Financial Liquidity Subproject
In Hungary, about 24% of the adults (roughly 2 million people) have no bank account so they are essentially excluded from formal banking. They cannot take a loan, for example, as creditworthiness examination is based mainly on the bank account history of the applicants. Many of these people are poor, under-educated, or disadvantaged for other reasons. Financial exclusion is an even more accentuated problem in disadvantaged regions, where banks are closing their branches in line with their cost-minimizing strategy. However, a wide access to formal financial services would be a fundamental prerequisite of economic and social integration. The aim of the research subproject is to extend financial services to this potentially new segment and to increase financial awareness.
We put special emphasis on debt consolidation which is a first step toward more developed financial services (payment services, saving programs, microcredit, insurances, wealth management, etc.) It is not clear what the optimal/feasible products/mechanisms are in the different regions of diverse cultural and economic conditions with regard to costs, risk-sharing, and incentives. The development of IT technologies (FinTech, blockchain, and smart contracts included) and the revolution of new payment systems open new perspectives to financial engineering in this special field.
During the research subproject, we overview the relevant theoretical and empirical literature, then elaborate theoretical models of debt consolidation and financial services targeting the financial inclusion of the disadvantaged in the Hungarian context and formulate recommendations on the practical implementation, too, involving business partners.
The objective of the research is to design optimal incentive systems and services. From theoretical and methodological aspects, we rely on mechanism design, contract theory, behavioral sciences, and economical modelling. Theoretical research is strongly linked to empirics with the help of descriptive analysis, incorporation of the experience of international practice, surveying, experimenting (field work), and the dissemination of our results.