This Un- Banked Essay example is published for educational and informational purposes only. If you need a custom essay or research paper on this topic, please use our writing services. EssayEmpire.com offers reliable custom essay writing services that can help you to receive high grades and impress your professors with the quality of each essay or research paper you hand in.
In this entry, unbanked is defined as someone who does not have any bank account in any formal financial institution. People with access to financial services vary across countries. Several factors such as ethnicity, education level, access to financial resources, and so on influence an individual’s decision to access financial services. This entry examines the characteristics of the unbanked as well as the policies and business models that have been used to alleviate this problem.
Unbanked In Developed Countries
The financial sectors of developed countries are well advanced and provide various financial services to their customers. Yet a large number of the population in developed countries remain unbanked. A survey conducted by the Federal Deposit Insurance Corporation in 2011 provided in-depth information about those who do not use the traditional financial services offered by financial institutions. The survey also presented alternative types of financial services that are used by these people. The survey found that almost 12 million households—about 8.2 percent of U.S. households—do not have access to a bank account. The survey also revealed that minority groups are unbanked more often than the majority community. In addition to minority groups, origin of birth also seems to be a factor for opening or accessing a bank account. Una Okonkwo Osili and Anna Paulson studied the influence of immigration status on the use of financial services. The study found that immigrants who have either recently arrived or have been living in the United States for several years are less likely to have bank accounts and other financial assets than native-born Americans. Age and employment status are also factors for being involved in banking relations. Young people are less likely to have a bank account because they are more likely to depend on parents or to have no permanent job. Also, individuals who do not have a permanent full-time job are not likely to have bank accounts.
A similar study was conducted by MasterCard in western Europe. It found that 93 million people in six European countries do not have access to a bank account. The six countries included in the study were the United Kingdom, France, Italy, Spain, Poland, and Russia. Unbanked individuals in these countries tend to be younger, from minority communities, female, unmarried, unemployed, or unwilling to take financial risk. Other reasons for not having a bank account include consumers’ dislike of dealing with banks, their distrust of banks, and the costs associated with bank accounts.
Unbanked In Developing And Emerging Countries
The financial services sectors in the majority of developing and emerging countries are not as well developed as those in developed countries, and many of these financial institutions are located in urban areas. Both of these factors contribute to the unbanked problem in developing countries. A less developed financial sector is not able to offer as many financial services as a developed financial sector is able to. The infrastructure is also not well developed in many of these developing and emerging countries. Individuals living in a rural area with limited access to roads and transportation have limited access to financial institutions located in the urban areas. Therefore, the majority of people living in the rural areas of developing countries do not have access to a bank account.
Institutions and cultures are also important factors for consumers in developing countries. A gender gap is prevalent in many of the developing and emerging countries. Even the established laws often discriminate against women. For example, the International Finance Corporation and World Bank found that laws can prohibit women from entering into a contract or opening a bank account under their own name; often, they are required to have a male cosigner.
Alternative Sources And Policy Implications
Individuals living in developed countries versus developing countries have different needs and wants as well as different degrees of access to modern infrastructure. Both of these groups require different strategies by corporations to meet their needs.
Individuals in developed countries who do not want to be involved in the formal financial sector find alternative financial services to meet their financial needs. Alternative financial service providers include check cashers, payday lenders, and pawn lenders. Check cashers charge their customers a fee. To avoid paying this fee, many of the unbanked use grocery stores to cash their checks.
Prepaid cards have attracted attention from the unbanked over the years. These prepaid cards can be loaded easily and can be used like any other card in brick-and-mortar stores, as well as in online stores.
Policy makers have been interested in increasing consumers’ access to financial services. Over the years, various measures have been taken by both the U.S. government and financial institutions to facilitate the process. For instance, electronic fund transfer initiatives and the Go Direct Program (2010) required some of the federal payments to be made electronically, which pushed some of the unbanked individuals to either open a bank account or adapt to some form of electronic payments, such as a prepaid debit card.
Microfinance has been an alternative source of finance for people who are credit constrained and have limited or no access to formal financial services in developing countries. A well-known case of microfinance is Grameen Bank, founded in Bangladesh, where a significant portion of the population live in poverty. Given that this population has limited access to assets that can be used as collateral, Grameen Bank uses group lending systems to reduce risk. Grameen Bank provides loans to the individuals in the group, but the group is responsible for supporting each member. In case of default, members are denied a subsequent loan. Even though defaults happen, the repayment rate is good for many of these microfinance borrowers.
Globalization has integrated the financial sectors across countries and increased capital mobility. Despite the increased integration, many people remain excluded from many of these services for various reasons. However, some businesses are trying to be more inclusive. All of the alternative financial services mentioned above serve people at the bottom of the pyramid, as suggested by C. K. Prahalad. Alternative financial services are helping societies to become more inclusive and to raise living standards.
- Armendáriz, Beatriz and Jonathan Morduch. The Economics of Microfinance. Cambridge: MIT Press, 2010.
- Barr, Michael S., Jane K. Dokko, and Benjamin J. Keys. And Banking for All? Finance and Economics Discussion Series Working Paper No. 2009-34. Washington, DC: Board of Governors of the Federal Reserve System, August 2009.
- Federal Deposit Insurance “2011 National Survey of Unbanked and Underbanked Households” (September 2012). https://www.fdic.gov/ householdsurvey/2012_unbankedreport_execsumm. pdf (Accessed September 2014).
- Go Direct. “U.S. Treasury Requires Electronic Federal Reserve Payments.” www.godirect.giv/gpw/index.gd (Accessed September 2014).
- Hogarth, Jeanne M. and Kevin H. O’Donnell. “Banking Relationships of Lower-Income Families and the Governmental Trend Toward Electronic ” Federal Reserve Bulletin, v.87 (1999).
- International Finance Corporation. Strengthening Access to Finance for Women-Owned SMEs in Developing Countries. Washington, DC: World Bank, 2011.
- Prepaid Cards and Products in 2012: Enabling Financial Access for Underbanked and Gen Y Consumers. Pleasanton, CA: Javelin Strategy and Research, 2012.
- “Road to Inclusion: A Look at the Financially Underserved and Excluded Across Europe.” White paper (September 16, 2013). http://newsroom.mastercard.com/wp-content/uploads/2013/09/ IpsosMORI_MasterCard-Underserved-Research_ White-Paper.pdf (Accessed September 2014).
- Osili, Una Okonkwo and Anna Paulson. ImmigrantNative Differences in Financial Market Chicago: Federal Reserve Bank of Chicago, 2006. http://www.chicagofed.org/digital_assets/publications/ working_papers/2004/wp2004_18.pdf (Accessed September 2014).
- Prahalad, C. Krishnarao. The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, Rev. and updated 5th anniversary ed. Philadelphia, PA: Wharton School Publishing, 2009.
- World World Development Report 2012: Gender Equality and Development. Washington, DC: World Bank, 2012.