Financial Capability for Wellbeing: An alternative perspective from the Capability Approach

Financial inclusion is about increasing the set of financial service options available and theconcept of financial capability seeks to capture the idea that their effective use will lead toimproved wellbeing. Studies on financial capability have so far adopted an ontologicalassumption that financial capability is a set of “optimal” financial behaviours which can bedefined and measured universally, failing to capture the potentially deeper meanings andvalues that poor people’s financial practices represent. In this context both financial inclusionand financial capability require an evaluative framework for the exploration of how and towhat degree the ways in which poor people engage with financial services and transactionscan improve their wellbeing. This paper examines the potential of Sen’s capability approach(CA) as such an evaluative framework. Adopting the CA as an evaluative framework suggeststhat increasing the availability of financial services is valuable only if the increased range ofoptions allow people to pursue their wellbeing goals. We argue that the capability approachpresents a number of characteristics which enable the evaluation of inclusion policy, therebyoffering a framework through which financial inclusion is evaluated in terms of its ability toexpand people’s valued capabilities to achieve wellbeing.