Vulnerability, Financial Inclusion, and the Heightened Relevance of Education in a Credit Crisis

In a credit crisis, such as the situation occasioned by the COVID-19 pandemic, financial consumers tend to become more vulnerable because financial institutions typically reduce lending to them, or lend at a high interest rate and unfavorable repayment terms. The onerous terms of such financial contracts increase the probability of default, enforcement of debts, and perhaps, losses of collateral by the vulnerable consumers. Using some countries with market economic systems as an example, the chapter argues that in order to prevent or mitigate consumers’ vulnerability, the credit and insolvency laws must be amended to offer a longer grace period of debt repayment and also eschew insolvent liquidation of consumers and businesses until after a set reasonable time.The chapter further identifies the increased use of Fintech’s digital financial services by consumers due to the pandemic, as another source of vulnerability, given the heightened rate of Internet fraud, theft of personal data, and use of fake news to manipulate consumers online. It is proposed that consumer protection regulators must invest more in the short-term education of consumers on how to safely use digital financial services, while governments, especially in developing countries, must start to treat basic education or even higher as a positive right that will help achieve financial inclusion, cure poverty, and significantly reduce consumer vulnerability