Millions of Europeans left out by banks
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Emerging Markets

Millions of Europeans left out by banks

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Financial inclusion is not only an issue in low income countries, microfinance experts have warned

A failure to address poor financial inclusion in Europe and Central Asia could mean a continued drag on economic growth and equality in middle income countries, the experts said

“We’re talking about roughly 60 million people in the EU who do not have a bank account,” Niclaus Bergmann, the managing director of the Sparkassenstiftung für internationale Kooperation, told Emerging Markets. “Not because they don’t want it, but because the banks don’t give it to them. It has been a problem for a long while.”

More than 70% of the world’s poorest citizens live in middle income countries, and although China and India make up a large proportion of that total, issues of entrenched poverty and financial exclusion exist in Central Asia and Eastern Europe.

Within the European Union, a pre-existing problem may have been exacerbated by the financial crisis and a resulting failure of trust in the banking system. This has been particularly true in Greece and Cyprus.

“When you look at the developments in Southern Europe, it’s a loss of trust in the banking sector,” Bergmann said. "People were taking money out of the system and storing it at home somewhere. Obviously this has not only the effect that the banks are losing money, but their other clients, it is small and medium sized enterprises especially, who do not get access to finance.”

With considerable fears across the eurozone about the impact of high unemployment and unequal growth, which has seen financial markets undergoing a tentative recovery without bringing the real economy with them, the impact of having large numbers of individuals outside or on the fringes of the formal financial system could be important. Young people, entering working age in the midst of a continent-wide downturn, are vulnerable to being left out of the mainstream.


“[Financial inclusion] is one of the factors that can contribute to more employment, certainly,” Bergmann said. “We should not expect too much from financial services, but I think it is a key contributor. If you don’t have access to small loans, you are in trouble.”

On a household level, basic financial services, including small-scale borrowing and savings, are vital for unemployed and self-employed individuals in and around the informal sector, helping to ease both personal and business cashflow.

As Tilman Ehrbeck, the CEO of the Consultative Group to Assist the Poor, an association of public and private financial organizations, told Emerging Markets: “Living on $2 per day doesn’t mean you have $2 every day... Poor people have to be very active financial managers of their lives.”

“The evidence is pretty strong that at a micro-economic level, if you have access to financial services it improves household welfare,” Ehrbeck said. “And at the macro level we know that financial depth is correlated with growth, and it’s negatively correlated with inequality.

“And it’s not only a relationship, it’s probably causality. The depth of financial intermediation is an indicator of pretty low transaction costs, and the ability to allocate capital to the most productive uses—that’s classic market theory.”


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