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WEEK 11 Financial Exclusion in Latin America - Solo.docx

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GEOG 3050
Kate Parizeau

Financial Exclusion in Latin America – or the Social Costs of not Banking the Urban Poor  Solo Abstract - Bogota Columbia and Mexico City use of financial services by the urban popn - Focus ppl w no relation to formal bank/coop/credit union - Characteristics of unbanked & reasons why, costs imposes, loss in income for formal sector financial instits - Measures to extend financial services to low income popn & importance of linking financial inclusion to programs of urban devt & upgrading focused on poor in developing countries Introduction - Household/microeconomic programs operate on tiny scale & lending only leaves debt - Financial exclusion – limited access low income groups have to financial services - Few looked into how effects economic devt & devt of urban communities World Bank Studies on Financial Exclusion - 2002 World Bank urban & financial sector for Latin America joined to lead studies on unbanked – rep survey, focus groups - To see what services poor ppl use, their costs & benefits and choices implied Financial Exclusion Mainly Affects the Poor – and the Poor are the Most Affected by Financial Exclusion - 65-85% households have no deposit account in a former financial instit - Unbanked show other characteristics of marginality – low income/edu, higher % minority/immigrant, dependent on informal work/shelter, lower income security Reasons for Financial Exclusion - Primary reasons: insufficient resources, high charges, mistrust/discomfort – access limited by banking costs not poverty - High initial deposits, minimum balances and documentation requirements  too high to pay prohibitive to 75%, documents prohibitive for more than ½ popn - High maintenance costs for savings  no savings products would generate interest for persons below 18 th income percentile - Poor rarely feel welcome  anticipate rejection Costs of Being Unbanked - Costs of making payments  cash transactions cost up to 5 times more than payments by cheque/tech – need to pay w cash, and costly to travel there & carry all money on them - Costs of being paid  85% paid in cheques although fewer than 25% have bank accounts, costly to turn cheque to cash - Costs of saving  - Cost of sending & receiving money  incomes from remittances - Costs of borrowing  1/3 taken out loan in last 3 yrs, interest - Financial exclusion makes it harder to break out of urban poverty  expensive to not have bank account, 1% reduction in income - Bank accounts and security  savings provide security & improve well-being Financial Exclusion Has Costs for Urban Devt - Financial services considered key to upward mobility & community devt, see
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