Social and financial exclusion

Whilst the economic situations differ significantly, microfinance is needed in Western as well as in Eastern Europe. People in every country throughout Europe are experiencing social and financial exclusion; microfinance is a key tool in combating this disenfranchisement.

Social exclusion is a complex phenomenon, dynamic and multi-dimensional, linking various aspects of life from which people are excluded. There is no single agreed definition, mainly due to the difficulty in defining the ideal, referenced state of inclusion.

Social exclusion refers to marginalisation from employment, income, social networks such as family, neighbourhood and community, decision making and from an adequate quality of life. The problems of social exclusion are frequently linked and mutually reinforcing. It is often difficult to disentangle the causes and consequences.

The risk of social exclusion is highest for those with multiple disadvantages. However, unemployment is the major factor contributing to social exclusion, since employment and job security promise an income to satisfy basic needs and provide social integration and social identity at the same time.

Although unemployment is the major factor, if the socially excluded groups are disaggregated by gender, age, geographic location, ethnicity and immigration status, other key elements may emerge. Social exclusion is strongly related to poverty, but these two concepts must be defined separately. To be poor does not necessarily mean being socially excluded, but it increases the chances of such an outcome.

Financial exclusion can be described as the inability of individuals, households or groups to access necessary financial services in an appropriate form. Exclusion can come about as a result of problems with access, prices, marketing, financial literacy or self-exclusion in response to negative experiences or perceptions. In such a context financial exclusion is either a cause or a consequence of social exclusion, or both.

The recommendations presented in theses pages have been developed from the findings of the project and are aimed at three key groups: policy makers, practitioners and networks. This is because all three constituencies have a role to play in improving economic and social opportunities across Europe.