How the unbanked cope with financial exclusion: Evidence from Pakistan

Abstract

This paper investigates both the coping strategies employed by low-income unbanked consumers in Pakistan and the consequences of those strategies. Qualitative data were gathered from low-income unbanked consumers through in-depth interviews. The findings suggest that unbanked consumers utilize their respective social networks and various market and personal resources to cope with financial exclusion. The utilization of social network resources to cope with financial exclusion typically enabled participants to fulfill their obligations in a positive manner and enhanced solidarity and trust among group members, whereas the use of market and personal resources tended to produce more negative consequences in the form of different types of risk. The paper provides managerial implications for developing services that enhance the well-being of unbanked consumers.

Islamic Banks’ Role in Serving the Poor Unbanked Population in Pakistan

“…Likewise, poor individuals are commonly found to have little or no formal education, which also obstructs their financial inclusion. They find it difficult to gather and understand basic banking services information (Kamran & Uusitalo, 2016a;2016b). Although, unbanked individuals' poor financial and educational achievements are one of the major causes of their exclusion from the mainstream banking services (Kamran & Uusitalo, 2016a;Kempson & Whyley, 1999); nevertheless, the banks' unwelcoming behavior and strategies are also a source of exclusion (Kamran & Uusitalo, 2019).…”

“…There is an element of self-imposed financial exclusion amongst some poor individuals who choose not to open a bank account owing to their personal choice and perceptions, or due to the negative word of mouth regarding banks within the poor customers social networks (Kamran & Uusitalo, 2016a;Kempson & Whyley, 1999); But, unwelcoming strategies and lack of marketing communications targeted at poor segments deepen their perceptions' that they require significant amount of money to operate a bank account. So, banks' unwelcoming strategies towards the poor complement their personal circumstances, which ultimately become a source of their exclusion from basic banking services (Kamran & Uusitalo, 2016a;2016b;Kamran & Uusitalo, 2019;Kempson & Whyley, 1999).…”

“…Refuting loan requests of close relatives potentially damages their relations with each other. Moreover, relations could also be harmed, if a close relative don't repay the money on agreed time (Kamran & Uusitalo, 2016a;2016b).…”

“…Service firms, also including the banks and other financial institutions, commonly deny access of basic services to poor customers owing to their lack of profitability (e.g., Kamran & Uusitalo, 2019;Kempson & Whyley, 1999). Service firms' discrimination to serve poor individuals often creates problems in their lives (Kamran & Uusitalo, 2016b;Wang & Tian, 2014). These discriminatory practices of service firms raise several ethical issues in contemporary business system (Kennedy & Laczniak, 2016;Kotler & Levy, 1971).…”

“…These discriminatory practices of service firms raise several ethical issues in contemporary business system (Kennedy & Laczniak, 2016;Kotler & Levy, 1971). The business practices that result into exclusion and marginalization of poor individuals ought to be discouraged and reversed as the exclusion causes severe detriment to them (Kamran & Uusitalo, 2016a;2016b;Kotler & Levy, 1971).…”