Financial inclusion is one of those terms that sounds like it’s a good thing, but the research seems to show it may really be a synonym for aggressive customer acquisition for long-term value extraction.
The financial services industry is filled with very smart people who are astonishingly good at math, or so they tell us. Other than the regular systemic crisis due to greed that requires a bailout by the taxpayer, the sector performs very well, especially for those who work in it, though not always the shareholders or customers.
The sector does seem to continuously have pricing models that treat the poor like cash extraction machines rather than customers. The idea of financial inclusion, to bring the “unbanked” into the world of finance so that they can access loans and reduce payment friction has been coming under investigation recently. While financial services companies tout this as a “purpose” driven initiative, it does appear they may be confusing the purpose of buying a Ferrari to help people. While access to modern banking is great, many customers are now faced with banking fees that they did not incur in a cash-based society, furthermore, they have lost rather than gained control over their finances as unscrupulous lenders can extract cash from the accounts without the consumer being able to intercept them.
Even mobile money, touted as a great innovation, comes at a relatively high cost for the most vulnerable. While these products do offer a lower price-to-access functionality like money transfer, which is a great benefit, they are also used to prey on their customers.
Products like personal loans that have loan interest rates and high fees keep customers in perpetual debt cycles. The debacle of furniture loans, bundled with insurance and additional fees to stay within the legal framework, but have the same usurious effect that the law seeks to control. Even at the level of home loans, which are underwritten by a physical asset, lower-income customers are made to pay higher interest than wealthier customers. The reasoning of default risk makes absolutely no sense as surely charging a higher interest rate would increase the chance of default and not reduce it.
It isn’t a surprise that we have systemic inequality. We just need to stop treating those with lower income unfairly. We need to stop forcing them to accept terms that no wealthy customer with options ever would. This doesn’t mean that people need to make less profit, they just need to find ways to make money that don’t require taking advantage of their clients. For smart people that isn’t hard to do.
