sympathetic to deconstructions of the over-​hyped rhetoric around microfinance, but accused critics of themselves taking these at face value, and refusing to credit lenders with any degree of ability to adjudicate their own work. Microcredit lenders, Roodman argued, had a greater understanding of the needs and abilities of local communities than critical authors would care to admit. Roodman’s book (2011), which recognized the failures of microfinance, sought to present a cautious optimism regarding the future of the sector: “Overall the great strength and hope of microfinance lies in building self-​sufficient institutions that can give billions of poor people an increment of control over their lives” (Roodman 2011: 270, italics in original). This perspective –​recognizing the problems with microcredit but emphasizing nonetheless the important role it plays in the lives of the rural poor –​ was echoed by Ananya Roy (2010), reflecting upon what she termed the Bangladesh model of microfinance-​led development. She noted that both the public transcript of microfinance, which had been incorporated into the hard sell of microfinance evangelism, as well as the critiques of microfinance as a form of exploitation, discipline and violence, had missed what was distinctive and transformative about this model. She pointed to the ways in which group lending created horizontal relationships and solidarities between and across groups, arguing also that microcredit in Bangladesh was as much about social protection and the creation of transport, education and information infrastructure as it was about lending (Roy 2010: 119–​20). One consequence of the fall of microcredit has been a turn to financial inclusion as the preferred term for describing microcredit and microfinance initiatives. For those seeking to defend the legacy of these institutions, this shift constitutes an important recognition of the broader range of services 36

The case of microcredit

and social transformations of which the local delivery of financial services is capable. In contrast, critics such as Philip Mader (2018) point to the fact that the core of microfinance remains microcredit; Mader argues that the field remains wedded to the exploitative lending model described in sections of this chapter. In this light, this semantic shift constitutes little more than the addition of a veneer of social justice to the continuation of the neoliberal model of economic growth in which it is the poor, and particularly poor rural women, who are forced to shoulder significant additional risks in the name of economic development (Rankin 2013; Berry 2015). Conclusion The story of microcredit and microfinance holds two important lessons when considering financial inclusion. The first concerns the power of the critical narrative that drove the microcredit project, namely that the group to be included possessed a financial creativity that had been overlooked in development literature. Given the dominance of this argument, only rarely did observers consider how this entrepreneurial subject, making productive use of the money loaned to them, was itself a value-​laden construction. There was only fleeting recognition that, being at odds with the reality of people’s lives, this idealized figure might create its own forms of marginalization and oppression. Reading between the lines of the early literature celebrating microcredit, the idealized, entrepreneurial subject of microcredit, holding extensive local knowledge that could be turned into business opportunities, was assumed to exist within social networks that were predominantly supportive and de-​ gendered. They did not, that is, exist within patriarchal structures that might define control over the funds loaned to them. When real female borrowers observed by Karim were included within circuits of microfinance, their failure to live up to this entrepreneurial ideal, largely as a result of these patriarchal structures and lack of control over the funds loaned to them, led them to encounter new risks that only amplified their marginalization. Yet it should be noted also that this focus upon the productive uses of microcredit, and the failure to consider that women might use their loans in the ways most useful to them, also led observers to miss what was actually empowering, useful and transformative in microfinance arrangements. 37

Financial Inclusion

The second concerns the false dichotomy of formal and informal finance. In practical terms, there are such crossovers between these fields, with those labelled formal being used to manage, mitigate or pay off those labelled informal, and vice versa, that such a distinction is impossible to maintain. But more importantly, by ascribing a moral value to formal finance, this unchallenged distinction both restricted critical observations on the effects of group lending contracts, and subsequently granted “new wave MFIs” free rein to capture and extract profit in whatever ways they saw fit. If financial inclusion means inclusion in the formal financial sphere, we need to ask less whether inclusion in finance is a good or bad thing than what particular modality of finance is being envisaged, and what the consequences might be of promoting a certain form of inclusion in it, given the context of consumers’ existing obligations, practices and relationships.

38

4

Financial inclusion as the production of new markets: the case of reverse redlining

Throughout this book I explore interventions, projects and initiatives that identify an excluded group  –​whether by geography, gender, knowledge or other factors –​and propose and implement ways in which they can be included. In this chapter I turn to the practices of redlining and reverse redlining to display the danger of approaching this inclusion/​exclusion binary as nothing more than a problem to be solved or threshold to be crossed. The chapter describes how the previous exclusion of vulnerable consumers, coupled to their continuing socio-​economic marginalization, can itself become factored into calculations of profit and risk, leading to new forms of exploitation and inequality. The chapter thus adds a vital note of caution to the concept of financial inclusion, urging attention to how structural inequality continues to shape the terms on which groups are included in financial markets. In this specific case, it explores how the opening of mortgage finance opportunities to non-​normative consumers, principally African-​American, Latino and single-​female households, allowed lenders, investors and others to justify amassing considerable profits through the burdening of vulnerable consumers with considerable costs and risks. The chapter also considers, through the concept of the feminization of finance, what the history of reverse redlining tells us about the specific dynamics of the financial inclusion of women. It notes the forms of financial subjectivity that women are expected to embody, and the considerable burdens single mothers in particular are expected to carry in an era of stagnating wages and the retreat of the welfare state. The chapter notes also, through this focus upon the female financial subject, the specific nature of financial inclusion in mortgage finance. At the heart of the sub-​prime crisis

39

Financial Inclusion

was the changing nature of the family home; no longer valued as a space to be lived in, the home became a commodity whose rising value could be drawn upon in a speculative manner. Redlining Few histories of financial exclusion are as stark and unambiguous as the systematic withholding of mortgage finance opportunities to non-​normative households in the United States. This form of exclusion, running across the middle decades of the twentieth century, is generally brought together under the term redlining:  the practice through which geographically demarcated areas, typically inner-​city areas with large African-​American populations, were defined as being of poor credit risk and unworthy of mortgage-​financed owner-​occupation. The key institution that shaped this system of marginalization was the Federal Housing Administration (FHA), set up in 1934 with the reforms of the New Deal as part of an effort to boost homeownership following the great depression. The FHA was designed to limit the potential risks of mortgage lending by guaranteeing the loans provided to homeowners. In defining which mortgage contracts would be insurable and, as described below, dictating the terms of these contracts, the FHA as such exercised significant power over the shape and direction of the homeownership boom that followed, as Melinda Cooper describes: “Ultimately, it was the FHA that decided who was creditworthy enough to receive a low-​interest mortgage. The overall effect of such oversight was to restrict mortgage finance to the married, white man and to exclude Fordism’s non-​normative subjects from the forms of wealth accumulation that flowed from home ownership in the post-​war era” (Cooper 2017: 144–​5). The practices of the FHA were coupled to the introduction, through the Home Owners’ Loan Corporation, of a new “vanilla” mortgage. This was a low-​interest loan modelled upon a normative model of family life: a unionized worker in the Fordist industries acting as the breadwinner in a two-​parent, heterosexual household structure. The attraction to the lender of this worker was clear; not only did they promise a stable employment income across the life-​course, but they were also generously supported by health and unemployment insurance schemes (Cooper 2017: 145). 40

The case of reverse redlining

This model of family life as the default model for low-​interest mortgage lending already excluded single mothers and African-​American households (unable to enter the unionized Fordist workplace), yet the latter group in particular became further discriminated against by the practice of geographic demarcation known as redlining. The term itself emerges from the use by the FHA of a system introduced by the Home Owners’ Loan Corporation whereby “category D” areas, coloured in red, were defined as of the least value or most in decline. The refusal of the FHA to insure loans to such areas precipitated the flight of normative households to the suburbs. Yet, as Kenneth Jackson (1987) observed, the FHA cemented this segregation through its extraordinary concern with preventing the mixing of racial groups, fearing that “an entire area could lose its investment value if white-​ black separation was not maintained” (Jackson 1987: 208). This separation was achieved through the FHA’s underwriting guidelines, which promoted the use of racially restrictive covenants: terms written into property deeds prohibiting future black ownership. Even after the Supreme Court had held in Shelley v. Kraemer (1948) that racial covenants could not be enforced, the imposition of such terms remained central to FHA practice (Jackson 1987:  208). When in 1962 President Kennedy sought to bring an end to this systematized racism, making an Executive Order that FHA insurance would no longer be extended to lenders engaging in discriminatory practice, the FHA continued to allow developers to impose racial restrictions of their own accord (Gordon 2005: 216). In 1968, the Fair Housing Act finally put an end to racial covenants from private providers. Reflecting the arguments and claims of the civil rights movement, the Fair Housing Act recognized the way the mortgage finance market had created structural economic inequality (as was also outlined in the report of the Kerner Commission (National Advisory Commission on Civil Disorders 1968: 260), convened to examine the race riots of the previous year) and sought to right the wrongs of housing segregation. The year 1968 thus marked the end of redlining in its traditional form. As Adam Gordon (2005: 189) has argued, the decades of systematic financial exclusion following the New Deal reforms caused irreparable damage to the capacity of African-​American households to build wealth through property; white households, he notes, had effectively gained a generation’s head start over their African-​American counterparts. For many observers, 41

Financial Inclusion

property ownership is the bedrock not only of wealth but of familial wellbeing, providing space to grow and be together and an ability to plan for the future (Oliver & Shapiro 1995; Szto 2013: 3). Oliver and Shapiro’s (1995) influential call for greater intervention to assist African-​Americans’ access to mortgages described how inequalities in property ownership created in this period continue to underpin the rampant inequalities in other areas, notably education, health and employment. The forms of financial exclusion detailed above represent the continuation of the racist legacy of slavery through the bureaucratic machinery of official cartography and insurance underwriting. The practices of the FHA created a system in which two-​parent, heterosexual white households accumulated wealth in the form of suburban property, while African-​American and other non-​normative households were confined to poor tenement buildings in the inner cities. It was a system that created the strict geographic segregation of communities that continues to define the urban American landscape, and as such bears considerable responsibility for the continuing prevalence of negative stereotypes of the urban black poor and single mothers. Yet the story of mortgage-​based inequality does not end here. Indeed, our concern in this book is primarily with the ways in which segregation continues not simply despite, but moreover because of, efforts to overturn and counteract the effects of redlining. This could be seen with the Fair Housing Act itself. Unscrupulous developers used the legislation to establish flipping schemes in which sub-​standard homes would be purchased from white owners to be sold at vastly inflated cost to African-​American buyers. While this practice was lucrative for developers, it came at great emotional and financial cost to African-​American consumers, who were coerced into purchasing homes often unfit for human habitation, while taking on the considerable risk of default and ensuing homelessness (Szto 2013: 27). The practice of flipping indicates the dynamic that lies at the heart of reverse redlining. Decades of exclusion from mortgage markets had entrenched the forms of poverty to which African-​American communities were already subject. As these populations were defined as highly risky borrowers, lenders could justify charging higher levels of interest and adding multiple additional costs to balance against the risk of default. At the same time, the route out of poverty was clearly identified as being the stability, wealth and status offered by mortgage-​financed property ownership. As marginalized communities remained outside the traditional mortgage 42

The case of reverse redlining

market, their options for fulfilling this desire would be severely limited. As state and other institutions began to seek the financial inclusion of non-​ normative households, there were considerable opportunities for the accumulation of profit and wealth on the back of this dynamic. Reverse redlining From the 1970s onwards, successive US administrations oversaw a range of attempts to push back against the effects of redlining. State intervention into mortgage markets in this period was led by what we would now identify as financial inclusion objectives. Governments were willing to take affirmative action through legislative change, made appeals to lenders on the business case for reaching out to new consumer groups and recognized that the lives of excluded groups were not being fulfilled due to systematic lack of access to key financial products. The first key piece of legislation was the 1974 Equal Credit Opportunity Act, which outlawed discrimination on the basis of race, gender, marital status and other factors. Yet as Donncha Marron (2007: 110) notes, Schedule B of the Act, seeking to regulate credit scoring, gave legislative recognition to the new way in which consumer segmentation would be incorporated into lending decisions, namely the non-​judgmental calculation of lending cost through establishing the scientific and non-​discriminatory validity of certain attributes as indicative of risk of default. The second key legislative intervention of this period was the 1977 Community Reinvestment Act. The Community Reinvestment Act can claim perhaps to be among the most important pieces of financial inclusion legislation introduced in the Global North, being specifically designed to respond to the history of redlining by removing the barriers to credit created by decades of exclusion from formal markets.1 The Community Reinvestment Act legislated that lenders had a statutory obligation that their services served the credit needs of local populations of all income groups, and that regulators would assess how well lenders were serving these needs.

1. Barr (2005) notes that the Community Reinvestment Act was the most prominent of a trio of Acts implemented with this purpose, the others being the 1975 Home Mortgage Disclosure Act and the 1974 Equal Credit Opportunity Act. 43

Financial Inclusion

There have been sustained and long-​term criticisms of the Community Reinvestment Act, organized around claims that it was unnecessary, ineffective, encouraged risky lending and encouraged rent seeking (see Barr 2005 for a review of these). It is important to note that for the first decade or so it had relatively little effect upon lending practices (Barr 2005: 524). It was only with the further amendments to the Act introduced under the Clinton administration, notably those that sharpened the duty to lend to lower-​ income groups, that its initial promise began to be realized and African-​ American and Latino families were able to move into formerly whites-​only areas (Saegert et al. 2009: 301; Friedman & Squires 2005). Indeed, the first Clinton administration represents a key moment in the widespread inclusion of formerly marginalized groups into mortgage finance. This was represented in the National Homeownership Strategy (HUD 1995):  a flagship policy document of the Clinton administration that promised to build a housing market that would right the wrongs of the past, based upon an impressive array of voluntary and private-​sector partnerships and generous federal intervention and assistance. Of these, two strategies introduced were key: supporting initiatives that would reduce down-​payments and, under the term fair lending, broadening access to mortgage products to underserved groups. The National Homeownership Strategy spoke to emerging recognition of how important exclusion from homeownership had been in reproducing racial inequality (see particularly Oliver & Shapiro 1995), and a growing belief that, with the right forms of intervention, the disparities of homeownership could be made to disappear (Eggers & Burke 1996). While homeownership was being democratized, its role in the everyday lives of Americans was also being fundamentally reshaped. The Clinton administration was, at the same time, seeking to “end welfare as we know it” (see Cooper 2017: 65–​7), with a focus upon repositioning the claiming of welfare as a temporary stage before one’s return to work (an approach described as “welfare-​to-​work”). The widespread changes introduced by the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) made clear that the state could not be relied upon to support the household for any sustained period of time. Under this model of asset-​based welfare, discussed further in the next chapter, homeownership was to act as an alternative safety net to the social security system.

44

The case of reverse redlining

Over the decade that followed the introduction of the National Homeownership Strategy, homeownership boomed among African-​ American and Latino households, single women and other groups who had been formerly discriminated against in mortgage markets. Amid the positive appraisals of this development, rare critical voices were pointing to a new development hidden amid this success story of financial inclusion, namely that of reverse redlining. Lopez (1999), Nier (1999) and others sought to highlight the extent to which the Clinton-​era changes to the Community Reinvestment Act were actually enhancing existing problems of predatory lending (Lopez 1999:  82). Non-​normative households, they noted, were being signed up to contracts classified as sub-​prime: mortgages sold at exorbitant levels of interest and carrying significant fees and other deleterious terms, ostensibly to balance against the risk of default, despite there being no evidence that such consumers would be any less likely to maintain payments. The very marginalization of these communities now presented a significant opportunity for profit. Positive accounts of the spread of mortgage finance also failed to recognize the pivotal role of the mortgage-​backed securities market in both driving and directing this process of financial inclusion (Cooper 2017: 149–​ 50). A mortgage-​backed security is a financial product in which mortgage contracts are bundled into portfolios to be sold to investors based upon their performance profile, comprising calculations of risk and return. The rapid growth of the mortgage-​backed securities market in the 1980s created large amounts of investment capital ready for new mortgage markets; these opportunities would be provided by the interventions of the Clinton administration and the newly opened opportunities to provide sub-​prime mortgage products to previously redlined communities (Rheingold et al. 2000: 648). As patterns of mortgage lending became increasingly shaped by the influence of the mortgage-​backed securities market, the high possibility that homeowners might default on their loans, a situation that would in a traditional mortgage arrangement carry significant costs for both parties, was less a negative factor than something to be factored in to the price when bundling contracts together. So long as profits could be made from pooling and dividing contracts in the right way, there was no barrier to the lender in extracting as much profit as possible from sub-​prime consumers in the short term, irrespective of whether they would be able to maintain their mortgage payments.

45

Financial Inclusion

When in 2007–​8 the sub-​prime bubble burst, what became clear was the extent to which the heady profits made by brokers, lenders, investors and others from reverse redlining had been drawn from the loading of risk onto marginalized communities (Dymski 2009). Having been locked into paying rates and fees they could barely afford, the results of the crash were devastating for the communities, with spikes in foreclosures (Lichtenstein et al. 2019), and plummeting values of those homes they held on to (Williams 2015:  638). The primary victims of the sub-​prime crisis were sub-​prime borrowers themselves (Fisher 2009). The long-​term aftermath of the crisis has been high levels of loan denial among these communities (Hammel & Nilsson 2019). Nonetheless, in the aftermath of the sub-​prime crisis and the Great Financial Crisis it engendered, a clear trend emerged in which these same underserved groups (and the 1977 Community Reinvestment Act that had sought to overturn the effects of historic discrimination) were blamed for causing the sub-​prime crisis through their risky and uneducated borrowing (Aalbers 2009). This was despite the mounting evidence that, as Fisher notes, sub-​prime lenders “deliberately sought out financially vulnerable borrowers for deceptive sales tactics and predatory mortgage loans”, and that borrowers who were eligible for regular loans were deliberately steered into sub-​prime products (Fisher 2009: 124). Indeed, what became clear after the crash was the extent to which the forms of community-​led finance envisaged by the National Homeownership Strategy, in which access to mortgage finance would be built by bottom-​ up partnerships, had been seized upon by lenders to mask the forms of discriminatory exploitation practised in the sub-​prime market. They had directed sub-​prime offers to lists of people accessing credit in African-​ American and Latino areas as well as facilitating links with intermediaries such as local religious and community leaders (Steil et al. 2018). Financial inclusion disguised the aggressive targeting of minority populations for the most profitable mortgage products. Reflecting upon this targeting of difference within the sub-​prime mortgage market, Fiona Allon described how: “Rather than difference being the grounds for one’s exclusion, difference becomes instead the criteria by which one is situated on a grid or spectrum of risk, with one’s degree of ‘difference’ accurately defined and priced accordingly” (2014: 23). This observation on the pricing-​in of exclusion indicates a concern that runs throughout this 46

The case of reverse redlining

book: how it is that financial inclusion can be identified as a site of profit and, consequently, how it is that marginalized consumers bear the costs and risks of their difference. The feminization of finance Of the critiques of redlining and reverse redlining drawn upon in this chapter, very few note the intersection with gender discrimination in mortgage lending. Where discussed, this is assumed to be a separate, lesser form of exclusion from mortgage markets. Indeed, women’s exclusion was less the result of redlining a geographic space than of the fact of their positioning as extensions of their present or future husbands. Inasmuch as reverse redlining involved the inclusion of women (and women of colour particularly), this is presented of lesser interest than the broader exclusion of African-​ American, Latino and other groups subject to structural discrimination. Yet feminist analyses of the sub-​prime crisis, notably those of Cooper (2017), Allon (2014, 2015) and Adkins (2017, 2018) have displayed how central the gender dynamic is to understanding the specific ways in which sub-​prime mortgage products were sold and used by households, and why it is that the most heightened forms of risk were borne by those at the intersection of these forms of discrimination, namely single mothers of colour. Returning to the 1960s and 1970s, a period in which the rights of women in family law, healthcare and elsewhere were progressing rapidly, it remained difficult for women to affirm an economic identity independent of their husbands (Garrison 1976: 241). Invasive practices by lenders, such as requiring doctors’ letters confirming a woman’s infertility or use of birth control to ensure that she would remain profitable, remained commonplace (Hyman 2011:  215). While single women did find it easier to build up a credit history, they faced the prospect of seeing this record wiped out if they were to marry. The 1970s saw legislative change designed to right these wrongs, most notably through the 1974 Equal Credit Opportunity Act. From this period onwards, in much the same way as mortgage markets would later discover ethnic minority borrowers, there was considerable excitement among government agencies and mortgage lenders about righting the historical wrongs done to women and, to quote a more recent report by Goldman 47

Financial Inclusion

Sachs (quoted in Allon 2014:  13), recognizing the economic benefits of embracing the world’s most “under-​utilized resource”. One reason women were seen in such terms was their prominent role, as described in Chapter 3, in household budgeting. The figure of the working single mother, so long represented as a stigmatized outcast, was slowly being recognized for her capacity to juggle a job, children and the financial management of the household. Yet it is essential to recognize that the very nature of this budgeting had changed significantly over the same period. In the United States, the UK and elsewhere, as households experienced a period of stagnating wages beginning in the 1980s, and restrictions on welfare payments introduced most prominently in the US through the 1996 Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), and the UK through the 2012 Welfare Reform Act, their need for income to meet essential household outgoings had been answered by a boom in consumer credit (Adkins 2015). The US had become the leading “debtfare” state (Soederbergh 2014), in which easy access to credit would fill in for long-​term decline in real earnings and a functioning safety net in the social security system. As Lisa Adkins (2017) has detailed, this process has created a fundamental change in household budgeting; for debt-​dependent households, any available income after essential outgoings will already be apportioned to making sufficient payments on debts to keep lines of credit open. This dependency upon debt was most stark for single mothers of colour who, as demonized in the figure of the “Welfare Queen”, had been most seriously affected by the restrictions on welfare payments introduced through PRWORA and remained excluded from stable employment (Cooper 2017). In a context in which households were struggling to meet spiralling debt obligations, mortgage finance in an era of rising property prices was not simply a route to respectability and stability; it enabled the family home to be treated as a commodity through which further sources of credit could be guaranteed, most notably in the form of flexible equity loans (Langley 2008; Adkins 2017; Allon 2015). The family home became both a space to be lived in and a site of speculation: gambling on the future appreciation of an asset to meet obligations in the present. As Allon (2015) describes, central to the sub-​prime crisis was the extent to which single mothers in particular were using the equity drawn down from properties to pay off other debts, a practice that left them severely exposed to the risk of default (Allon 2015: 698). 48

The case of reverse redlining

Allon (2015) observed how this figure of the canny single mother was celebrated in mortgage advertising as the image of the new female investor subject. Using her knowledge of the housing market to make intelligent decisions and balance complex household budgets, she heralded a new era of “mamapreneurialism” (Wilson & Yochim 2015). The financial inclusion of women in mortgage markets, and their creative ability to use their homes to conjure up disposable income, seemed to present a significant success story of finance-​led social progress. As described in the next chapter, it was precisely these decisions and actions that would later be branded as unsophisticated  –​emerging from the lack of knowledge of financial risk among women of colour particularly. Yet for the women who had borne the brunt of the dismantling of welfare through PRWORA, transforming the home from a social and physical space into an object for financial speculation was a necessary mode of survival. That they were forced to draw upon sub-​prime mortgages and deleterious forms of secured lending to do this attests less to their financial unsophistication than to the specific ways in which women’s previous exclusion from mortgage finance had shaped the opportunities available to them. At the heart of the feminization of finance are two contradictory movements. Under the withdrawal of welfare state supports, either through the austerity programme in the UK or the Clinton administration’s “ending welfare as we know it” in the United States, women were increasingly expected to: bear the risks of dealing with financial shocks; take on the burden of sustaining the household, either through increased caring responsibilities or increased work; and manage ever more complex and debt-​dependent household budgeting. At the same time, women became a primary target group for sub-​prime financial products, and were expected to engage in a more discerning, knowledgeable and entrepreneurial way with financial markets, despite their presumed riskiness limiting their options within these markets. These two strands came together in the refashioning of the family home as a site of speculative investment through sub-​prime lending. When wages were low and the future was deeply uncertain, the home became the primary site through which female subjects were encouraged to build a platform of stability through unlocking the potentiality contained in its rising value (Allon 2015: 697). Celebrated as the use of women’s instinctive abilities to manage household affairs, but also their implicit connection with the 49

Financial Inclusion

family home, the extent to which they were becoming increasingly exposed to losing this home altogether was rarely discussed. That the financial inclusion of women had remained shaped by the long decades of their exclusion only became clear once the bubble had burst. Conclusion The period of the 1980s, 1990s and 2000s saw a historic unsettling of the entrenched and enduring forms of exclusion that characterized access to mortgage finance in the twentieth century (Allon 2014: 24). Yet this process was not characterized by a simple overturning of exclusion: a mirror image of the long era of discrimination in which access to mortgage credit and homeownership would level out across differences. The process of reverse redlining describes the ways in which the historical exclusion of African-​ American and Latino households, single women and other groups,2 was translated into possibilities for exploitation and profit as these groups were included in ways that were financially deleterious in the short term and bore significant risk over the long term. As legislative changes encouraged lenders to broaden the scope of their customer portfolios, rather than offering similar value products to marginalized consumers, enduring assumptions around low profitability and riskiness of minorities and single women justified lenders’ loading of high fees, charges and interest rates into sub-​prime contracts. As the dizzying profits to be made from such contracts became clear, incentives grew for lenders to steer, push and coerce these marginalized groups into these exploitative situations, often under the pretension of acting from within their communities. The story of reverse redlining, as Allon notes, is the story of how “a platform of inclusion can be simultaneously progressive and the grounds for continuing injustice and disenfranchisement” (Allon 2014: 24). If we are to take a critical focus upon attempts, however admirable, by governmental and other institutions to remedy poverty and inequality through financial inclusion programmes, it must be one that recognizes how the demarcation of excluded and included groups is itself incorporated into the calculations 2. Melinda Cooper (2017) discusses also the exclusion of homosexual couples and other non-​normative household arrangements. 50

The case of reverse redlining

made by financial markets. We must, that is, be attentive to how the extra costs placed upon formerly excluded groups are justified and structured, and how the progressive language of inclusion, plurality, empowerment and justice might hide the formulation of exploitative terms. We must engage with how financial inclusion programmes and initiatives might provide new opportunities for lenders and others to expropriate value through the loading of risk onto vulnerable consumers, and refuse to judge these same communities for taking on this risk when their options were so severely limited. Indeed, it is imperative to note that, amid the changing financial and employment circumstances faced by marginalized households, mortgage finance did provide a mode of negotiating and dealing with complex household budgeting demands. While such households were included in the mortgage market, they were specifically excluded from having any control over the terms on which this occurred. Indeed, the narrative of community-​ led, bottom-​up financial inclusion was only ever a smokescreen for forms of exploitation and expropriation directed very much from above. As I set out in the final chapter, a truly progressive model of financial inclusion would consider how previously excluded groups can be included in shaping the forms and practices of finance with which they are engaging.

51

5

Financial inclusion as financial subjectivity: the case of financial capability in the UK

I described in the previous chapter how one of the explanations for the widescale defaulting on sub-​prime mortgage contracts (the event that triggered the Great Financial Crisis of 2007–​8) was the lack of financial knowledge among those groups that had previously been excluded from this market. Unsophisticated in matters of interest rates, budgeting and risk, vulnerable consumers were held to have signed up to expensive contracts they could not afford. This chapter explores the capability to access and use financial services as a specific dimension of financial inclusion. While the forms of financial inclusion discussed in the previous chapters focused upon mitigating the exclusion of households and communities through a combination of geography and historical oppression, this chapter addresses attempts to overcome deficiencies of financial knowledge and skills among excluded groups. As I set out in Chapter 2, if microcredit and reverse redlining concerned the expansion of opportunities to underserved groups, this chapter addresses situations where these opportunities are presumed to be already available for consumers; their exclusion arises from their lack of knowledge about how to access, choose between and best utilize them. The chapter explores these questions through the specific context of the UK under the New Labour (1997–​2010) and Coalition (2010–​15) governments, describing how it is that enhancing financial capability became a central policy objective and sphere of intervention. As noted in Chapter 2, it was in the UK that the concept of financial exclusion was first elaborated within economic geography, a period of academic interest that presaged a concerted policy programme of financial inclusion during the New Labour governments of the late 1990s and 2000s. The broad body of work done in the UK in this period formed a blueprint for financial inclusion research and

53

Financial Inclusion

policies implemented elsewhere in Northern Europe (Carbó et al. 2005: 99), Australia and New Zealand (Chant Link & Associates 2004). The chapter begins by describing the work of Leyshon, Thrift and others on financial exclusion, moving on to address the specific development of financial inclusion as a key policy objective under the successive New Labour administrations and how this related to previous and ongoing academic research. The chapter then develops a concept raised in Chapter 4, namely asset-​based welfare, noting how financial inclusion and financial capability were initially intertwined with the idea that security and stability across the life-​course were to be gained through investment in property. The chapter turns finally to financial capability as a specific strand of financial inclusion policy, describing how this developed in parallel with a significant growth in unsecured debt.

Financial exclusion: geographies of inequality As noted at the outset of this book, the initial explorations of financial exclusion as a dimension of poverty emerged in the UK in the years of the Major Conservative government (1992–​7). This was a period shaped by the recession of the early 1990s, which had led financial institutions to restrict services to the more profitable areas of their businesses. Yet it was also a period of increasing financialization, as the financial services and products these institutions offered both diversified and came to play an increasingly significant part in people’s everyday lives. Assessing these changes from the perspective of economic geography, Andrew Leyshon and Nigel Thrift (1994, 1995, 1996) sought to highlight the spatial dynamics of these trends. They noted that many observers of financialization, accepting at face value the continued expansion of the customer base of financial institutions, had failed to realize the extent to which service delivery was increasingly concentrated in certain areas. This retrenchment was primarily driven by mainstream banks de-​prioritizing service delivery through their existing networks of local branches. The presence of the local bank branch, through which rural communities underserved by public transport could easily access their account, withdraw or deposit funds and learn about other services, was quickly becoming a thing of the past. 54

The case of financial capability in the UK

Leyshon and Thrift pointed to a range of reasons for which banks were withdrawing from local service delivery. First, there were efficiency savings to be made from closing branches; the infrastructure of the branch network generated much of the cost of service delivery (1995: 317). Second, the “superinclusion” of consumers in wealthier urban areas was proving to be more profitable for financial services (Leyshon & Thrift 1996: 1151); they described this elsewhere as a “flight to quality” (1994). This withdrawal from less profitable localities came not only at the expense of rural areas, but also poorer urban areas, where restructuring could clearly be shown to map on to existing class geographies (1995: 317). To this list we can add the development of digital service delivery, which has further enabled banks to justify branch closures. The interactions that once took place in the branch are now presumed to have been replaced by remote platforms, namely telephone and, latterly, internet and mobile banking. In the US, the dynamics and consequences of infrastructure withdrawal, particularly upon African-​American communities, had been recognized and discussed from the 1960s onwards (Marron 2013:  790). Combating the effects of this retrenchment of services had become mainstream policy through the 1977 Community Reinvestment Act (Marshall 2004). The consequences of branch closure were also being observed in the Australian (Argent & Rolley 2000) and New Zealand (Larner & Le Heron 2002) contexts. The work of Leyshon, Thrift and others in the UK became highly influential in identifying and exploring the link between changes in financial services and geographic inequality across the Global North; it is as such worth quoting their description of the effects of financial exclusion in full, as aspects of this can be observed in all of the stories of financial inclusion explored across this book. [T]‌he process of financial exclusion has the potential to inflict serious economic and social damage upon communities abandoned by the process of financial-​infrastructure withdrawal. In the short term, it means that individuals and households in such communities have to look outside the formal “market-​regulated” financial system to satisfy their financial-​services needs (Fig. 3). In the absence of suitable alternatives, such as the non-​market-​regulated services provided by credit unions and community development banks (see below), or unregulated, non-​market financial 55

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services, such as family or friendship networks, then communities may become a breeding ground for exploitative and predatory ­unregulated-​market financial services … where annual interest rates of over 1000 per cent are not unusual. (Leyshon & Thrift 1995: 319) As explored below, when New Labour came into power in 1997, combating these forms of financial exclusion became a central policy objective of the new government. One research team that played a key role in the framing of financial exclusion and inclusion as areas of policy intervention was the Personal Finance Research Centre (PFRC) based at the University of Bristol, whose ongoing work on financial inclusion remains extremely influential and is quoted throughout this book. As well as setting out some of the key effects of financial exclusion that were adopted in government policy, the PFRC’s 1999 paper “Kept Out or Opted Out?” provided a useful typology of the groups excluded in the UK context, giving a key indication of the types of groups the UK government was initially seeking to engage with (Kempson & Whyley 1999: 14): • elderly people who have always lived on a low income; • young householders who have not yet engaged with financial services; • single (that is, never-​married) women who became mothers at a very young age and are still caring for their children full-​time; • people who have always been on the margins of work; • some ethnic minorities. While it was the exclusion of the latter category that dominated in the previous chapter, what is striking about this typology is how it is dominated by two characteristics. The first is a dependency upon welfare benefits, the list including many of the groups most in need of financial support from the state. The second is a lack of knowledge of and access to digital financial services, namely mobile, telephone and online banking. These characteristics indicate two important dynamics specific to financial inclusion, as it was initially framed, in the UK context. The first is that financial inclusion was not simply a policy aiming to overturn exclusion; it sought also to restructure citizens’ reliance upon the 56

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welfare benefits system. As detailed below, this restructuring is best understood through the concept of asset-​based welfare. The second is how financial inclusion focused as much upon the geographic and infrastructural elements identified by economic geographers and the PFRC as upon elements of access, knowledge and, as Ruth Levitas identified in a contemporary critique, morality (Levitas 2005: 167). As financial inclusion developed as a research and policy area in the 2000s, typologies of the above kind would be joined by a further category: the over-​indebted (see Kempson 2002). Indeed, the story of financial exclusion and inclusion under New Labour is contained in this shift. It was a policy area that carried many of the hopes and expectations for the renewal of the party and the country, built upon reputable research into poverty and exclusion. Yet initially it focused less upon spatial segregation than upon a reformation of the financial subjectivity of citizens, before becoming dominated by a specific problem of over-​inclusion: alleviating the problems of over-​indebtedness. Discovering financial inclusion: a “Third Way” in poverty alleviation Following 18 years in opposition, the Labour Party won the 1997 UK general election on a platform that purported to reject both “hard left” and “neoliberal right” approaches to the state intervention in the economy. The government would neither assume direct control over financial services, nor would it leave its citizens unprotected to deal with the risks and depredations of laissez-​faire capitalism. Financial inclusion played a central role in this “Third Way” approach (Giddens 1998). By redirecting state intervention towards setting aside the barriers that prevented excluded groups from fully engaging with the financial opportunities available to them, it enabled a party of the left to embrace a laissez-faire approach to the financial services sector, which would henceforth be left to grow on its own terms (Marron 2013). Upon entering office, the New Labour government established a Social Exclusion Unit and 18 Policy Action Teams, each of which would focus upon a different dimension of social exclusion. Policy Action Team 14 (PAT 14), created in 1998 and situated within the Treasury, was tasked with 57

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tackling financial exclusion. The first report of PAT 14, released in 1999, focused upon the development of credit unions, insurance services and the continuation of banking facilities. The report is notable for the hopeful ways in which it envisaged a future of full inclusion. Assuming they are all taken up, it is possible to envisage a time when financial exclusion as we know it now will have disappeared entirely. This does not mean that everyone will use financial services to the same extent. But it does mean that the barriers and constraints on choice that limit access now will have been substantially reduced. (Policy Action Team 14, 1999: 4) In 2004, the Treasury released a follow-​up report, which celebrated the significant gains made in responding to the initial challenges set out in 1999, but noted two key areas for future work: facilitating credit union membership and in encouraging all high-​street banks to provide basic bank accounts (current accounts without overdraft or other lending facilities). When the Financial Inclusion Taskforce (FIT) and the Financial Inclusion Fund (FIF) were announced in 2005, primary importance was given to the first of these goals; £36 million of the £126 million available in the fund was assigned for the further growth of credit unions (Jones 2008: 2149). The other key plank of FIF funding, indicating the pressures that were driving financial inclusion policy, was the expansion of debt advice provision. Sharon Collard of the PFRC noted in 2007 that, despite concerted efforts by PAT 14 and others, progress in achieving financial inclusion objectives had been decidedly mixed. Despite banks offering a broader range of basic accounts, the minority that remained excluded from banking, recognized in the report as 1 in 12 (down from 1 in 8 in 1999), remained significant. Furthermore, despite improvements in the products offered by credit unions, membership remained low and paled in comparison to the high-​ cost credit products aimed at low-​income households (Collard 2007: 17). Indeed, Leyshon and Thrift’s fears, quoted above, that financially excluded groups might become a “breeding ground” for informal high-​interest lending had proved off-​the-​mark; such products were being provided by the formal sector following the liberalization of the credit sector enacted by the New Labour government (NACAB 2003). 58

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The 2004 report had made some admissions in this respect. Referring to market failures in the consumer credit market, the authors referenced research by Citizens Advice (NACAB 2010) on extortionate and predatory lending. The report also recognized that the exclusion of low-​income borrowers from affordable services was to some extent a concerted and deliberate policy that served the interests of major financial institutions, noting that their ability to exclude non-​profitable groups (in traditional banking terms) had been made more efficient by the use of increasingly sophisticated techniques for classifying and segmenting consumers (HM Treasury 2004: 1). The 2004 report also recognized, in terms not included in the first report, the importance of financial capability. The potential benefits of enhancing the financial capability of the population were, it noted, substantial. For example, consumers who are aware of the implications of their personal financial choices will be better able to learn about the advantages of financial products that will be of benefit to them. They will also be less likely to use unsuitable financial products and services and be less likely to end up in financial difficulty. (HM Treasury 2004: 41) These two sentences indicate the different directions in which both financial inclusion and financial capability as policy areas were being pulled. On the one hand, there were the significant benefits of inclusion; being able to choose between services would help formerly excluded consumers to deal with the difficulties and uncertainties of life. Such a change in the subject’s relationship to financial services was particularly important given the broader shift towards asset-​based welfare. On the other, there was a dawning recognition that these same consumers might have been over-​ included and were consistently making the wrong choices, most notably in the field of unsecured credit. Financial subjectivity and asset-​based welfare The concept of asset-​based welfare denotes the shift away from a collectivized sharing of risk through welfare benefits or social security provision across 59

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the life-​course, towards an individualized active management of assets, of which property in the form of real estate is the most prominent (Watson 2009: 42). Asset-​based welfare is held to allow citizens greater choice in releasing income streams when it is convenient and efficient for the citizen to do so, based upon their understanding of their own needs (Watson 2009: 42). New Labour’s asset-​based welfare-​oriented approach to socio-​ economic policy was particularly focused upon enabling conditions for affordable mortgage lending, facilitating rising housing prices that could be used as assets to be drawn upon in later life (Berry 2015; Searle & McCollum 2014). As house prices were rising significantly faster than wages and consumer goods (until the events of 2007–​8), assisting excluded consumers with investing in property could be presented as a progressive and enlightened alternative to means-​tested welfare provision (Allon 2015: 698). As well as facilitating a rapid growth of buy-​to-​let properties as people turned to landlordism as an asset-​building strategy (Soaita et al. 2017), this period saw a growth in equity release and annuities products, through which pension-​aged consumers could supplement their pension using the value in their property assets to gain an income in the present (see Köppe 2015). Thus, while the reports of PAT 14 focused upon credit unions, insurance, basic banking services and, latterly, debt advice, the messages and statements of prominent New Labour politicians were focused upon financial inclusion as a question of asset acquisition. This symbolic order of financial inclusion was underpinned by the assumption that, by enabling formerly excluded consumers to engage with markets such as property investments, citizens would become more independent (and as such less reliant on state handouts). As Alan Milburn MP, Labour’s election co-​ordinator in 2005, stated: we need to go further if we are to get British society on the move again. A home is the biggest asset most people will ever own. Given a choice, most people would choose to buy not rent. Of course Britain needs more social housing. We need to deal with the challenge of homelessness. But we need to do something else too. We need to break the prevailing orthodoxy that the only future for those who don’t own their own homes is social housing. There are over one million more homeowners now than in 1997. So it is right, 60

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in my view, that the Government establishes an increase in home ownership as an explicit objective of government policy. (Milburn 2005) John Clarke and colleagues (2007) described the ideal subject of the New Labour era as the “citizen-​consumer”:  an individual equipped to choose from the available financial services and to prepare for an unknown future by making appropriate investments. As it sought to create these citizen-​ consumers, the New Labour project embodied a distinct approach to financial inclusion that would spread to other nations in the 2000s and 2010s.1 The task was as much that of setting aside the geographical or technological barriers to participation as it was of addressing the personal barriers inhibiting excluded citizens’ ability to embody this ideal subject position. This brings us to the theme of financial subjectivity: the ways in which money and finance shape how people behave and understand themselves. Recent emphasis upon financial subjectivity in the social sciences (see Hall 2012 for an overview) reflects a recognition that the world of finance does not primarily exist in boardroom decisions or flows of capital, but rather in the financially oriented actions and decisions of ordinary people. Furthermore, it recognizes that financial concerns are increasingly prominent in defining subjectivity, something Randy Martin (2002) has documented through the concept of the financialization of daily life. The push towards asset-​based welfare reflected a concerted effort to amplify and channel this process of change. The financial subjectivity of the citizen-​consumer, their self-​worth, hopes for the future and consideration of relationships, would be oriented to the maximization of financial wealth through speculative investment. The reports of PAT 14, alluding to the ongoing growth of the financial services sector (see 2004: 1), recognized how access to the benefits of this new settlement between the citizen, state and financial services might be unevenly distributed; how inequality might be redrawn as only wealthier citizens gained access to the benefits brought by this diversity of financial opportunities. While the work of PAT 14 and the PFRC had identified a range of forms of exclusion that might hinder excluded citizens, the focus of the Treasury increasingly fell upon one of these in particular: the capability 1. See Lazarus (2016: 32) on MaPS as a blueprint for approaches in France and Burkett and Drew (2008) on credit union development as a model for Australia. 61

Financial Inclusion

to understand the financial opportunities available to them (HM Treasury 2007). Yet the focus and framing of financial capability would be less upon creating the risk-​focused, investor-​subjects envisaged by asset-​based welfare doctrine than the highly prudent, risk-​averse subjects that would avoid the dangers of over-​indebtedness. Financial literacy and capability In the United States, financial capability is seen as the most recent iteration of a well-​established concept, that of financial literacy (see Lusardi 2002; Lusardi & Mitchelli 2007). Following the Great Financial Crisis of 2007–​8, financial literacy programmes became more widespread in Europe, a trend driven in particular by the enthusiasm of the OECD. Having held a goal to promote financial literacy across the globe since the turn of the century, the Great Financial Crisis, seen to have been caused by the poor borrowing decisions outlined in the previous chapter, was held by the OECD to be a “teachable moment” (Hütten et al. 2018): an opportunity to expand the teaching infrastructure that would improve the financial skills and knowledge of marginalized groups. Financial literacy programmes begin from the assumption that concepts that tend to be taken for granted among included groups –​interest rates, insurance, credit and debt and so on –​are poorly understood by low-​income communities, who as such might fail to understand the terms of contracts to which they are signing up. For the OECD and other key promoters of financial literacy, the potential benefits were substantial. Improved financial literacy would lead to more informed financial decisions, reducing the irrationality and unpredictability of consumer behaviour, and as such a diminished risk of financial crises and need for financial regulation (Hütten et al. 2018). The recent emphasis upon capability in addition to, or supplanting, literacy has been driven by arguments that such knowledge is of little value without putting it into practice. Johnson and Sherraden (2007:  122), for example, argue that “knowledge and competences” must be combined with an “ability to act on that knowledge, and opportunity to act”. Across key definitions of financial capability (World Bank 2013, 2018; Remund 2010), these practical aspects tend to focus on three points 62

The case of financial capability in the UK

of emphasis. First, financial capability includes good budgeting skills, encompassing both an ability to make and stick to a budget, and to reduce unnecessary expenditure. Second, it includes an ability to make optimal financial decisions, including “understanding, selecting, and making use of financial services that fit their needs” (World Bank 2013: 7). And third, it includes an ability to plan for future financial needs. It is “the capacity to act in one’s best financial interest, given socioeconomic environmental conditions” (World Bank 2018). In the UK these two terms have indeed been used broadly interchangeably; discussion of financial capability tends to include both knowledge and practice. This was represented in the Treasury’s 2007 report Financial Capability: The Way Forward, the document that placed financial capability at the centre of the government’s approach to countering financial inequality. Financial capability is a broad concept, encompassing people’s knowledge and skills to understand their own financial ­ circumstances, along with the motivation to take action. Financially capable consumers plan ahead, find and use information, know when to seek advice and can understand and act on this advice, leading to greater participation in the financial services market. (HM Treasury 2007: 19) The long-​term approach inaugurated by the 2007 document involved a wide variety of experts and institutions being enrolled into bringing financial capability training to low-​income households. However, in contrast to this positive, ABW-​oriented image of motivated consumers achieving full participation, these interventions focused upon a rather narrower set of knowledge and skills. Thus, the 2007 document described the Let’s Talk Money campaign as:  “Working through trusted intermediaries (such as housing associations and local charities) the campaign is providing hard-​to-​ reach people with the information and support they need to access financial services” (HM Treasury 2007: 8). As part of their argument for “critical financial literacy”, discussed further in Chapter 8, Moritz Hütten and colleagues (2018) observed that both financial literacy and financial capability focus upon adaptation to the existing financial order. In the above quote, the response to certain groups being hard to reach is not to address the structural conditions that render 63

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them marginalized, but rather to teach them to adapt to a financial system that, as was documented in the initial literature on financial exclusion, had played a key role in exacerbating their marginalization. The ways in which financial capability developed as a policy area in the UK display how this question of adaptation was itself uneven, with different expectations of good financial behaviour mapping on to existing forms of inequality. While the Let’s Talk Money campaign was introduced as enabling the hard-​to-​reach to access financial services, what was notable from the programme website was that it focused almost exclusively upon problems of over-​indebtedness. Illustrated by a series of images of distressed individuals in which debt-​focused aphorisms (“You’ll never make ends meet without doorstep loans. Doorstep loans mean you’ll never make ends meet.”) were engraved onto everyday objects, the available information it provided was dominated by debt advice and affordable credit options (Gov.uk 2008). In terms of knowledge, the concerns driving this approach were indicated in research carried out by Paul Jones and colleagues for the Co-​operative Bank (Jones 2008: 2149), in which it was noted that very few participants understood the importance of interest rates and as such “judged evidently high cost and over-​priced credit products to be reasonable or affordable”. In terms of skills, of the three areas of practice listed above, the focus was almost exclusively upon household budgeting, with a wide range of initiatives from schools to prisons being rolled out to develop budgeting skills. This emphasis upon debt and poor consumer decisions reflected a trend that has been observed across financial literacy and capability programmes throughout the United States and Europe, where the primary problems to be solved were the faulty decisions of low-​income borrowers (Lazarus 2016; Hütten et al. 2018). As Donncha Marron argued, the turn to financial capability by HM Treasury (2007) was motivated primarily by concerns about the poor personal behaviours and habits that had led to rising levels of over-​ indebtedness among low-​income households across the country. The primary goal of financial inclusion became not greater participation in the financial services market, but rather lesser participation in the particular sector of that market that had boomed under the laissez-​faire approach to credit adopted by the New Labour government. In contrast to the risk-​ embracing, investor-​subject idealized by asset-​based welfare, the UK government began to turn to financial capability training as a way of reforming these low-​income subjects in an entirely different direction: helping them 64

The case of financial capability in the UK

avoid the traps of unsecured lending by developing a more prudent and risk-​averse attitude. Financial capability in the era of austerity Following the 2010 election, the Labour Party was replaced in government by a Conservative–​Liberal Democrat coalition. The Coalition government introduced a series of wide-​reaching reforms to welfare benefits, legal aid and the funding of local government, brought together under the banner of austerity. Most prominent among these reforms were a freeze on levels of benefits entitlement and an expansion and amplification of the sanctions imposed upon claimants who failed to meet certain welfare-​to-​ work requirements (see Dwyer 2018). Marron noted, in 2012, that with the winding down of the Financial Inclusion Fund in 2011, financial inclusion and financial capability would take a back seat in UK policy (Marron 2013: 806). In fact, the Money and Pensions Service (formerly the Money Advice Service), which took over responsibility for promoting financial capability, has continued to promote it as a key strategy for mitigating poverty and inequality (MaPS 2015). The changing role of financial capability under conditions of austerity provides a further important indication of how, in the withering assessment of Jeanne Lazarus (2016: 32), financial education and capability programmes are “dressed up as a ‘modern’ and ‘technical’ way of helping people to manage their money better”, when in truth they are “part and parcel of a drive to moralize poverty”. MaPS has pursued its financial capability objectives through the further incorporation of financial capability training into debt advice (MaPS 2015: 17). This has proved a contested topic among debt advisers, given that many would state that they already seek to work with clients to improve their knowledge and capacities. Yet it is particularly controversial given that, as many advisers stress (see Atfield et  al. 2016:  26), those having to survive on extremely low incomes are already highly skilled at budgeting and have more pressing issues than learning about services they do not need; financial capability has become a tool for shifting blame onto debtors for circumstances that are out of their control. As Lauren Willis (2008:  202) notes, “people are financially illiterate not because they are stupid, but because they have better things to do with their time”. 65

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MaPS has continued this focus upon financial capability in a period of significant change in the financial situations of low-​income households. The combination of welfare benefits cuts brought in by the Coalition government and an increase in precarious, low-​paid employment have led rising numbers of households to face unsupportable levels of what are termed (in the advice sector) priority debts:  debts where non-​payment may lead to loss of home, liberty or essential services, primary among which are rent and Council Tax2 arrears. The visible signs of this rise in priority debts are a homelessness crisis (Shelter 2018), high levels of food-​bank reliance (The Trussell Trust 2019) and malnutrition (Garthwaite et al. 2015) and a reliance on short-​term, high-​cost credit to meet everyday financial needs (StepChange 2017). MaPS’s financial capability website references these crises, but presents them as issues of financial capability rather than changing structural circumstances. .

Levels of financial capability in the UK are far too low: • 4 out of ten adults in the UK feel their approach to budgeting does not work well • around 17.5 million working-​age people have less than £500 in savings, and so are highly exposed to a drop in income or unexpected bills such as a boiler repair or a new fridge • more than 8 million people in the UK are over-​indebted. (MaPS 2020) The implication of this description is that financial capability, meaning primarily an inability to budget, is the reason behind increasing levels of material poverty and over-​ indebtedness. Financial capability, initially presented as an opportunity to improve people’s access to and understanding of financial services in order that they might better navigate difficult financial situations, has been transformed into an explanation for why people are facing these difficulties in the first place. 2. Council Tax is a tax on domestic property, liable to be paid by the residents of the property, administered by local authorities. The ultimate sanction for non-​payment of Council Tax in England is imprisonment. 66

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A very different story of financial inclusion can be found in Rowlingson and McKay’s (2017; McKay & Rowlingson 2018) comprehensive reports on the subject. Following Kempson and Collard (2012), they define a similar set of problems to the MaPS statement cited above, defining financial inclusion as the ability “to manage day-​to-​day financial transactions; meet expenses (both predictable and unpredictable expenses); manage a loss of earned income and; avoid or reduce problem debt” (Rowlingson & McKay 2017: 2). Yet in direct contrast to the MaPS approach, circumstances such as fluctuating or poor pay and cuts to welfare benefits are fully recognized for their role in inhibiting financial inclusion. Noting progress in some areas, they express concern over the growing number of people who neither have access to affordable credit nor have sufficient income to save for the future. Both Rowlingson and McKay’s reports, and the UK House of Lords Select Committee on Financial Exclusion (2017), were careful to foreground issues such as the poverty premium (the fact that the poor have to pay more across a range of essential services) and lack of affordable credit over failings of financial subjectivity. Conclusion: dynamics of inclusion, risk and practice –​financial inclusion as a new form of exclusion? The UK already occupied a notable space in the field of financial inclusion for the role played by Andrew Leyshon and Nigel Thrift in developing a conceptual language for understanding and acting upon the issues discussed in this book. As has been argued in this chapter, it has also played a leading role in policy research and interventions; the research of the PFRC, and the work done in supporting credit unions and enabling access to bank accounts, have been referenced and copied by financial inclusion advocates across the Global North. In the early years of the New Labour government, the work of Policy Action Team 14 and the Social Exclusion Unit were closely aligned to the definition of financial exclusion developed by the economic geographers that had initially defined and explored the concept. Although the financial inclusion achievements of these initial interventions may have been mixed, there was significant movement on providing basic bank accounts,

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insurance services and affordable credit to the large numbers of consumers that had been excluded from formal services. As financial inclusion policy has turned towards a concern with over-​ indebtedness and financial capability, the UK has also become an indicative case of how financial inclusion can reshape existing forms of poverty, marginalization and class segregation. This chapter has covered two key areas of critique exploring these relationships. The first concerns the ways in which financial capability “brackets away” (Marron 2013:  791) existing structural factors of marginalization, for example, class, wealth or geographic isolation, presuming that issues of inclusion lie in individual conditions or failings. This bracketing away is particularly important as, in a similar manner to the households discussed in the previous chapter who were included in sub-​prime mortgage finance, it led to an ignoring of the deliberate and concerted ways in which these groups would remain excluded from mainstream services and over-​ included in short-​term, high-​cost credit markets. This tendency to bracket away issues of material poverty has become even more marked in the era of austerity. Financial capability, focused almost exclusively upon household budgeting, has enabled the effects of cuts to benefits payments and insecure work to be blamed upon the poor money-​management practices of low-​ income households. The second concerns how financial literacy and financial capability elevate a certain form of financial inclusion as a natural state of being to which all should aspire, irrespective of their current financial circumstances and practices (Willis 2008; Hütten et al. 2018; Lazarus 2016). Each of the groups listed above was presumed to prepare for old age and unforeseen events by investing wisely, rather than, for example, relying upon the support and hospitality of friends and family. Indeed, as Lauren Willis (2008) argues, many of the poor practices in which these groups might be involved might well be those best suited to surviving amid the severe lack of time, energy and resources that characterize endemic poverty. Given that these conditions will remain long after the financial capability intervention has left, there is the potential that such programmes can do more harm than good. The New Labour era presents a specific indication of how the imposition of financial capability created a new form of social distinction. As Marron argues, while presenting the risk-​savvy, investor-​subject as a natural state of being, financial capability policies under New Labour never 68

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actually expected people to transform their lives in this way. While investment and asset-​based welfare were good for middle-​class consumers with disposable income, the approach taken for lower-​income families was markedly different, seeking instead to encourage subjects to be more prudent and risk-​averse. This approach was driven by the fact that the financial services they were likely to be engaging with were the variety of high-​cost credit options (credit and store cards, hire-​purchase agreements and, more recently, payday and guarantor loans) that had emerged in this era of credit liberalization. Rather than encouraging financial inclusion, the role of the state became that of protecting consumers from their own interactions with financial services they were presumed not to understand. These two critiques both rest upon an observation that cuts through all of the chapters in this book, namely that inclusion often creates new forms of distinction, marginalization and inequality, and that there is often an unwillingness to see the financial practices of the desired subjects of financial inclusion interventions as themselves worthy of interest. Issues of resistance to cashless transactions, for example, are frequently mentioned as a barrier to inclusion, yet nowhere does this literature take seriously the complex ways in which groups such as the elderly use and relate to physical money. Yet such critiques should not lead us to dismiss financial capability as a concept or strategy. One indication for why the term remains important is its role in debt advice. While rejecting the emphasis on financial capability as a strategy forced upon them, many debt advisers emphasize that enhancing clients’ capacities and knowledge is a central part of what they actually do. This balance indicates the way in which, to retain a focus upon financial capability as part of financial inclusion, it must be one that first recognizes the significant structural constraints upon consumers and, second, allows them the agency and power to change their own practices on their own terms. Surveying the field of financial inclusion in the UK, Rajiv Prabhakar (2019) has noted the increasing division between theoretical and social policy discussions of the term. On the one hand, critical observers such as Craig Berry (2015) and Donncha Marron (2013, 2014) have focused upon the paradox at the heart of financial inclusion; presented as a response to the increasing importance of financial services in people’s lives, by forcing people to engage with these services and take on the risks, costs and social transformations associated with them, it in fact serves to enhance and forward the process of financialization (Berry 2015: 510). In contrast, 69

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policy discussions have focused upon how existing infrastructures of financial services, advice and information can be improved to meet the shifting challenges of exclusion. Prabhakar emphasizes the importance of bringing these differing approaches together. Theoretical considerations should also, he notes, recognize the wider field of policy responses to financial exclusion, to which I would add the importance of face-​to-​face debt advice (Kirwan 2019), and the reality of financial challenges such as the poverty premium. In turn, policy discussions should better engage with the uneven distribution of risk and gender inequalities created by financial services and look beyond existing infrastructures to consider alternative approaches and interventions. One way to frame this meeting of approaches would be to turn the relationship between financial inclusion and financial capability around. Rather than financial capability being a barrier to financial inclusion, the reoriented model of financial inclusion discussed in Chapter 8 would be one that celebrated the existing capability of excluded populations (including the capacity to form household budgets on invariable and insecure incomes) and drew upon this to shape and direct financial service provision. As I discuss in Chapter 8, the agenda for “critical financial literacy” proposed by Hütten et al. takes this one step further, proposing that marginalized communities be better equipped not simply to adapt to financial life, but to have a critical and active role in shaping the foundations of the financial system.

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6

Financial inclusion as political project: the case of conditional cash transfers

Thus far in this book I have examined how, under the banner of financial inclusion, new services, interventions and programmes have been created to enable previously excluded groups to enjoy and profit from unfettered access to financial services. In these examples we saw how states, financial institutions, NGOs and the other actors labelled by Schwittay (2011) as “the financial inclusion assemblage” have sought to remove the barriers of geography, discrimination and a lack of financial knowledge that are seen to inhibit people from living a rich and fulfilling financial life. We have explored also the diverse and conflicting ways in which these interventions transformed the lives of their intended targets. Yet it is important to note that a distinct and important strand of financial inclusion policy involves not the provision of new services or forms of intervention, but rather the use of existing infrastructures and relationships to achieve financial inclusion ends. Of particular importance in this respect is the provision of financial support through welfare payments. While in the previous chapter I addressed welfare reform in the UK as a key contextual factor in shaping the direction of financial inclusion, in this chapter I address a different way in which these fields intertwine: in the use of welfare provision as a tool of financial inclusion. An important reason for addressing this relationship is that, following the fall from grace of microcredit as the primary site of financial inclusion in the Global South, many key players in the financial inclusion assemblage turned to a particular form of large-​scale welfare provision as an alternative future for financial inclusion policy (World Bank 2018: 7; Lomelí 2008: 478; Kidd 2019). These were conditional cash transfer (CCT) systems: welfare payments made to low-​income families where the financial support is conditional upon the family meeting particular conditions. The potential for

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financial inclusion through CCT was clear. Rather than seeking to create new programmes and systems for identifying and reaching the unbanked, with all the planning and investment this would involve, these would use the existing need for financial support, and the conditionality mechanisms that were central to the provision of this support, to transform their financial practices. CCT systems grew from, and remain associated with, Latin America, and are now in place across the Global South (Cookson 2016). As indicated in Chapters 4 and 5, conditionality has been a defining feature of welfare reform in the US, UK, Germany and other nations in the Global North (Peck 2001) from the 1990s onwards. Focused particularly upon enforcing working obligations, policies such as welfare-​to-​work and benefits sanctions sought to change the passivity and dependency of welfare claimants. As referenced in the previous chapter, such conditionality sought a redrawing of the citizen–​state relationship through a reformation of the moral outlook of welfare claimants. While similar in nature, the objectives and structure of CCT systems in the Global South CCT are very different; indeed, they are to some extent designed to mitigate the negative effects (such as upon children’s education) of the dominance of working obligations upon the rhythms of family life. The chapter explores how CCT systems bring two key dimensions of financial inclusion into play. The first of these concerns a capacity to change financial practices in the present. The payment itself is not only held to facilitate smoother and more efficient household budgeting; with the introduction of digital and mobile payments (in which the payment is made directly into the recipient’s bank account or mobile banking wallet respectively), it brings the claimant into contact with a broad array of financial services. Coupled to the direct integration of financial literacy and capability programmes into CCT systems (World Bank 2018), these initiatives are held to promise a complete transformation of the financial lives of poor and marginalized communities. The second concerns the extent to which the conditions imposed upon households can facilitate an investment in human capital, meaning that future generations will not be excluded in the manner of their parents. In this chapter I discuss the nature, implementation and spread of CCT programmes across Latin America and beyond, exploring why they hold such resonance among financial inclusion institutions. These focus upon 72

The case of conditional cash transfers

four key aspects of CCT programmes:  an intergenerational “investment effect” enabled by the contractual model of welfare; the incorporation of ongoing research into programme models; the potential for moving beyond cash towards digital payment mechanisms; and finally what Fotta and Balen (2019) call the “re-​articulation” of the lives of the poor. I expand upon this last point to examine how CCT programmes display a different dimension of the effects of financial inclusion, namely a reshaping of peoples’ understanding of money itself. Progresa-​Oportunidades-​Prospera CCT programmes are an indicative case of “fast policy” (Peck & Theodore 2015); from their instigation in the mid-​to late 1990s in Brazil, Chile and Mexico (Johannsen et  al. 2010), by 2005 programmes were running in 16 countries in Latin America and the Caribbean (Lomelí 2008: 476). As discussed further below, CCT programmes are now established across multiple countries far beyond the Americas, from Ghana and Zambia to the Phillipines (Béland et al. 2018: 465). As Lomelí (2008: 478) indicates, not long after the introduction of CCT systems across this diverse set of nations, a range of institutions were hailing their ability to (Lomelí 2008: 467): • • • • •

reach the poorest inhabitants directly promote the accumulation of human capital reduce poverty in the short and long term lower income inequality break the intergenerational transmission of poverty

It was the widespread implementation of digital payment systems in CCT delivery, trialled in Mexico from 2003 onwards (Masino & Niño-​Zarazúa 2020), that promised to fully revolutionize recipients’ financial practices. It was argued that, once this shift became complete, CCT systems would be at the forefront of achieving key financial inclusion objectives such as improving financial literacy and enabling people to access microsavings accounts (Johannsen et  al. 2010). As CCT systems were later combined with mobile banking, these promises became even more prominent. In Colombia, the direct payment of Más Familias en Acción CCT payments to 73

Financial Inclusion

recipients’ mobile banking wallets (a concept explored further in Chapter 7) was implemented in 2012 with the hope that it would lead recipients to experiment with other financial services available through mobile banking, thus fulfilling the financial inclusion objectives of the Colombian state (Marulanda Consultores 2015).1 Indeed, as Fotta and Balen (2019: 10) have observed: “Wherever cash transfers have been implemented, the question of financial inclusion has also come to the forefront”. As an indication of how CCT systems work, and how it is that these hopes and objectives have attached to them, I will focus in this chapter upon one of the most widely discussed and copied programme: Mexico’s Progresa-​ Oportunidades-​Prospera (POP).2 A further reason for focusing upon POP is that, following the sudden abolition of this flagship programme in 2019, these same institutions will need to re-evaluate the importance attached to CCT as a means of financial inclusion (Kidd 2019). The Progresa programme began in 1997, providing payments to just over 300,000 households. Renamed Oportunidades (in 2002) and then Prospera (in 2012), by 2015 POP reached 6.1 million households: around a quarter of the population of the country (Masino & Niño-​Zarazúa 2020:  152).3 Households were identified as eligible by means of a proxy means test: a survey measuring variables such as assets, household composition and geographic location (see Dávila Lárraga 2016: 15) and using these to predict levels of poverty. Under POP, payments were made to households once every two months and were predominantly distributed to mothers (Dávila Lárraga 2016: 17). The use of mothers as the lynchpins of the programme, in line with the trend towards the feminization of finance discussed in Chapters 2 and 3, is key to the two principal aims of CCT programmes. On the one hand, the payments themselves enabled women, presumed to have a better knowledge of household consumption needs, to manage household budgets. The payments to mothers also served the purpose of bestowing upon women greater financial responsibility, and also, as payments were digitalized, of 1. By 2015 there were 2.2 million wallets, of which 46 per cent were being used for the payment of Más Familias en Acción CCT payments (CGAP 2015: 4). 2. Other key programmes include Bolsa Família in Brazil, Chile Solidario in Chile and Familias en Acción in Colombia. 3. On the means-​testing and targeting of families, see Dávila Lárraga (2016: 10–​16). 74

The case of conditional cash transfers

including women in banking and financial services. On the other hand, distributing payments to mothers, as those best placed in the household to direct and shape the lives of children, also served the purpose of combating the intergenerational reproduction of poverty (Molyneux 2006). This investment in human capital is enabled because, unlike unconditional cash transfers, under the POP system payments were conditional upon recipients carrying out activities deemed to be essential to the health and education of their families, with additional incentives included to improve nutrition. Echoing the language of welfare reform in the UK, these were defined as households’ “co-​responsibilities”. Obligations in health (such as attending regular medical check-​ups) would be observed and documented by doctors, those in education (such as regular attendance at school) by teachers. Michelle Adato and colleagues at the International Food Policy Research Institute (2000: 7) praised POP for its recognition of the “education-​health-​nutrition nexus”; investment in assisting low-​income children in staying in education, they argued, can only be effective if endemic deficiencies in health and nutrition are also addressed. By dealing with each of these in tandem, POP was held out as having tremendous potential to “transform this vicious circle into a virtuous one” (Adato et al. 2000: 7). As detailed below, recipients’ experiences of fulfilling these co-​ responsibilities went beyond the neutral terms in which they are presented here. Critical voices have detailed how experiences of POP were shaped by the power relationship between recipient households and figures of authority, and by further dynamics of tension and resentment that emerged within and between communities. Furthermore, they have observed how POP was experienced by indigenous communities in particular as an attempt by the state to forcibly reduce their reproductive capacity (Dapuez 2019). CCTs and financial inclusion As CCT systems gathered popularity as a mode of poverty alleviation, the World Bank seized upon their potential for enabling financial inclusion, heavily pushing the use of bank account payments (rather than cash) as the default provision method in order to bring hard-​to-​reach households into the orbit of formal financial services. In 2018 they released a toolkit for achieving these goals through such digital cash transfer systems: Integrating 75

Financial Inclusion

Financial Capability into Government Cash Transfer Programmes (World Bank 2018). The toolkit begins from a recognition that there are both opportunities and risks in this shift towards digital payments. On the one hand, recipients are exposed to the broad range of services provided by formal banking. Thus Masino and Niño-​Zarazúa (2020: 163), studying the effects of electronic transfers in the POP programmes, noted that recipients “were 6–​8 per cent more likely to use their savings to cope with idiosyncratic shocks”. They noted the positive financial inclusion effects of the shift to electronic delivery, however small, on using formal savings accounts (as opposed to informal sources such as ROSCAs) as a way of “consumption smoothing” in which income from today is used to deal with potential losses of income in the future, thus avoiding having to draw upon informal savings and credit arrangements. Yet as the World Bank document argues, in order to achieve these consumption smoothing goals, and to facilitate the directing of transfers towards income-​generating activities, recipients need: “to be better informed about possible money-​management and budgeting strategies, to understand the range of possible financial products that can be used and coupled with their cash transfers, to know where to seek advice if needed, and to understand how to best save or invest to reach their financial goals” (World Bank 2018:  4). This is because, on the other hand, there are risks involved in making electronic payments among communities with no knowledge or history of formal banking. The toolkit cites stories such as that of a community of people in Colombia who were not only poor at remembering their PIN numbers, but also rendered their bank cards unusable because they laminated them for protection (World Bank 2018: 6). To mitigate against these deficiencies of financial literacy and capability, the toolkit describes how: “The design and delivery aspects of a cash transfer program can be leveraged not only to provide access to a wide range of formal financial services for large population groups (like through e-​payments linked to accounts) but also to enable recipients to use their cash at scale better” (World Bank 2018: 8, emphasis added). This quote reiterates the hope that, by bringing recipients into contact with digital and mobile payments, CCT systems will bring them into contact with the full suite of services offered by formal institutions. Yet the second half of this quote displays the further potential of CCT systems: that they might also be leveraged to create 76

The case of conditional cash transfers

the kinds of improvements in capability, literacy and subjectivity described in the previous chapter. There were two key ways in which, from the perspective of the World Bank and other institutions within the financial inclusion assemblage, CCT systems could be used to achieve these goals. The first concerns changes that are imperceptible to the claimant: adjustments to payment timing or “choice architecture” that nudge claimants towards certain financial behaviours. The second concerns perceptible alterations to the conditions themselves. I explore the aspects of financial inclusion raised by each these two approaches in the following sections. Financial nudges The considerable excitement attached to CCT programmes in the fields of international development, and financial inclusion specifically, stemmed not only from the forms of social progress detailed above; it also drew upon the ways in which programmes incorporated the possibility for ongoing research, and iterative amendments based upon this research, into their structures. Indeed, Fotta and Balen (2019: 3) make the claim that they have been “the most researched policy intervention in the world”. The majority of this research emerges from the fields of experimental and behavioural economics. The incorporation of conditionality into welfare payments allows such researchers considerable opportunities for measuring how certain outcomes, such as children’s attendance at school or payments of certain financial obligations, are affected by the introduction and structuring of both payments and obligations. CCT systems provide excellent opportunities for carrying out randomized control trials (RCTs) in particular, where certain recipients are subject to a modification while others are not. From such trials widespread conclusions about the habits and behaviours of the poor can be made; CCT systems have as such become established as something of a playground for intervention and experimentation by economists. RCTs incorporated into CCT systems have been particularly important as evidence of the power of the nudge. That is, by making small, often imperceptible, changes to the structure and delivery of the payments (and not necessarily to the forms of conditionality themselves), CCT systems have allowed economists to imagine a world in which the optimal tailoring of 77

Financial Inclusion

welfare delivery might achieve the financial inclusion outcomes that education, advice and enforcement cannot. As an example of this, Karlan and Morduch (2010: 4736) describe the positive social outcomes achieved by the following nudge: “an excellent example comes from Colombia where the government tested the importance of timing in a conditional cash transfer program by randomly assigning some individuals to receive their conditional cash transfers at the time school fees were due rather than before”. Peck and Theodore (2015: 135) describe CCT systems as central to an “emergent orthodoxy of evaluation science”. By incorporating such research into the delivery of welfare, they allowed the conditionality of payments to be presented as technocratic social policy, masking the social, political and ideological roots of conditionality itself. In providing a continuous stream of evidence on the effectiveness of conditionality, RCTs played a key role in securing “the status of CCTs as programs ‘that work’ ”(Peck & Theodore 2015: 135); indeed, any negative results that might emerge could be promoted as an opportunity for further research and modification. This contributed to their rapid incorporation across the Global South as a form of “fast policy” (Peck & Theodore 2015). It is interesting to note how, in the above quote, no indication is given of how the timing might affect other areas of life beyond the social outcome, namely the payment of school fees, that is being measured. If the household had, for example, other financial obligations beyond these payments, these are not considered. Through the incorporation of experimental and behavioural economic research into CCT systems, the lives, obligations, dependencies and rhythms of low-​income households were offered up as sites of experimentation for researchers. Yet this was typically carried out with a specific idea of what the desired changes would be, and a noted lack of consideration regarding other effects such changes might have. Financial inclusion through contractual governance CCT systems are organized around the principle that claimants are obliged to undertake certain activities in order to receive their transfers. As is detailed in the World Bank toolkit for incorporating financial inclusion into these systems, these obligations might include “targeted financial education programming and training” (World Bank 2018:  5). In contrast to the nudge 78

The case of conditional cash transfers

approach, the desired changes to claimants’ financial practices are made clear to them, being framed as part of their reciprocal obligations to the state. To understand how such schemes are implemented and experienced, I will look in more detail at the concept of contractual governance and how it has shaped welfare delivery in the context of POP. In a similar manner to the association of microcredit with Muhammad Yunus, CCT systems have something of a founding father in the figure of Santiago Levy, former general director of the Mexican Social Security Institute. With his colleague Evelyne Rodríguez, Levy’s articulation of the co-​responsibility maxim is widely cited in World Bank and other publications:  “Shared responsibility and respect inevitably imply a reciprocal effort by the poor families to link the benefits they receive to concrete actions on their part” (Levy & Rodriguez, quoted in Fiszbein et al. 2009). This quote indicates the importance of CCT systems as a form of contractual governance, in which the behaviours and habits of citizens are regulated by the enforcement of a reciprocal effort through a novel welfare contract featuring sanctions and other punitive measures. Access to money, in the form of state-​provided handouts, is used as a site of leverage to obtain certain changes in the lives of the recipients. CCT systems share many features with welfare reform initiatives in the Global North described in Chapters 3 and 4, but are nonetheless specifically shaped by their development within Latin American democracies. They are a product not only of the period of democratization that took place from the 1990s onwards, but also of the so-​called “New Policy Agenda” (Edwards 1994) and post-​Washington Consensus (Birdsall & Fukuyama 2011) in development discourse, combining an emphasis on good governance with neoliberal market-​based state restructuring. The specific rationale, in the Latin American context, for conditional (as opposed to unconditional) transfers to households in extreme poverty was set out by Ariel Fiszbein, Norbert Schady and colleagues (Fiszbein et  al. 2009) in a briefing paper for the World Bank. The authors note the understandable reasons for which children are kept in work rather than being sent to school; the immediate household need is for income in the present to enable the family to survive. As credit markets are imperfect, it is not possible to access affordable credit to meet these needs in the present on the basis of the future earning potential of one’s children. Furthermore, they note, even if such financial services were available, people do not always understand 79

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the future value to be gained in educating and taking care of their children. CCTs offer a low-​cost method of both meeting these immediate needs while also preventing households from wasting this future potentiality. In order to achieve this, in a similar manner to Más Familias en Acción in Colombia and Programa Bolsa Família in Brazil, POP featured two key areas of co-​responsibilities: health and education (nutrition is folded into the co-​responsibilities of health). Under the Prospera programme, obligations in education were relatively simple, being measured by level of attendance at school. Health co-​responsibilities were, in contrast, extremely elaborate, featuring attendance not only at scheduled health appointments but also “educational communication activities (or workshops) aimed at self-​care” (Dávila Lárraga 2016: 32). This reflected not only the expansion of conditions across the course of POP (Kidd 2019), but also the extent to which it involved significant intervention into the intimate lives of recipients and their families. The World Bank toolkit released in 2018 suggested expanding these conditions to include mandatory workshops in financial capability, given the risk that families will not best understand how to utilize their payments or access the financial services needed to, for example, meet these financial needs in the present on the basis of future earning capacity (World Bank 2018:  20). Research into the benefits of POP and similar programmes of contractual governance had made bold claims for public health (see Gertler & Boyce 2001; Lagarde et al. 2007; Cecchini & Soares 2014; Gaarder et  al. 2010) and educational benefits of CCT systems. It was on the basis of this that institutions such as the World Bank saw such potential for leveraging payments to achieve financial inclusion objectives in the short term, in addition to the long-​term investment in human capital enabled by educational attainment and preventative health measures (Johannsen et al. 2010). Considering the excitement over the use of CCT systems to enable financial inclusion objectives through the incorporation of workshops and other training measures, it is important to recognize the levels of resistance to and frustration with this contractual means of enforcing certain behaviours. Ethnographic research into CCT programmes across Latin America and elsewhere has highlighted multiple contradictory and self-​defeating effects of CCT programmes. Most alarming among these is the ubiquitous and significant abuse of power by those administering payments –​abuse that 80

The case of conditional cash transfers

was exacerbated by the expansion of conditions and enabling of greater intervention into the private lives of the poor (see Harrington 2011: 83). Cookson described the widespread presence of “shadow conditions” (Cookson 2019: 69) –​whereby recipients were forced to carry out a variety of other tasks, knowing that their payments were at risk if they did not stay on the right side of those with control. The broad field of evaluative studies praising the successes and potential of CCT programmes rarely considers the effects upon claimants’ everyday lives of the contractual mechanism through which these changes were achieved. They leave to one side the effects upon marginalized and indigenous groups of these new forms of attendance and reporting to doctors, teachers and other figures of authority. They discounted the possibility that individuals and communities might have their own understandings of how their children can best contribute to the wellbeing of the household, and of the best forms of family and household composition –​it being assumed that the nuclear, two-​parent family is the default format that all households should follow (Dapuez 2019). As Fotta and Balen (2019) describe the effects of CCT programmes, while recipients might be financially included, this had come at the cost of a significant rearticulation of their everyday lives and relationships, resulting in widespread resentment towards the tool of this inclusion. When Prospera was abruptly abolished in 2019, Stephen Kidd of the Development Pathways consultancy argued that the lack of opposition to the move stemmed from the widespread unpopularity of the programme. In addition to distinct failures in its targeting mechanism, he cited also the deep resentment and anger among the poor over the punitive use of sanctions, conditions and obligations (Kidd 2019). Conclusion: achieving financial inclusion by other means Conditional cash transfer (CCT) schemes were heralded for their financial inclusion potential for a number of reasons. As transfers shifted to electronic or digital payments to be made into recipients’ bank accounts, they forced poor communities to engage with the formal financial sector. Having opened a bank account, they would then be introduced to the range of services that the formal sector could offer. In a similar manner to Chapter 2, these communities would be drawn away from ROSCAs and other informal 81

Financial Inclusion

savings practices, and local moneylenders, and could draw upon the significant benefits of formal savings, credit and insurance products. Yet such benefits would not work unless recipients changed their financial behaviours; thus the delivery mechanism could be tweaked to enhance understanding and capability, either through explicit conditions or hidden nudges. Over the long term, the investment in human capital enforced through reciprocal obligations would stop the reproduction of poverty, ensuring that future generations would not experience the same barriers to inclusion as their parents. Financial inclusion named a long-​term political project aiming to fully transform the financial subjectivity of the poor. As an example of “fast policy” (Peck & Theodore 2015), CCTs spread rapidly across the Global South, and were seen to occupy a central role in the future of global financial inclusion policy at the World Bank particularly. Rather than financial inclusion being promoted as a standalone strategy or intervention, it could be facilitated through these large-​scale welfare infrastructures, building upon the existing need of unbanked communities for financial support. Indeed, as the World Bank described this in their toolkit for incorporating financial capability into cash transfer programmes, this need could be leveraged to change the practices of the poor. As microcredit was clearly failing to fulfil the World Bank’s emphasis upon “responsible and affordable” services, the potential of CCT programmes to facilitate access to a broader array of services, and to foster intergenerational inclusion, led to it occupying a central role in financial inclusion circles. As Masino and Niño-​Zarazúa (2020) and others have shown in the case of the Progresa-​Oportunidades-​Prospera (POP) programme in Mexico, there were some financial inclusion effects as payments were moved to a digital format, with a small increase in claimants opening bank accounts and engaging with financial services. CGAP (Marulanda Consultores 2015) similarly noted a small amount of recipients using the mobile wallet into which their Más Familias en Acción payments were made to save money. Yet the experience of POP and CCT programmes more broadly raise significant questions about the use of existing welfare infrastructure, in particular where this is based on a form of contractual governance, as a tool for enabling financial inclusion. By rendering the welfare payments that families relied upon to survive as a site of leverage, there is significant potential for shadow conditions to take root as reflections of existing power imbalances, leading to resentment and anger against a mechanism that seeks to change 82

The case of conditional cash transfers

your life without any understanding of the existing structural conditions and financial needs that define that life. Such questions are central to the following chapter of this book, where I explore how financial inclusion can be enabled by specific technological developments through the case of mobile money. What is notable in the case of mobile money is the way in which it grew around and through these meanings and practices, rather than being forced upon them based upon enlightened understandings of how the poor should allow financial institutions and services to play a greater role in their lives. Through this final story of financial inclusion I begin to sketch out how a definition of, and agenda for, critical financial inclusion might be proposed. This would be based not upon presumptions of how marginalized groups should use and interpret money and finance, but would instead work with and from the existing ecologies of practice in specific places and communities.

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7

Financial inclusion as transformations in financial practice: the case of mobile money

In previous chapters I explored various ways in which financial inclusion has been promoted and facilitated by states, NGOs and financial institutions. Each chapter worked through the programmes and interventions that composed financial inclusion strategies in specific domains, noting in each case how these were directed and shaped at some distance from users’ needs and practices. In contrast to these top-​down images, this chapter explores the case of mobile money, often presented not only as the clearest success story of financial inclusion in the 2010s, but also of how transformations in financial practices can be driven by the creativity and innovation of hard-​ to-​reach communities and individuals themselves. Mobile money thus presents a distinct strand of financial inclusion. It provides, perhaps, the clearest and most striking story of communities who had no previous access to banking services being drawn into the formal financial sector. Yet these considerable achievements are inextricable from broader changes in how these communities related to and used money. The story of mobile money can be characterized as one of uncontrolled financial inclusion, where change is driven by communities’ reinterpreting and repurposing technologies to meet their existing financial needs. Mobile money: overview Mobile money has been widely celebrated as a tool of financial inclusion for a number of reasons (see, variously, Smith et al. 2011; Riley & Kalathunga 2019; Ndung’u 2017). It enables inexpensive, prompt and smooth payments and transfers across broad geographic distances (Hughes & Lonie 2007;

85

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Gosavi 2017), specifically in rural communities where the reach of the formal sector is poor (Duncombe 2009). It brings users into contact with a broader array of financial services and financial education programmes –​ opportunities that continue to broaden as mobile money practices switch to smartphone-​based systems. More broadly, mobile banking has been held to promise a complete reorientation of banking and payment systems in the Global South; free of the heavy infrastructures of retail banking, it is better able to support the small-​scale, low-​value transactions that suit rural communities (Kendall et al. 2012: 62; CGAP 2009: 11–​24). Indeed, as an entirely new payments system, it promises an entire reorientation of the world economy (Kendall et al. 2012). Discussion of the initial development, implementation and potential of mobile money is dominated by the story of one particular payment network: the M-​PESA system introduced in Kenya in 2007. The success of M-​PESA is often illustrated through a series of (startling) numbers; as of 2019, 73 per cent of the adult Kenyan population had access to a mobile account, with M-​PESA remaining the dominant player in the field (Navis 2019). Furthermore, this impressive level of take-​up is only slightly lower among women and the poorest 40 per cent of the population (Riley & Kalathunga 2019), leading to it often being presented as the greatest financial inclusion success story of the twenty-​first century (see, e.g., King & Heyer 2016). Having been developed to operate on the handsets that were in widespread use across sub-​Saharan Africa, the M-​PESA system, alongside similar systems in Tanzania, Uganda and elsewhere in the region, spread at an extremely swift rate from the late 2000s onwards. This rapid adoption of the financial opportunities offered by mobile phone technology placed sub-​Saharan African nations far ahead of Western economies, where mobile payments only became commonplace with the later advent of smartphones. However, as I explore in this chapter, the focus upon scale, speed and volume that characterizes observations on the financial inclusion effects of M-​PESA and mobile money more broadly can miss the ways in which these systems achieved much broader changes in how people used and related to money. To explore this, I look also in this chapter at how financial practices and relationships in Kenya were changed by the switch to M-​PESA as the primary means of transferring money and making payments. 86

The case of mobile money

M-​PESA M-​PESA (pesa is the Swahili word for “money”) was launched in 2007 by Safaricom, the largest network operator in Kenya, as a mobile-​phone-​based system through which customers could make payments to other registered users. Mobile money, held in an e-​wallet linked to the user’s SIM card and mobile account, could be purchased for cash at an M-​PESA agent. These funds could easily be transferred to another user’s account using the M-​ PESA menu on the phone. M-​PESA used the SIM Toolkit (STK)1 technology to create this functionality; based in the SIM card (rather than the phone), this system ensured that users could access their M-​PESA account no matter which handset they were using. Support for the project was provided by Vodafone –​Safaricom’s parent company  –​with funding from the UK Department for International Development (DFID). The reasons behind Vodafone’s investment in the project, as well as DFID’s recognition that financial inclusion might be driven by private enterprise (in this case telecoms operators) rather than states or NGOs, were set out in an early report on the success of the system by one of the Vodafone developers. Since the creation of money, the ability to move it from A to B –​the so-​called “velocity of money” –​has been a fundamental cornerstone of economic activity. But the issue is exactly how money transfer is made to happen in an emerging market where the infrastructure is poorly developed and where very few people have or even want bank accounts. Under such circumstances, moving cash is risky, expensive, and slow. Enter telecom network operators, who can adapt mobile technology to deliver financial services in a fast, secure and low cost way, especially in developing parts of the world where microfinance institutions have begun to spread and begun to build an infrastructure. (Hughes & Lonie 2007: 65) M-​PESA was initially developed as a mode of facilitating payments to microfinance institutions and banks (Hughes & Lonie 2007: 70); it was a 1. The alternative was the unstructured supplementary service data (USSD) system used by Vodacom in Tanzania. 87

Financial Inclusion

way of solving the back-​end problems faced by these financial institutions (Tankha 2016: 99). The benefits of the payment system quickly became clear. As many of the agents who would facilitate transfers were already-​existing airtime (mobile phone credit) sellers, there was no need for investment in new branches. Given that airtime sellers were already present across the country, the system could reach rural and impoverished areas without formal banking services. As the mobile operator could track transactions, it removed the risk of money being stolen or lost during the transfer process. The physical infrastructure needed, namely mobile phone towers, already existed and could run independently of the electricity grid (Tankha 2016: 99). During the pilot, while M-​PESA proved to be useful in facilitating direct payments, it became clear that its real potential for growth lay in person-​to-​ person money transfers, most frequently in the form of intra-​national (typically urban–​rural) remittances (Moracynski 2009:  510; Hughes & Lonie 2007: 71). Remittance payments became key to the success of M-​PESA, a point quickly recognized by Safaricom in its early marketing, which focused upon the phrase “send money home” (Kusimba et al. 2016: 270). Previous to M-​PESA, the significant cost of existing money transfer channels in the formal sector led most users to turn to informal channels such as sending it with family and friends or through the post office, which themselves carried significant risks and additional costs (Camner et  al. 2009:  6; Moracynski 2009: 515). M-​PESA rapidly transformed this market, providing a reliable and cheap way for urban workers to send money to their rural families. One measure of the initial success of M-​PESA in this respect was that, by 2011, M-​PESA already handled more transactions in Kenya than Western Union did globally (Kendall et al. 2012: 51). By the middle of the 2010s, M-​PESA had expanded from payments and transfers to become the platform for a much more diverse set of practices, uses and innovations  –​a payments ecosystem that played an increasingly important part in everyday financial lives within Kenya (Tankha 2016). Indeed, by 2012, Kendall et  al. had already observed that those financial service institutions that had not integrated, or were not seeking to integrate, their business with the M-​PESA framework were in a clear minority (Kendall et  al. 2012:  53). Banks, credit providers, insurance companies –​all were striving to add mobile functionality to their services through M-​PESA. The most fully integrated at the time was the M-​Kesho 88

The case of mobile money

banking service (run by Equity Bank in partnership with Safaricom), which enabled a smooth circuit of deposits and withdrawals from the bank account and the e-​wallet through the same STK-​based system. At the margins of the formal financial sector, Kendall and colleagues noted the range of startups that had sprung up providing financial services oriented primarily to M-​PESA platform integration, including mobile-​based pensions services and insurance providers (Kendall et al. 2012:  54). Following the relatively low take-​up of M-​Kesho, the field of mobile banking (and borrowing) became dominated by Safaricom’s M-​Shwari product –​a banking platform launched in partnership with the Commercial Bank of Africa (see Morawczynski & Seltzer 2014). By 2015, one third of M-​PESA users were using M-​Shwari –​one fifth of Kenyan adults (Cook & McKay 2015). The analyst Wiza Jalakasi termed this initial period of development “mobile money 1.0”. Based upon STK or USSD technologies that could be used on non-​smartphones, the dominant players in mobile money development were the telecoms operators who ran the networks: Safaricom in Kenya, Vodacom in Tanzania and the MTN group across much of the rest of Africa. Other services sought to work with mobile money platforms rather than replace them. This changed with greater use of smartphones, and the advent of “mobile money 2.0” (Jalakasi 2019). As of 2020, Safaricom’s dominance in the mobile money field through M-​Shwari and M-​PESA, both of which are now predominantly used as smartphone apps, is challenged by traditional banks offering app-​based banking services and a diverse range of app-​based loan companies such as Tala, Branch and the Nigerian firm Carbon. According to the Central Bank of Kenya, the outcome of these different stages of mobile money development has been a considerable increase in access to financial services:  from 26.7 per cent of adults in 2006 to 82.9 per cent in 2019 (Central Bank of Kenya 2019: 8). To fully understand the financial inclusion effects of mobile money, however, it is important to look beyond such quantitative measures of the reach of services to examine how, when and why they are being used. From the perspective of Vodafone, DFID and other major institutions facilitating the development of M-​PESA and mobile money more broadly, it was assumed that M-​PESA would simply facilitate existing forms of exchange, saving and borrowing. That is, people would use mobile money 89

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much as they use money –​albeit more smoothly and efficiently. The primary concern on their part was that stores of mobile money would not exceed the real money that lay behind it, risking the danger that they might find themselves “in the unfortunate situation of creating currency” (Hughes & Lonie 2007:  69). Yet, as financial ethnographies in East Africa have portrayed, mobile money is used in a different manner, carrying its own forms of meaning and sources of value, and has indeed become something akin to an alternative currency. In order to understand this, it is important to take a step back, examining how uses of M-​PESA developed from existing practices of airtime gifting. Mobile money and airtime gifting As Bill Maurer argues, the drive to develop M-​PESA came as much from a desire to achieve economic growth and financial inclusion as from a regulatory concern over the growing practice of sending or gifting airtime minutes. This was a form of financial innovation common across East Africa, in which, as Jan Chipchase (2009:  20) noted when observing the varied and complex uses of airtime in Uganda, “the driver for innovation is coming from the street”. The gifting of airtime is the act of buying a code for mobile phone credit and, instead of using that code yourself, texting it to someone else. That other person might simply convert the credit into actual airtime. However, they might save it, hanging on to the code until they need it, or they might in turn transform it into cash or commodities through an agent for a small commission. As such practices developed and complexified, it became difficult to distinguish the value stored in airtime codes from actual money (Maurer 2015). On the surface, the sending of airtime does not appear so different from the value stored in a gift voucher or other supplement to cash money; it simply provides an easier and more accessible way to store and send value. Yet what makes airtime gifting interesting are the meanings attached to the transfer. Sibel Kusimba and colleagues (2015:  3) noted that there are implicit messages in the gifting of airtime; most commonly it communicates that the person should call you. They noted how gifting can be a form of flirtation or expression of affection; it can create, reanimate or deepen intimate connections. The transfer of airtime was as much 90

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a transfer of value as a communication: telling the receiver how you felt about the relationship. As described above, M-​PESA built upon the existing infrastructure of mobile phone networks. Yet it was also the case that the use of mobile money built upon the established practices of, and meanings attached to, airtime gifting (Kusimba et al. 2015; Maurer 2015). As Kusimba et al. described, transfers of mobile money were similarly tied to the etiquette and mores of mobile phone use; not only might transfers be used to create and strengthen bonds with friends and relations in a communicative manner, but there were also limits to when such transfers would be appropriate based upon to whom it would be rude to send a text. Having realized that the growth of M-​PESA was being driven by its usefulness for these personal transfers rather than direct billing, as noted above, the early advertising for M-​PESA reflected this communicative dimension. This communicative dimension of mobile money was central to the ways in which, as the flows of financial transfers between and across families switched to M-​PESA, networks of obligation and reciprocity were reshaped. The ease, efficiency and reach of M-​PESA had broadened the network of family and friends that can be called upon for regular or one-​off financial contributions. It has also assigned a new form of power to individuals, typically women who, occupying a pivotal role in the hearthhold, play key bridging roles between networks –​for example, between generations, households or different wings of a family (Kusimba et al. 2015, 2016). As Kusimba (2018: 258) later described, mobile money has fundamentally changed the way that women act upon and interpret money. Kenyan women’s financial agency does not seek to individuate money; rather, their relational work builds on the connectivity of digital technology, binding their economic agency to others’. Relational work with digital finance produces dynamic and asymmetrical social ties. Within these ties and with the material agencies of technology, such as distributed ledgers, women seek to create themselves as “trustworthy”; as people with “prestige and recognition”; as people who respond right away to “a test of my generosity”; as people who “know what’s happening”; or as people who, like a boat or a bus, carry and give mobility to others. 91

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Mobile money as financial inclusion The implementation and development of M-​PESA carried a clear financial inclusion narrative; it would allow unbanked communities to pay their bills directly and access financial services, enabling them to save, borrow and send without the risks and costs attached to the informal routes for such activities. There is considerable agreement among business, NGOs and other observers that the financial inclusion benefits of M-​PESA have been considerable. For the 21 million users of M-​Shwari in Kenya (Central Bank of Africa 2017), the mobile phone now offers easy access to a broad range of formal financial products, including savings and credit-​checked loans, reducing the use of informal methods such as ROSCAs. It has considerably reduced the percentage of intra-​national remittance payments made by informal means (Camner et al. 2009) and of inter-​national remittances made through Hawala2 systems (Ndung’u et  al. 2017). M-​PESA is hailed as the central reason for which use of “informal financial services have declined from 35.2% in 2006 to 7.2% in 2016” (Ndung’u 2017: 2). Yet the celebrations of M-​PESA and mobile money as tools of financial inclusion rarely consider the ways in which informal and formal financial practices overlap, or how M-​PESA has reshaped this distinction. In contrast to the image of unbanked households as living simple or unsophisticated financial lives, it is important to stress that rural communities in East Africa were always involved in a complex array of practices –​borrowing and lending, saving for school fees, collecting and pooling money in ROSCAs –​ in which financial and non-​financial transactions and obligations were intertwined (Shipton 2007). Mobile money created formal opportunities for individuals to meet their financial needs, yet it was also drawn upon to facilitate and reshape informal practices. Indeed, the story of M-​PESA and financial inclusion is as much about the spread of banking apps and secure channels for remittance payments as it is of user creativity in using the technology to transform the existing ecology of informal practices, as can be illustrated through two key examples. 2. Hawala systems are informal arrangements for transferring money over large distances through networks of brokers. The system relies upon the trust and upholding of honour between the brokers, as typically no money is sent at the time of the transfer; debts between brokers are settled at a later date. 92

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The first example concerns saving, specifically the informal form of saving that has long been lamented by Western observers of financial practices in the Global South. This is what Kusimba et al. (2013), describing the savings function of remittance payments, term “saving through entrustment” (see Shipton 2007, on the concept of entrustment). Remittance payments drove the growth of M-​PESA and came to be the symbol of mobile money 1.0. Yet there remains some confusion in certain circles (see, e.g., Smith 2019) as to why migrant workers, rather than investing their surplus income in profit-​ making investments or saving it in bank accounts, continue to choose to send it home in the form of remittance payments. “Saving through entrustment” describes the way in which such transfers are not simply a matter of obligation; they are a way of maintaining connection with physically distant family networks, and in many cases upholding and solidifying claims over land and assets inherited patrilineally (Morawczynski 2008: 113). In communicating a message that the obligation to the rural has not been forgotten, remittance payments achieve a savings effect whereby financial value is transformed, through the communicative capacity of the transfer, into trust and relationships that provide security and stability across the life-​course. Mobile money not only expanded the amounts of money being sent by migrant workers by providing easier and more efficient payment channels (Morawcynski & Pickens 2009); it is also the case that it was driven by the informal way in which these same workers were choosing to save their money. The second example concerns rotating savings associations, or ROSCAs, discussed previously in Chapter 3. Known as “chamas” in Kenya, ROSCAs are informal or semiformal (as they are classified by the World Bank Findex reports (Demirgüç-​Kunt et al. 2018)) financial arrangements (see Bouman 1995) that build upon the practices of assistance, solidarity and sociality between women (Guérin 2006). They supply an important savings function, but are also valued for providing a social space outside of the observation and control of husbands and other family members. As discussed below, the fact that payments could now be made without physical proximity (which carried travel and other costs), and with a degree of secrecy, was considered a problem for certain MFIs reliant upon group lending arrangements. In contrast, Iazzolino (2015) and Kusimba et  al. (2018) both noted that in the ROSCAs they observed groups had been quick to embrace the positive potential of mobile money payments, while 93

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maintaining a focus upon the social value of regular physical gatherings. Mobile money had made maintaining payments simpler and, for the ROSCA treasurer, easier to guarantee (Iazzolino 2015: 26). Furthermore, the running of ROSCAS through M-​PESA was enabling new types of groups to form, freed from the necessity of regular physical contact. Kusimba describes these mobile-​oriented ROSCAs as “floating worlds”:  collectivities bound by a shared profession or other financial interest, where interactions and payments are coordinated through WhatsApp groups rather than physical proximity (Kusimba et al. 2013: 5). M-​PESA and microcredit Of the different financial services into which unbanked populations have been included, it is important to pay particular attention to the possibilities for formal borrowing from microfinance institutions (MFIs). Not only did MFIs play a key role in the development of M-​PESA, but given the growth of mobile-​based unsecured lending, they also dominate discussion of where it is going. Hughes and Lonie, reflecting upon the M-​PESA pilot, noted an unwelcome effect of mobile money from the point of view of Faulu, the microfinance initiative involved in the pilot. It was clear that the vast majority of group members strongly appreciated the convenience and security benefits from using M-​ PESA for loan repayments. This was not entirely good news for Faulu [The MFI]; clients no longer had the same compelling need to attend the weekly group meetings. Opinion is divided upon the value of MFI group meetings generally; Faulu was strongly in the supporters’ camp and consequently found the drop off in attendance disturbing. (Hughes & Lonie 2007: 76) From the perspective of Faulu, M-​PESA, by enabling discreet payments outside of the group meeting context, was seen to have destabilized the communal setting in which the authority and narrative of the enterprise had been built. The field of microcredit switched to embrace direct payments,

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either using group meetings to focus upon other business matters or, as has predominantly been the case as the field developed, offering micro-​loans outside of the group lending setting. The most prominent such lending service is the M-​Shwari platform, on which loan eligibility is decided by a credit scoring algorithm (Cook & McKay 2015: 5). As these direct loans, whether offered by M-​Shwari or other mobile lenders, have expanded and dominated the microcredit market (Donovan & Park 2019), it has been argued that Kenya and other markets in East Africa are following a similar trajectory to those described in Chapter 3, with large amounts of unsustainable debt being accumulated by vulnerable borrowers. It was microcredit that drove the development of M-​PESA; it is also microcredit that is raising alarm calls in academic and other reporting about the negative effects of financial inclusion in East Africa. As one such story begins: Across conversations in Kenya’s pubs and WhatsApp groups, debt is on everyone’s mind. The speed and ease of access to credit through new mobile apps delivers cash to millions of Kenyans in need, but many struggle to repay. Despite their small size, the loans come with a big cost—​sometimes as much as 100 percent annualized. As one Nairobian told us, these apps “give you money gently, and then they come for your neck.” (Donovan & Park 2019) The turn to high-​cost credit and its effects upon borrowers continues the cautionary theme developed in Chapters  3 and 4; the financial inclusion of new groups presents the possibility of financial exploitation, in which the risks of unchecked financial growth, driven by an uncritical celebration of financial inclusion, are borne by vulnerable borrowers. Yet this should not divert from the distinctiveness of mobile money as a story of financial inclusion. Above all, the growth and development of mobile money as a field of financial practice demonstrates how user creativity and ingenuity can create new possibilities for action that are incidental to the goals and objectives of states, NGOs and banks. Tracing the history of mobile money, the prevalence of informal spaces and practices can be seen not so much as an obstacle to be overcome, but rather as a set of knowledges and practices that might be drawn upon to define what role formal financial tools can play in people’s lives.

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Conclusion: re-​making  money The advent of mobile money, and its significant positive effect upon access to formal financial services, was seized upon by the major players in the financial inclusion assemblage and now sits at the forefront of financial inclusion policy in the Global South. For the World Bank, Accion and others, the clearest and most direct path to enabling financial inclusion is the widespread adoption and repurposing of mobile phones. As Philip Mader describes this shift: “On the coattails of M-​PESA’s rise to fame, mobile payment systems have emerged as the grand new frontier in the financial inclusion community’s collective imaginary” (Mader 2016: 69). When considering the path-​breaking role played by M-​PESA, it is worth remembering that East Africa, located on vital shipping and trading routes through the Gulf of Aden, has long been a space in which Western technologies have been reappropriated and repurposed for local needs. Hailed as the “Silicon Savannah”, the technological ingenuity and complex financial infrastructure in Kenya was celebrated throughout the 2000s and 2010s (Gathigi & Waititu 2012). While the East African nations might no longer be at the forefront of mobile money development (China is now argued to have the most extensive network of mobile money users), understandings of how mobile telephone technology might transform financial practice were forged in this specific context. I have emphasized in this chapter how, when considering M-​PESA as an enabler of financial inclusion, we have to look beyond quantitative measures for expanded access to formal financial services. That is, rather than measuring the financial inclusion effects of mobile money in terms of existing understandings of money and finance, we have to take seriously Sibel Kusimba and colleagues’ (2013: 5) observation that “mobile money and airtime transactions are a form of social contact that follows the etiquette of mobile phone use”. If mobile money can be argued to have achieved certain financial inclusion objectives in the lives of rural and other marginalized communities, it did so while also recomposing these practices in line with the specific dynamics of mobile communication. This raises a series of fascinating questions. What does it mean to have a money system that binds so tightly to the practices, mores, assumptions, expectations and obligations of mobile phone communication? And second, what does it mean for financial inclusion if this process is driven 96

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not by assumptions about how people should use finance, but rather from users’ own creative considerations of how mobile phone technology can best facilitate their own financial needs? In the other stories examined in this book financial inclusion is assumed to denote involvement in the forms and practices of finance enjoyed by those who are already included. Focusing upon the extension of microcredit through the M-​Shwari product, a cautionary tale similar to those explored in earlier chapters could be told in this context: of how the identification and incorporation of an excluded population enabled an expansion of exploitative lending, loading significant risk onto vulnerable consumers. Yet this would be to miss how the story of M-​PESA is also that of lives and relationships being fundamentally transformed as a result of their changing relationship to finance. Mobile money became a mode of smoothing the distribution of money between networks, of mitigating the worst effects of disasters and of saving for educational expenses; indeed, all of the assumed benefits detailed in the other chapters of this book can be observed in the uses made of mobile money. Yet these were achieved, to a large extent, through people finding their own ways to leverage the capacities of mobile technology, reshaping their existing networks of obligation and entrustment in the process. Perhaps most importantly, mobile money has emerged as a key space for women to accumulate value and financial agency in a societal structure that otherwise precludes or restricts their choices. In addition to the prominent role played by mothers in managing remittance networks (tied to their central role in networks of communication between family members), we should note the technological creativity of women who used mobile money to enhance their abilities to save, budget and manage informal financial practices such as ROSCAs. In sum, M-​PESA presents a fundamentally different model of financial inclusion to those I have previously explored in this book. No longer is there an imaginary line of exclusion/​inclusion to be crossed –​a linear process of leading marginalized communities towards the benefits enjoyed by wealthier populations and countries. Rather, inclusion denotes creative involvement in the non-​linear process of reshaping financial systems and practices. It is this different form of financial inclusion that I set out in the final chapter of this book.

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Conclusion

Financial inclusion is an undeniably powerful and influential term, bringing together a diverse set of actors and shaping policy and practice across a broad array of settings. While its dominance is felt most keenly in development thinking, its roots lie in academic geography and social policy in the Global North, where issues of financial inclusion and exclusion are mapped over a longer duration of social change. Rarely in this literature is financial inclusion challenged. Its assumptions about how societal change occurs, about how the lives of the poor can be improved and about where previous development policies and social policy have gone wrong retain an unquestioned status, not only among the key players in the financial inclusion assemblage, but also among governments, international institutions and major financial corporations. Following Raymond Williams’ exploration of keywords, its positive emotional force and semantic flexibility give it a similar socio-​cultural role to the term “community”: the “warmly persuasive word to describe an existing set of relationships, or the warmly persuasive word to describe an alternative set of relationships” (Williams 1983: 76). The power of financial inclusion lies less in any specific societal changes it names (indeed, it can refer to a variety of opposing and contradictory policies and transformations). Rather, the influence of the term lies in its conveying of a fuzzy and happy feeling, promising positivity and inclusive change and a progressive project that everyone can agree on. It would seem immoral to argue against financial inclusion; as Philip Mader (2018: 464) asks, who would argue for financial exclusion? In seeking to pin down the meaning of financial inclusion, I  noted in Chapter 2 that the financial inclusion literature can be characterized by a set of key assumptions. The chapters of this book have surveyed the different

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modalities of financial inclusion: as a tool of poverty eradication; as a market-​ driven process of creating new markets from formerly excluded groups; as a form of intervention into the financial subjectivity of the poor; as a long-​ term political project seeking societal transformation; and as the everyday effects of user-​generated financial creativity. Another way of stating this is that the book has surveyed a range of contexts in which financial inclusion is at stake. Having explored this diverse terrain, I can now consider and assess these assumptions in a new light. Access rather than money The first assumption concerns the foundational belief that the lives of the poor would be better helped by enabling their access to financial services, rather than simply addressing their lack of money. This set of ideas is presented most clearly in Collins et al.’s (2010) seminal text Portfolios of the Poor. From this perspective, objectives of poverty alleviation and societal progress are best pursued by giving people the tools to adapt to the difficult financial situation they find themselves in. Rather than simply treating the poor as passive subjects in need of more money, this approach recognizes the existing complexity of their financial practices; it works with their capacities for creativity and resilience to enable them to better their own lives. For Guérin et al. (2012) and Mader (2018), there is an inherent danger in such an approach. By focusing upon a lack of services rather than a lack of income, it shifts attention away from the structural causes of risk and poverty such as an absence of stable employment opportunities. This absolves the state and the development sector of solving the politically difficult questions, such as addressing imbalances of power or challenging the exploitation of workers, leaving instead the far easier challenge of enabling financial services to expand into new markets. Throughout this book, problems of endemic poverty have indeed been a defining theme of people’s lives both before and after the arrival of financial inclusion; across these different settings, it is clear that it would be a mistake to look to financial inclusion initiatives as a catch-​all solution to poverty. Yet this is not to say that these initiatives do not have a profound and significant effect upon the lives of the target populations. Each chapter explored deep-​reaching changes both in the structures of exclusion and, following 100

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Fotta and Balen (2019), the “rearticulation” of people’s everyday lives and relationships. It would also be a mistake, that is, to ignore these transformations on the basis of opposing financial inclusion as a political project. The most critical observations one can make in this respect concern the ways in which, under the guise of financial inclusion, rather than disappearing, existing structures of oppression and marginalization simply took on new forms. In Chapter 4, I explored how, in the UK, United States and Europe, financial literacy and financial capability programmes have enabled a shifting of blame onto vulnerable consumers for the faulty decisions they were seen to have taken. In the UK, I traced how this occurred first through a blaming of the poor for taking on excessive amounts of unsecured debt, and second through their inability to budget sensibly under the impossible financial circumstances of austerity. In Chapter  6, I  explored how, under conditional cash transfer systems, the capacity to withhold and otherwise control financial supports enabled an exacerbation of gender-​and racial-​ based power relations at the local level. The chapter focused also upon how, at the transnational scale, researchers in economics were given access to the lives of the poor as playgrounds for ongoing experimentation. The positioning of CCT systems as the vanguard of financial inclusion intervention enabled experts to make arbitrary changes to the financial lives of the poor to test out theories of effective or sustainable inclusion. Yet, at the same time, we should not discount the range of ways in which access to financial services and information does indeed have beneficial effects for marginalized groups. As was detailed in Chapter 3, microcredit can be useful for women in rural communities seeking to refinance or consolidate existing debt obligations that carry stigma and unwanted obligations. Chapter 7 described how mobile money can provide migrant workers with an important opportunity to maintain family networks and allows women across society greater control over their financial practices. Chapter 5 finished by recognizing how financial capability components of debt advice, such as help with budgeting and gaining the knowledge and confidence to challenge and resist creditor enforcement practices, can provide a vital help to debtors in gaining control over their financial lives. However, it is important to note that many of these changes are poorly taken into account by financial inclusion models, in particular inasmuch as the benefits such transformations create are often non-​financial, being measured in terms of stronger family networks and improved mental health 101

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or physical wellbeing rather than financial success. So long as financial inclusion is bound to rigid models for what constitutes meaningful financial action and socio-​economic progress, it runs the risk of both reproducing marginalization and inequality, and missing the variety of beneficial changes that particular interventions do enable. Formal and informal The second assumption concerns the distinction between formal and informal financial services. This distinction sits at the heart of the key metric that defines and measures financial inclusion:  the World Bank’s Global Findex data (which now uses the term “semiformal” rather than “informal”). The Findex project records, across 140 countries, the percentage of users who draw upon formal and semiformal methods across a wide range of financial services. The Findex data are the definitive measure of success in financial inclusion. Social progress is defined by a reduction in the number of the unbanked: those surviving without formal bank accounts, savings, credit and insurance services and relying instead upon a range of informal or semiformal measures (borrowing from friends, family or local moneylenders, saving through ROSCAs or using the postal service for remittance payments). Examples of how these metrics are used as unchallenged indicators of progress can be found across the development field. Interpreting the substantial increase between 2011 and 2017 in the number of adult Indians recorded to have a bank account (from 40 to 80 per cent), analysts at the World Economic Forum conclude not only that fewer Indians are “excluded from the formal economy”, but that there must also have been a significant reduction in the number of people who are “financially weak” (World Economic Forum 2019). In Kenya and sub-​Saharan Africa, the success of mobile money as a tool of financial inclusion is measured primarily in terms of the extraordinary rise in the use of formal banking mechanisms it has enabled rather than the broader changes in society it has enabled. The problem with this distinction is that it poses separate and discrete domains of informal, semiformal and formal finance, with an unquestioned assumption that the latter is more beneficial and sustainable and better protects the dignity of consumers. Yet, what the history of microfinance 102

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in particular shows us is that new forms of formal financial services do not enter into a vacuum; they change and rearticulate existing financial practices. When addressing how formal services affect the lives of the unbanked, the financial inclusion literature has focused upon their financial needs and existing financial practices, detailing how these become smoother and more efficient as formal opportunities arise. Across this book I have explored the further factors that must be addressed when considering this question. First, it is essential to understand existing power relations at the local level, for example, those between the rural poor and the local figures who often exercise significant control over services, or between the women who are the nominal beneficiaries of a service and the male family members who assume control over it. Second, we must recognize that formal measures will sit alongside, rather than replace, existing financial practices and obligations, such as debts to friends, family and local moneylenders or participation in ROSCAs, or cash-​based saving (the “under the mattress” approach). As detailed in the chapter on microcredit, it is often not the cost or ease of microcredit that is useful to borrowers, but rather the fact that it is public, and as such in certain circumstances does not carry the same risk of stigmatization as other debts. Incorporating these broader considerations leads to a fuller image of the role played by formal services in the lives of the poor. It also reframes the questions of how financial inclusion strategies might draw upon and respond to the ingenuity of unbanked groups. Rather than simply enabling people to manage their finances or prepare for unknown futures, the lesson from these examples is that formal services can also be useful in mitigating and negotiating socio-​cultural challenges, such as refinancing shameful debts or enabling ROSCA payments when it is difficult for women to accumulate and transfer cash. Yet this goes both ways; ingenuity can also be drawn upon to exacerbate structures of oppression. Lamia Karim’s accounts of microfinance in Bangladesh portrayed the ways in which micro-​lending fitted into patriarchal relationships of power. The narrative of microcredit being a female-​ focused initiative was backed up by the overwhelming percentage of borrowers that were female. Yet it was men, typically family members, who enjoyed the benefits of the lending, while the women took on the financial and socio-​cultural risks and burdens of repayment and default. It was 103

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women, Karim detailed, who were made homeless, subject to gender-​based violence and stigmatization. Third, the moralized distinction between informal and formal hides the forms of exploitation that exist within the formal system. Indeed, such exploitation is given a veneer of validity and objectivity through statistical calculations of riskiness; the former exclusion of groups is priced into the services they are offered in the form of additional costs and risks. Operating in such a predatory fashion, formal services can exacerbate existing forms of inequality and segregation, targeting marginalized groups for highly detrimental products under the knowledge that they have no other options and have no capacity to challenge such forms of structural discrimination. Involving a broader array of stakeholders and partners In Chapter  1 I  presented a distinction between financial inclusion as an approach, as an institutional assemblage and as a set of effects. I noted that there is an important link between the first two of these terms; for one key strand of development thinking, named by Katharine Rankin (2013) as the “poverty finance” model, issues of inequality and poverty, as financial issues, are best dealt with through strategic partnership with the financial sector. A key assumption within the financial inclusion field is that poverty alleviation requires the building of a broad array of stakeholders and partners within the financial sector. Returning to a running theme throughout the book –​the relationship between financial inclusion and debt –​we can shine a light on how this assumption is often in tension with the desired effects of financial inclusion. Chapters 3, 4 and 5 all addressed a key paradox of the inclusion/​exclusion binary:  whether in mortgage finance, microcredit or other credit markets, one is included in a market, only to be excluded from certain legal protections and beneficial terms as a result of the pricing-​in of one’s previous exclusion. In contrast, in Chapter 8 I described a different relationship between financial inclusion and debt. The use of M-​PESA, initially created to facilitate payments to microcredit providers, became a story of how a financial technology could transform connections and relationships. Yet it is also microcredit, in the form of mobile-​based lending, that threatens to damage much of the inclusion work enabled by M-​PESA. If we take financial 104

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inclusion to name a set of effects enabled by financial access –​strengthening family networks, enriching lives, reducing stress and risk –​rather than a specific approach, microcredit can in fact be seen as a distinct hindrance to financial inclusion. The question raised by these examples is that of whether the interests of the financial partners brought in to assist with poverty alleviation align with these financial inclusion objectives. That is, to what extent does their involvement in the work of financial inclusion stem from a commitment to pursuing the personal and relational effects of poverty alleviation, and what role does the opportunity to develop new areas for profitable business play in this? It is important to note in this respect how, as Mader describes, the move from microcredit to financial inclusion indicates significant changes in the types of financial institutions that are involved in poverty alleviation in this way. The microcredit and microfinance fields had been dominated by lenders operating in specific areas, such as the Grameen Bank and Compartamos, and funded by microfinance-​focused institutions such as Accion. In contrast, financial inclusion, with its emphasis upon broadening the scope to encompass the full suite of financial services, allows for transnational concerns to move into new settings and occupy a central role in poverty policy. A good example of this is the growing influence of the Mastercard Foundation, which has (in partnership with CGAP) become a major funder of financial inclusion projects (see CGAP 2014), and for whom there is a clear business interest in facilitating a move to cashless payments. These larger concerns have been able to take a greater role in driving poverty alleviation policy as the focus has shifted away from simply providing credit to unbanked individuals, towards offering a range of financial services both to these individuals and the small and medium-​sized enterprises that employ them (Stein et al. 2013: 2). Mader notes that this transformation has implications for the costs placed upon everyday financial practices. Turning to the case of mobile money, with mobile (and card) payments there is a cost incurred in every transaction that is borne by the consumer, either directly or via increased prices. In the normalization of such transaction costs there is an opportunity for large financial institutions to establish profit streams from, in Randy Martin’s (2002) phrase, the financialization of daily life. However beneficial specific 105

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services might be, if the major beneficiaries are transnational corporations, there are legitimate concerns to be raised about the structural imbalance of power that results when the everyday financial practices of the financially included are established as a site of profit. The financial subject In Chapter  1 I  described two distinct axes upon which financial inclusion interventions could be placed. At one end of the horizontal axis were attempts to change conditions, while at the other were attempts to change the subject. Another way of framing this axis is in terms of the assumptions of subjectivity these two approaches share; at one end is an individual that desires to live their life through finance yet currently lacks the means to do so; at the other is an individual that must be educated to experience this desire, given the benefits it will bring them. Following Philip Mader, I described also a second axis. At one end are interventions facilitating intertemporal mediation, enabling households to smooth the movement of money between past and present. At the other are those focused upon inter-​spatial inter-​class mediation, concerning the smoothing of trade and services between different sections of society. This approach is held to enable broader societal change by enabling money to move easily between areas and groups, typically by enabling the poor to become micro-​entrepreneurs. By setting up new services and enterprises that will draw in capital from other groups, this approach allows the invisible hand of the market to smooth out entrenched inequalities. Returning to the desired financial subject described above, this axis can be seen as two distinct poles of financial subjectivity. On the one hand there is the subject that budgets and manages: who effectively organizes their money to meet their essential needs. On the other, there is the entrepreneurial subject who, through creativity and investment, turns money into more money. In each of the stories of financial inclusion explored in the book, I traced how financial inclusion programmes moved between these two poles of financial subjectivity. Microcredit was built upon the narrative that it would foster entrepreneurial projects, despite considerable evidence that it was used for everyday consumption needs and to manage existing debts and forms of obligation. In the UK, financial capability training was presented 106

Conclusion

as enabling poorer consumers to engage in the forms of asset-​based welfare enjoyed by the upper and middle classes, yet in practice was focused upon enforcing disciplinary practices: budgeting, restricting spending and refraining from accessing credit. Such movements make clear the extent to which the financial subject is constructed, reflecting the specific objectives of the development, financial and governmental sectors. Yet there is very little recognition that this subject is constructed in financial inclusion literature. It retains a quasi-​natural status; the only questions concern how to produce and facilitate it among marginalized groups. This lack of recognition is important, because it denies target populations the right to challenge these expectations for how they should act, and to resist the punishment and marginalization of consumers who fail to live up to this subjectivity. As a challenge to this assumption regarding the desired financial subjectivity of the poor, I wish to propose a model of financial inclusion based upon the creativity and resilience of poor and marginalized groups, not only in their financial affairs, but in managing the relationship between finance and life. This model of financial subjectivity has three specific factors: an ability to understand oneself and one’s own needs; a desire to gain a collective voice in challenging forms of financial exploitation; and, as a result, a capacity to collectively shape the forces of financial change. Taking this alternative model of financial subjectivity as a starting point, I wish to finish this book by proposing an agenda for critical financial inclusion. Critical financial inclusion In proposing a different model of financial inclusion, I  take a lead from the team of Moritz Hütten and colleagues (2018), who have collectively proposed the concept of “critical financial literacy”. They note that mainstream financial literacy programmes include no reflection on whether the financial services with which people are encouraged to engage should be questioned and challenged, and whether the training itself should assist people in playing this critical role. That is, rather than encouraging individuals to “adapt to circumstances portrayed as quasi-​natural” (Hütten et al. 2018: 9), financial literacy should instead be focused upon facilitating active political intervention into, say, the exploitative terms on which previously 107

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excluded consumers are included in credit contracts or the elevated insurance premiums faced by those in deprived areas. Hütten et al. point to the potential for greater citizen involvement in regulatory processes, as well as for greater citizen activism challenging the sites of profit accumulation within the financial system. They do not, they insist, “oppose learning about the financial system and financial service providers per se.” Their focus is instead upon changing the terms and objectives of this knowledge, away from passive adaptation to systems over which they have no influence, towards an active reshaping of the financial world. I wish to use this articulation of critical financial literacy as a starting point for a broader proposal:  an agenda for critical financial inclusion. This proposal begins from the recognition that the term financial inclusion should not be abandoned or ignored. As a term it names a set of actually occurring changes in the everyday lives of poor and marginalized groups: the widespread adoption of mobile phones; the switch to online banking; the genuine desire to challenge structural discrimination against historically marginalized groups; and the institutional recognition of the lives and needs of the rural poor. Through its sister term financial exclusion, it names the set of real problems, risks and costs that these same groups face. Rather than simply offering a critique of financial inclusion interventions and the financial inclusion assemblage, critical financial inclusion would recognize that such changes in financial infrastructures and practices are happening and that they hold the potential for mitigating and overturning these forms of exclusion, but would foreground the importance of including these groups in shaping how this happens. This book has detailed a tendency to assume that the expansion of access to financial services, whether driven by technological, social or institutional change, inevitably leads to financial inclusion. It has detailed how such forms of inclusion often hide multiple exclusions, such as access to the specific services and contract terms that might be most beneficial to them and an intensification of risk that leaves people further exposed to market changes or sudden drops in income. Yet, perhaps more ­importantly, what this confusion itself  betrays is how the poor are excluded from certain forms of control –​first over the processes through which financial systems are shaping their lives, and second over the narratives that define whether these changes are actually helping or assisting them. It shows the exclusion of the values and meanings they attach to money, at 108

Conclusion

the expense of the subjectivity and behaviours idealized within financial inclusion literature. I described how financial inclusion is often promoted as a critical narrative, challenging the notion that the poor do not have the ability to budget and launch their own businesses. What each of the stories recounted in this book has shown are additional areas of creativity and resilience: the ability to adopt new financial services when they serve existing needs; to adapt to models of financial subjectivity when they are required; and to understand how financial services and technologies might work better for them based upon their own social and financial practices. Yet each story has shown also, despite this creativity and resilience, the unerring tendency of such groups to become subject to new forms of exploitation, being systematically excluded from the spaces and discussions in which services and interventions are determined. While Hütten et  al. seek to foreground collective intervention into existing financial structures, critical financial inclusion would foreground collective intervention into processes of financial change. It emphasizes the importance of involving the collective voice of excluded groups in shaping the introduction and development of financial services and the process and metrics through which success is measured. It emphasizes that the meanings and values people give to money, as well as their existing financial practices and needs, are not things to be reformed as part of the financial inclusion process, but are rather things to be drawn upon in directing new financial services towards enhancing the physical, mental and relational wellbeing of marginalized groups. Such a model of critical financial inclusion involves rethinking the threshold that separates exclusion from inclusion. Throughout this book I have challenged the model in which individuals are to be included into a realm of formal financial services from which they have previously been excluded. Not only is this image deeply misleading, devaluing the meaning and value people ascribe to informal practices, but it also misses the range of benefits that can be accrued from changes in financial technologies and services. If we assume these changes to be happening, the threshold of exclusion/​inclusion becomes one of collective power and agency to affect the form, terms and structures of the financial services to which the unbanked are to have access. This means fully deconstructing the model of financial subjectivity on which financial inclusion has hitherto been based. Critical financial inclusion will be measured not by the enhanced entrepreneurial 109

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activities of the poor, or by their ability to budget, save and borrow. Instead it will be measured by, following Hütten et  al. (2018), the collective capacity of marginalized groups to challenge the financial sector. It will measure also, as I have detailed here, the extent to which diverse financial meanings and practices are incorporated into financial service delivery. If finance is ongoing transformation, critical financial inclusion is collective involvement of the poor in the processes by which this happens.

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125

Index

Accion   16, 17, 96, 105 Adato, M.   75 Adkins, L.   47, 48 Alliance for Financial Inclusion (AFI)   16, 17 Allon, F.   25, 46–​9, 50, 60 asset-​based welfare   44, 59–​62, 69, 107 austerity programme (UK)   49, 65, 68 Balen, M. E.   73, 74, 77, 81, 101 Bank of Tanzania   8 Bateman, M.   29, 35–​6 Berry, C.   37, 60, 69 Bill and Melinda Gates Foundation (BMGF)   17 Center for Financial Inclusion (CFI)   1, 7–​8, 16 Chipchase, J.   90 Citizens Advice service (UK)   59 Clarke, J.   61 Clinton administration (US)   44–​5, 49 Coalition government (2010–15) (UK)   53, 65, 66 Collard, S.   9–​10, 58, 67 Collins, D.   24, 100

Community Reinvestment Act 1977 (US)   43–​4, 45, 46, 55 Compartamos   29, 105 conditional cash transfer systems (CCT)   71–​83, 101 Consultative Group to Assist the Poor (CGAP)   18, 86, 105 consumption smoothing   10, 76 Cookson, T.   72, 81 Cooper, M.   40, 44, 45, 47, 48, 50 credit unions   55, 58, 61, 67 critical financial inclusion   108–​10 critical financial literacy   63, 107 Cull, R.   1 Dapuez, A.   75, 81 debt   29–​35, 48, 65–​70, 103 debt advice   58, 60, 64, 65, 69, 70, 101 enforcement   23, 24, 27, 33 multiple borrowing   29, 30, 33–​4, 35, 48 over-​indebtedness   57, 62, 64, 66, 68, 95 Demirgüç-​Kunt, A.   93 Equal Credit Opportunity Act 1974 (US)   43, 47

127

Financial Inclusion

Fair Housing Act 1968 (US)   41–​2 Federal Housing Administration (FHA) (US)   40–​1 feminization of finance   47–​50 financial capability   9, 13, 53–​70, 72, 75–​7, 80, 82, 106 financial exclusion   11–​12, 15, 40, 53, 54–​7, 58, 64, 67, 99, 108 in human geography   54–​6 financial inclusion ‘assemblage’ 14–​15, 17, 18, 71, 77, 96, 99, 104, 108 financial literacy   62–​5, 68, 72, 73, 76, 101, 107 financial nudges   77–​8 financial subjectivity   10, 19, 57, 59–​62, 67, 77, 82, 100, 106, 107 FINCA Bank   17 Fiszbein, A.   79 Fotta, M.   73, 74, 77, 81, 101 Gordon, A.   41 Grameen Bank   2, 17, 22, 23, 24, 25–​7, 28, 29, 30–​2, 105 Grameen Foundation   13, 18 Sixteen Decisions   27, 30 Great Financial Crisis   46, 53, 62 group-​lending model   26–​7, 28, 29, 32, 38, 93 Guérin, I.   28, 30, 32–​5, 100 HM Treasury (UK)   9, 57, 59, 61, 63, 64 House of Lords Select Committee on Financial Exclusion (UK)   2, 12, 67 Hughes, N.   85, 87, 88, 90, 94 Hulme, D.   30 Hütten, M.   62, 70, 107–​8, 109

128

Iazzolino, G.   93 Jalakasi, W.   89 Jones, P.   58, 64 Karim, L.   25, 26, 27, 30–​2, 35, 37, 103–​4 Karlan, D.   36, 78 Kashf Foundation   25 Kempson, E.   9–​10, 11, 12, 56, 57, 67 Kidd, S.   71, 74, 80, 81 Kusimba, S.   88, 90–​1, 93–​4, 96 Lazarus, J.   61, 64, 65, 68 Levitas, R.   57 Levy, S.   79 Leyshon, A.   1, 11, 12, 54–​6, 58, 67 Lomelí, E.   71, 73 Lonie, S.   85, 87, 88, 90, 94 Lusardi, A.   62 Mader, P.   10, 23, 29, 35, 37, 96, 99, 100, 105, 106 Marron, D.   43, 55, 57, 64, 65, 68, 69 Martin, R.   14, 61, 105 Más Familias en Acción (Colombia)   73, 74, 80, 82 Maurer, B.   90, 91 Maya Declaration on Financial Inclusion   1, 7, 16 McKay, S.   67 microcredit   2, 14, 16, 17–​18, 21–​38, 71, 94–​5, 103, 104–​5, 106 commercial turn in   29 lived experience of   29–​35 Milburn, A.   60–​1 mobile money   82, 85–​97

Index

mortgage finance   40–​51, 60, 68 mortgage-​backed securities   45 sub-​prime mortgage products   45–​50, 53 M-​PESA   86–​93, 94–​7, 104 M-​Shwari   89, 92, 95, 97 National Homeownership Strategy (US)   44–​5, 46 New Labour government (UK)   56, 57–​62, 64, 67, 68–​9 new policy agenda   79 Oliver, M.   42, 44 Peck, J.   72, 78, 82 Peck, P.   73 Personal Finance Research Centre (PFRC)   56, 57, 58, 61, 67 Personal Responsibility and Work Opportunity Reconciliation Act 1996 (PRWORA) (US)   44, 48–​9 Policy Action Team 14 (PAT 14)   57, 58, 61, 67 Programa Bolsa Família (Brazil)   74, 80 Progresa-​Oportunidades-​Prospera (POP) (Mexico)   73–​5, 82 Rahman, A.   25, 32 randomized control trials (RCTs)   77–​8 Rankin, K.   37, 104 Reddy, R. V.   2 redlining   40–​3

reverse redlining   43–​7 Robinson, M.   22–​3, 24, 28 Roodman, D.   36 Rotating Credit and Savings Associations (ROSCAs)   28, 76, 81, 92, 93–​4, 97, 102, 103 Rowlingson, K.   67 Roy, A.   28, 30, 36 Rozas, D.   27, 28, 35 Safaricom   87, 88, 89 Schwittay, A.   14, 71 Self-​Help Groups (SHGs) (India)   27–​8, 32, 33, 34 Shapiro, T.   42, 44 Shipton, P.   92, 93 Social Exclusion Unit (UK)   57, 67 Soederbergh, S.   48 Theodore, N.   73, 78, 82 Thrift, N.   1, 11, 12, 54–​6, 58, 67 United Nations Capital Development Fund (UNCDF)   21 Welfare Reform Act 2012 (UK)   48 Williams, R.   99 Willis, L.   65, 68 World Bank   1, 7, 15, 17, 18, 28, 31, 62, 63, 71, 72, 75–​7, 78–​9, 80, 82, 96 Global Findex database   15, 18, 93, 102 Yunus, M.   13, 17–​18, 22, 23, 25–​6, 29, 79

129