Rethinking (neoliberal) financial inclusion mandate

In this essay, I aim to explore the background conceptions behind the universal mandate of economic progress and market development as it relates to the global financial inclusion mandate. What drives the rhetoric behind the primacy of markets? How does economics serve as a techno-political enterprise that shapes the proliferation of the financial inclusion mandate?

The global financial inclusion agenda evolved from the early 2000s with heyday of microcredit in 2006 when Muhammad Yunus and Grameen Bank were awarded the Nobel Peace Prize, to renewed importance post the global financial crisis in 2008. The World Bank published a report (2008) titled “Finance for all” to articulate the importance of improving access to finance to small firms and poor households. Building on the momentum, the Maya Declaration[1] — a global initiative with a mandate of championing financial inclusion backed by central banks around the world- was launched at the 2011 Global Policy Forum by the Alliance for Financial Inclusion (AFI). This agenda setting declaration with the goal to bring financial services to the 1.7 billion unbanked has the commitment of the G20 nations, and AFI is funded by the Bill & Melinda Gates Foundation[2]. In recent years, there is a greater trend towards digitization and digital financial inclusion — which brings a whole hosts of actors ranging from mobile telecommunication operators represented by the GSM Association, credit card and payment private sector players such as MasterCard and Visa, governments and international organizations. Global partnerships such as the Better than Cash Alliance[3] launched in 2012 look to accelerate the transition from cash to digital forms of payments to advance digital financial inclusion.

What ideologies helped shape the prominence of the global financial inclusion agenda? Economic literature frames the problem of financial exclusion from the framework of information asymmetry and market frictions. Stiglitz, chief economist of the World Bank from 1996 to 2000 and who went on to win the Nobel Prize in Economics in 2001, wrote in 1981 on the problem of imperfect information in credit markets –making the argument that borrowers who are unable to signal credit worthiness or banks who are unable to judge the credit worthiness of prospective borrowers are unable to form a matching market. To solve the problem in markets, economists argue that we need interventions that allow us to better “read” people — the basis of theory for property titling regime — can we account for seemingly “dead” assets, can we better identify and quantify the risks of borrowers. At a macro-economics level, there is the prevailing school of thought based on the Efficient Markets Hypothesis/ Rational Expectations Hypothesis that financial markets work best without distortion to information and price signals. Financial deepening is expressed in national strategies such as that written by the IMF for Indonesia (Kang 2018), the logic is presented as having a more robust financial infrastructure and deepening of financial intermediaries can help facilitate more capital flows for investment and economic growth, and at the same time expanding the reach of finance to the underbanked is a prerequisite towards the development of financial markets. Embedded in this neoliberal agenda is the universalizing assumption that connection to the global financial system is good for everybody, and poor people need access to credit. The prevailing theory of change around policy becomes supporting individual autonomy and empowering individual responsibility in financial health, without addressing systemic burdens on why poor people cannot access credit in the first place.

The incentives of market makers also play an influential role in the promotion of the global financial inclusion agenda. There is motivation for profit making gatekeepers to push the boundary of capitalism for there “fortune at the bottom of the pyramid” as argued by business school professor C.K Prahalad (2010). By 2010s, credit card companies are almost reaching market saturation in developed economics, but only 15% of the retail payments worldwide were electronic (Gupta et al, 2014). To stay competitive and grow revenue, industry titans like Mastercard sought to grow business in the 85% of the worldwide transaction that were cash-based. Gupta et al documented the various initiatives that Mastercard developed around financial inclusion — ranging from partnership with the Treasury in the US to provide prepaid card accounts to social security recipients, to working with the South Africa Social Security Agency on electronic government disbursement of grants, to support the national identity rollout system with the Nigerian government. One must ask — how are incentives aligned in this push towards financial inclusion and how can we have better governance around policy objectives?

How do digital technologies shape the nature of markets, and our perception on who we consider as included/excluded? As a social-technical device, digital technologies serve as instruments that quantify the previously unobservable characteristics of human behavior in the manner that makes potential borrowers “readable” and “manageable” by credit providers. Companies like LenddoEFL, an off-shoot of Harvard Kennedy School’s Entrepreneurial Financial Lab research project, uses alternative data, psychometric assessment based on personality and behavior and other metrics to assess the credit worthiness of previously “unbankable” clients. The ability to use data, empirical numbers and precise quantification of risk brings to bear the aura of credibility and legitimacy in credit markets for borrowers at the margin, yet it replaces the richness of human interactions and social cues.

How then can we rethink / imagine more inclusive and equitable alternatives?

The notion that there clearly defined boundaries in markets and that having a certain manner of representation is necessary to be included within markets is something that needs be challenged. We need to find new ways and richer vocabulary to communicate and articulate value, trust and dignity in our economy such that the dimensionality of our lives are reflected and not just in manners in which we can make fungible or processed.

At the same time, it is important to ensure that the work on financial inclusion addresses the root causes of marginalization. What are the reasons why people are excluded from markets in the first place? Often we have systemic barriers around gender, race, or other ascriptive markers of identity rooted in historical blemishes that serve as the underlying reasons for exclusion. Those barriers need to be addressed before breaking ground on delivering access to financial services.

In terms of rethinking the dominant narratives, we need to see beyond the financialization and capital deepening as the primary route to growth and development. The rhetoric of the “entrepreneurial poor” is questionable and problematic — not everybody is suited to pursue entrepreneurial ventures, why should we carry the expectation of developing the productive potential of the individual and placing the burden of progress on the individual instead of working in tandem with other institutions and public structures to support the individual.

As the financial inclusion mandate becomes increasingly popular, my hope is that it is a platform that brings all voices to the table and reflect the true vibrancy of our economies and societies.

[1] https://www.afi-global.org/global-voice/maya-declaration/

[2] https://www.afi-global.org/newsroom/news/afi-response-to-g20/

[3] https://www.betterthancash.org/

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Dora Heng

Recovering economist passionate about global development and being human in an age of technological disruption