Is there a link between financial exclusion and over-indebtedness? Evidence from Czech peripheral municipalities.

This paper investigates the determinants of the over-indebtedness of inhabitants in particular municipalities in the Czech Republic. We draw on the theory of regional segmentation of financial markets, which foresees credit rationing in peripheral regions and empirically investigate the role that attractiveness of potential banking clients may play in the level of over-indebtedness in particular regions. We assume that regions with a higher concentration of non-bankable people suffer from a low concentration of bank services as the banks are not interested in serving people who do not meet their credit requirements. The findings from testing our empirical model indicate that regions with a higher level of non-bankable people have a higher concentration of over-indebted inhabitants. Our paper thus contributes to the nascent empirical verification of the theory of regional segmentation of financial markets. In conclusion, our policy recommendation – to support a socially-oriented financial industry, which could fulfil a niche in peripheral financial markets – could help in the battle against the pandemic of over-indebtedness and repossessions with its all negative consequences. • Regions with a higher number of financially excluded people have a higher concentration of over-indebted inhabitants. • The density of the banking servicing is negatively associated with the occurrence of financial difficulties. • A financial industry with a programme of social outreach should be supported in peripheral regions to help fill the credit gap. [ABSTRACT FROM AUTHOR]