Financial inclusion, vulnerability, andmental models: From physical accessto effective use of financial servicesin a low income area of Mexico City

This paper addresses the issue of how to improve access to regulated financial services,hereafter referred to as financial inclusion. More widespread use of regulated financial servicescan enhance domestic resource mobilisation and improve allocative efficiency in the use ofcapital (World Bank 2007). However, the focus here is on financial inclusion as an instrument forpoverty reduction. This section considers why financial inclusion is of particular policy interestboth internationally and in Mexico. It then briefly reviews alternative theoretical approaches toanalysing financial inclusion and resulting welfare outcomes, particularly for relatively poor andvulnerable people.Section two presents a case study from a low income area of Mexico City. This illustrates howchoice of relevant theory for thinking about financial inclusion can be informed by empiricalresearch. We first use quantitative data to analyse the extent to which use of financial servicesvaries with education, employment, asset ownership and other indicators likely to affect personspecifictransaction costs. We then draw on complementary qualitative data to analyse otherinfluences on access to and use of financial services. Section three concludes that effective useof financial services is not only determined by individuals’ economic characteristics andexogenous transaction costs, but also by more complex cognitive and social processes. Thishighlights the dangers of relying too heavily on a narrowly economistic framework for analysis offinancial exclusion. More specifically, we argue for more research into how the diverse andchanging mental models of poor people influence their use and non-use of financial services.