The Brics’ Dangerous Endorsement Of ‘Financial Inclusion’
Coinciding with the 5th Annual Meeting of the Brics in South Africa in March 2013, the United Nations Development Programme (UNDP) released their flagship Human Development Report, The Rise of the South: Human Progress in a Diverse World. The latter is a celebration of the Brics and their ‘striking transformation into dynamic major economies with growing political influence.’ The Report emphasizes how this change is having a ‘significant impact’ on ‘human development progress’, as measured by the Human Development Index.
Armed with the recipe for development success, the UNDP recommends several neoliberal strategies that all countries in the South should pursue to ensure that progress be made available to everyone.
First, the South needs to ensure a tighter embrace of global markets. Aside from governments and private enterprises, financial liberalization involves a new subject: the poor, who have over the past decade been rebranded as the bottom of the pyramid or the unbanked/underbanked. The poor still comprise a considerable segment of the population, despite the ‘Rise of the South.’
Second, the South needs to adhere to the rules of global governance, i.e., transparency, accountability, and rule of law – all of which have been defined by the IMF, World Bank, World Trade Organization, and the G20. The focus on global financial market access and global governance come together most strikingly in the G20 Principles for Innovative Financial Inclusion of 2010 (hereafter: G20 Principles). In their capacity of members of the G20, leaders of the Brics countries have been endorsing the financial inclusion agenda as a way to socially include the poor to reduce poverty.
Financial inclusion refers to increasing broad-based access for approximately 2.7 billion poor adults to formal or semi-formal financial services ranging from banking to micro-credit to housing loans. In the wake of the 2008 crisis, itself triggered by financial inclusion strategies gone awry in the US and Europe, G20 leaders embraced financial inclusion as a core development strategy for overcoming the global recessionary environment.
The G20 Principles were drafted by the G20’s Access Through Innovation Sub-Group and the Financial Inclusion Expert Group, which involved three key implementing partners – Alliance for Financial Inclusion (funded by the Bill and Melinda Gates Foundation), the Consultative Group to Assist the Poor (CGAP), and the World Bank’s International Finance Corporation. From this heady mix of pro-market ‘experts’, the Principles for Innovative Financial Inclusion were drafted and later approved by G20 leaders at the Summit in Seoul in 2010.
The G20 Principles entail a regulatory framework based on (individualized) responsibilization and voluntary guidelines. The G20 Principles represent extensions of, as opposed to a departure from, the neoliberal development project. The Principles act to legitimate, normalize, and consolidate the claims of powerful, transnational capital interests that benefit from the status quo.
The primary way this is achieved is through obscuring and concealing the exploitative relations and speculative tendencies involved in financial inclusion strategies. This trend, which is best described by David Harvey’s notion of ‘accumulation by dispossession,’  has also led to the growing dependence on, and increased vulnerability to, the volatile nature of global finance, which has been historically marked by speculation, panics and crises – all of which run counter to the aims of the pro-poor growth and poverty alleviation goals of the financial inclusion agenda.
A good example of the rise of speculative tendencies in global development is asset-backed securitization (ABS). Securitization describes a process of packaging individual loans and other debt instruments, transforming this package into a security or securities, and enhancing their credit status or rating to further their sale to third-party investors, such as mutual and pension funds.
ABS began to increase dramatically in use in the US during the late 1990s before expanding to Europe and eventually to the South. In the wake of the litany of financial crises in emerging market economies in the late 1990s and the subsequent scarcity of low-cost, long-term loans, the IMF touted the virtues of securitization as a means for private and public sector entities in the global South to raise funds.
The ability of micro-finance institutions (MFIs), for instance, to turn to securitization to raise capital means that more ‘financially excluded’ people, who, in Western terms could be designated as sub-prime borrowers, are brought into the market. ABS in the global South is quite small in comparison to US markets. Nonetheless, the use of ABS in a wide variety of financial inclusion initiatives has been growing rapidly, albeit unevenly, since the late 1990s.
Yet it is important to grasp that, despite its technical and thus seemingly neutral language, securitization is neither an apolitical nor a win-win scenario for creditors and debtors alike, but instead is characterized by unequal and exploitative (i.e., predatory lending) relations of power. While securitization may raise cheap capital for originators (e.g., MFIs) and serve to reduce financial risk for foreign investors engaging in ABS transactions in the global South, it does so at a social cost by transferring both risks and extractive levies onto the poor.
ABS has done little to deliver on the neoliberal promise of growth and progress through investments in production and thus the creation of stable and sustainable wages and, by extension, poverty reduction. Indeed, the increased frequency and intensity of financial debacles has made the South, and especially the poor therein, more susceptible to the aftershocks of speculative-led accumulation.
Notwithstanding the historical experience of neoliberalism since the 1980s, the solution to the latest crisis has been to include more poor people into a volatile, speculative, and highly interconnected financial system, so that they may, in the words of the G20, ‘manage their low, irregular and unreliable income.’
This is a class-based strategy to continually search for more outlets for speculative credit money by creating debtors linked to the global casino and cannot possibly replace a social wage, decent and affordable housing, education and health services. The ‘financial’ should be rejected as a means and end-goal of being socially included.
Susanne Soederberg is Professor of Global Development Studies and Political Studies at Queen’s University, Canada.
. UNDP (2013) Human Development Report – The Rise of the South: Human Progress in a Diverse World, New York, NY: UNDP.
. S. Soederberg (2006) Global Governance in Question: Empire, States and the New Common Sense in Managing North-South Relations. London: Pluto.
. CGAP (2009) ‘Financial access: measuring access to financial services around the world,’ Washington, DC: Consultative Group to Assist the Poor.
. Harvey, D (2003) The New Imperialism. Oxford: Oxford University Press.
. R. Elul (2005) ‘The economics of asset securitization.’ Business Review. Federal Reserve Bank of Philadelphia, 3, pp. 16-25
. G20 Financial Inclusion Experts Group (2010) ‘Innovative financial inclusion: principles and report on innovative financial inclusion from the Access through Innovation Sub-Group of the G20 Financial Inclusion Experts Group,’ Canberra: AusAid, p.85.
. S. Soederberg (2013) ‘Universalising Financial Inclusion and the Securitisation of Development, Third World Quarterly, 34(4), in press, and S. Soederberg (2012) ‘The Mexican debtfare state: dispossession, micro-lending, and the surplus population’, Globalizations, 9 (4), pp. 561-575.