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financial exclusion

  The process by which poor and disadvantaged groups are directly and indirectly excluded from the financial system and denied access to mainstream retail financial services. Financial exclusion plays an active part in the production of urban and rural poverty, because those who experience the most difficulty gaining access to financial services tend to be experiencing multiple forms of social deprivation (Leyshon, Pratt and Thrift, 1999).

Processes of financial exclusion operate at a range of spatial scales. During the 1980s the less developed countries\' debt crisis meant that much of sub-Saharan Africa and most Latin American countries were cut off from the international financial system, so that processes of economic development were stalled or even put into reverse (Corbridge, 1993). Most studies have analysed financial exclusion at lower levels of aggregation, however, and in particular focused on financial exclusion at regional and sub-regional scales within industrialized economies such as the United States and United Kingdom.

Access to mainstream financial services within contemporary capitalist societies is important because many economic exchanges are now mediated through banks and other financial institutions in the form of direct transfers between accounts. Without a bank account, individuals and households may have to pay more for certain services (those provided by utilities, for example), to cover the extra cost and risk incurred by service providers in handling cash. Excluded individuals will also find it difficult to obtain affordable credit, and may be forced to resort to the more expensive credit facilities provided by \'predatory\' financial services firms, such as money-lenders (Dymksi and Veitch, 1996; Leyshon and Thrift, 1997). Moreover, an inability to obtain affordable insurance means that households cannot shield themselves from risk, and are forced to bear the full financial consequences if they become victims of criminal action, accidents and environmental hazards (such as floods or storms, for example).

Geographers first became concerned with the equity effects of the retail financial system during the 1970s when, influenced by radical geography, researchers analysed the role played by financial institutions in the creation of urban and rural poverty. Initial concerns focused on urban housing markets and the ways in which banks and realtors (in the US) and estate agents (in Britain) engaged in redlining urban space to deprive certain communities of mortgage finance, thereby slowing the turnover of housing stock in such areas and locking them into a spiral of social and infrastructure decline (cf. urban managers and gatekeepers).

Geographical interest in financial exclusion declined during the 1980s. Regulatory reform opened up financial markets to new institutions, and the increase in competition which followed had the effect of forcing financial services firms to seek out new customers to maintain market share. During this inclusionary phase, many individuals and households who previously could not obtain mainstream retail financial services products were signed up as customers.

By the 1990s, financial exclusion was back on the geographical research agenda. The main reason was that retail financial services firms were undertaking extensive branch closure programmes which were spatially uneven, with branches closing fastest in areas of social and economic deprivation, particularly in inner cities with large ethnic minority populations; closure rates were below average in more affluent areas. The programmes were undertaken to cut costs and refocus business on the more profitable parts of the customer base in an increasingly competitive market. In the US, this meant that entire communities were abandoned by the financial services industry, so that large parts of inner cities and many rural areas have lost large parts of their financial infrastructure (Christopherson, 1993). In Britain, where one in five of all bank and building society branches closed during the 1990s, the fastest rate of closure also occurred in socially deprived inner-city areas. Problems of access were exacerbated for the poor, the elderly and those who have physical disabilities, whose mobility over space is constrained, because the thinning out of branch networks increased the average \'journey to bank\'. But it is less clear if this decline in physical access led to a decline in absolute levels of access to the retail financial system as a whole, because of the rise of telephone-based financial services which, in theory at least, allowed consumers to gain access to the financial system from the comfort of their homes. Financial services firms reaped considerable economies of scale from such operations, and argued that they served as more than adequate alternatives to branch-based services. Moreover, the proportion of people with access to a bank account in Britain increased over the 1990s (Leyshon, Pratt and Thrift, 1999), while the proportion of the population without any kind of retail financial product made up less than 10 per cent of the total population by the end of the decade.

Such excluded populations are spatially concentrated in poor places, however, and belong to the social groups that are directly excluded by developments such as the rise of telephone banking and Internet banking, because in many socially deprived areas large sections of the population are too poor to even afford a telephone (Graham and Marvin, 1996), let alone a personal computer. Moreover, because they lack the social and economic characteristics that mark them out as \'good\' (i.e. profitable) customers, such people have been written out of the databases and credit scoring systems which now control access to the retail financial system (Leyshon, Thrift and Pratt, 1998). (AL)

References Christopherson, S. 1993: Market rules and territorial outcomes: the case of the United States. International Journal of Urban and Regional Research 17: 274-88. Corbridge, S. 1993: Debt and development. Oxford: Blackwell; Dymski, G. and Veitch, J. 1996: Financial transformation and the metropolis: booms, busts, and banking in Los Angeles. Environment and Planning A 28: 1233-60. Graham, S. and Marvin, S. 1996: Telecommunications and the city: electronic spaces, urban places. London: Routledge; Leyshon, A. and Thrift, N. 1996: Financial exclusion and the shifting boundaries of the financial system. Environment and Planning A 28: 1150-6. Leyshon, A. and Thrift, N. 1997: Money/space: geographies of monetary transformation. London: Routledge. Leyshon, A. Thrift, N. and Pratt, J. 1998: Reading financial services: texts, consumers and financial literacy. Environment and Planning D: Society and Space 16: 29-55. Leyshon, A. Pratt, J. and Thrift, N. 1999: Inside/outside: geographies of financial inclusion and exclusion in Britain. Urban Studies.

Suggested Reading Dymski and Veitch (1996). Leyshon and Thrift (1997), ch. 7. Leyshon, Thrift and Pratt (1998).



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