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  • Writer's picturesalomon raydan

From Financial inclution to financial well being

The concept of “financial inclusion” has become enormously popular and is used for just about everything. Possibly the most common acceptance is that which refers to giving access to formal services to the most vulnerable or unreached populations, generally to savings and credit products.

In Latin America, about 49% of the population does not have access to formal banking financial services and, therefore, they are “excluded”. Others argue that that number is much higher when it comes to access to credit.

We have questioned this concept of "inclusion" and many of the strategies aimed at its supposed improvement. We have said, for example, that the concept of “inclusion” referring to formal services is narrow, since it does not consider the enormous number of transactions that have a high added value for users, but that are not made from formal mechanisms. Within informal mechanisms, most financial transactions continue to occur. Without this meaning "poor quality". In fact, some can be of quite a quality, if by that we understand ease of access, cost to the user and usability. In our book "the Other Micro finance" (free at you can expand the argument.

On the other hand, under this concept of "inclusion" hides a number of practices and strategies whose results could be very harmful in the long term. Unfortunately, in this type of social experiment, the results are only seen in the very long term. If we had understood, for example, the true impact that microcredit would have against poverty, surely the enormous investments would not have been made to promote this industry, now highly questioned by the doubts that remain when measuring the real impact it has had on the economy. poverty.

There is also talk of "inclusion" via conditional transfers that many governments have implemented. People have been forced to open accounts for the sole purpose of receiving these transfers. This undoubtedly may have facilitated the speed of transactions and perhaps has contributed to greater transparency, but to pretend to say that with this it has been possible to “include” the population, is not to consider the little real use that the population makes of these accounts. .

Another example has been that of the so-called “credit platforms” framed within the very broad concept of Fintech. The justification for many of its operations is made under the supposed concept of “including” the unserved populations. It is argued that these platforms facilitate access for the “excluded” population. However, what is not explained is that the vast majority of them do so at such high costs for the user that they easily compete with the neighborhood loan sharks. A quick analysis of two of these platforms in Colombia, for example, show rates above 130% per year. If we compare them with the normal lenders in a Colombian neighborhood, we will see that, at these costs, inclusion looks unappealing.

These are some examples that allow us to show the distortions of the concept of “financial inclusion” and show that it is serving to justify practices or strategies, whose results we will possibly regret in the long term.

We think that the concept that should guide these new policies, including the fintech issue, should be that of “Financial well-being”, although this has not been clearly defined. For us, it is broader than inclusion and refers to three underlying elements:

Accessibility to quality financial products and services, that is, to services adapted to people's economic and financial flows. We could understand this as “Inclusion”, but not exclusively related to formal services, since some informal mechanisms are better adjusted to people's conditions, especially if these people are “poor”.

The other underlying element is having access to information that allows you to make sound financial decisions. This implies quality financial education, or, in other words, adapted to the conditions of the person in terms of true understanding.

Another key element that surrounds the concept of “financial well-being” is that of generating to face financial emergencies or unforeseen events. We call this the capacity to generate “poverty buffers”. This implies having real access to services and products that allow to develop this capacity. It is about having access to complementary services, such as various insurance (life, funeral, health), pension funds, housing programs and education programs, among others.

In order to facilitate this access, it is required, on the one hand, the design of these services and products so that they adjust to the income streams of these families, as well as to their cultural and emotional conditions and by the o

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