Financial inclusion for the poor: A critical analysis of the Brazilian case
Please cite the paper as:
Fernando Pereira, Anderson Cavalcante, Marco Crocco, (2014), Financial inclusion for the poor: A critical analysis of the Brazilian case, World Economics Association (WEA) Conferences, No. 1 2014, Is a more inclusive and sustainable development possible in Brazil?, 5th May to 12th August 2014
In the last decade, following the international trend, the Brazilian government has been promoting a group of initiatives that composes a financial inclusion policy. The main focus of such a policy is the low income population (poor and extremely poor) who is contemplated by the national program of conditional cash transfer.
Basically, the financial inclusion policy aims at promoting access and use of financial services by means of two main strategies: financial regulation and education. Financial regulation acts upon the industry by controlling the expansion of the physical network and the type of services and products being offered to specific targeted groups such as the poorest, which has been historically marginalised by the formal financial markets. Regulation is increasingly aimed at stimulating and supervising the creation of financial services specially tailored to the low income population.
Once the supply of financial services to the low income population is warranted, financial education can play a role. The main hypothesis is that the targeted population has low financial literacy levels that, together with a historically limited or inexistent use of financial markets, can be amended by financial education initiatives. In an ideal world, with the implementation of the two strategies, a financial inclusion policy would be successfully developed.
This paper objective is to critically analyse the limitations of such financial inclusion policy, especially in what regards the above hypothesis. Our main point is basically that such kind of policy not only has very limited results but it is also completely inadequate, since it promotes very negative outcomes such as over-indebtedness and predatory actions by the financial system. The main argument is that financial education is not capable of increasing financial literacy or to act positively over the decisional process of the financial services’ consumer. Therefore, in order to guarantee that operational risks will not be completely transferred to low income consumers, it is necessary a sort of financial regulation that can rule the financial market structure and curb predatory practices.
The paper is structured as follows. The first section introduces the conventional arguments over financial inclusion. The second section critically appreciates, from a theoretical standpoint, the main points of what are described as financial inclusion policies. Following this initial appreciation, the third section gives a brief description of the financial inclusion policies in Brazil, showing the problems arising from taking a conventional view on the matter for granted.