That was very much my experience while reading
Financial Inclusion at the Bottom of the Pyramid. It took me to places like Cambodia, Kenya, the Philippines, India, and more. (For this reason, it’s going into the Around the World in Books challenge.) It taught me about the billions of unbanked across the world. Initially, I was reading with the anthropologically ethical question of imposing our own societal values on others heavy on my mind. While I still don’t think we should impose money on those that don’t already use it, that’s not who this book is about. It’s about people who do use money, but don’t have access to banking services. Or safe storage of their cash. Or credit history. Or, in some cases, even a legal identity.
These people face major barriers. Many of them don’t have any documentation of who they are, which makes it impossible to get banking services, or even state-run benefits. In some places, even if they could get a bank account, fees and low interest rates don’t match the inflation in their region; they’d actually be losing money by keeping it in a savings account. Many people move for work, sometimes abroad, and sometimes in their own country, sending remittances home. Remittances are collectively one of the largest transfers of wealth on our planet, and they come with very high fees to generally low-wage workers.
So I learned a lot. But perhaps my favorite quote in the book was this one. It’s a concept that’s rung true with me for a long while, and it was a kind of relief to see it echoed in such a well-written book:
“The lack of affordable and adaptable banking services is an issue that should concern everyone, not just the people who are living at the bottom of the pyramid. At its worst, a lack of banking creates a downward spiral of disenfranchisement, widens the gap between rich and poor, encourages outlaw or extralegal behavior, and inhibits the social mobility that keeps any society vibrant and open. An accessible and reliable banking system helps to create stability and overall prosperity. Low-income workers waste less time in check-cashing lines, spend less money on usurious back-alley services, have legitimate identification, feel connected to the economic fabric of their society, are encouraged to save, have access to credit, and participate in retail commerce.”
Mobile Payments Since 2000
One of the things that blew my mind was that in these countries where access to banking is such a problem, mobile banking was initiated in the year 2000. I didn’t even have internet at my house in the year 2000, and there were people in the Philippines sending money to each other over their brick cell phones. (Something else I did not have in the year 2000, though an adult in my household did.)
One of the reasons it worked so well there and in other countries, and didn’t pop off here in the US nearly as quickly, is because we already have an infrastructure in place with widespread (though not 100% inclusive) banking services. Rather than starting from scratch, we feel the need to scaffold on the systems that are already in place. This is much harder.
That’s not to say that some serious innovation wasn’t needed to make mobile banking happen in these countries. It was, and it’s amazing what some of these great minds are doing in the countries I read about. Part of it is technology, but a large part of it is also entrepreneurship, and building a business around your customer’s unique needs.
An Identity is Crucial
Mobile banking in these countries isn’t necessarily done through a bank. A lot of times it’s partnered with a mobile service provider and their representative small business owners in villages in remote locations. Even if it’s not traditional banking, you still have to verify who a person is before you start putting your hands on their money.
In Kenya, where every person has a state ID, mobile banking took off like wildfire. Contrast that with India, where there are billions of people in villages who don’t have so much as a birth certificate, and you can see some of the barriers that come up even with brilliant innovation. India has taken longer to adapt to the new methodology, but it is high on their government’s priority list, and a new ID system is being put into place using biometrics. Biometrics.
Credit Scoring of the Future
Once people have an identity, there needs to be a system in place to get them credit. This allows them to expand their businesses and build their communities. Traditional credit models don’t work; it’s the harsh Catch-22 of having zero credit, but not being able to establish any unless you can find a cosigner. Not an easy feat when most of the people in your community are in the same boat as you are.
So there are new credit models being drafted. A lot of it includes monitoring mobile payments, watching transactions as money goes in and out with the mobile user’s permission. But a lot of it, as in pretty much every model, also incorporates social media. Watch what you tweet, people. It may end up affecting your credit score in the future.
Innovation Leads to Innovation
When people started having access to mobile payments, there were other needs that started arising in the market. B2B services like payment processing became necessary. So new companies sprang up. There have also consequently been ventures in providing low-cost, green energy to people who previously had no electricity on a scalable basis. This has been made possible through mobile payments and the technology that came along with it. Government payments, like benefits and tax refunds, are also experiencing massive innovations. Bitcoin exists, posing a potential to replace paper currency altogether. Banking, instead of remaining the pyramid that it was, is becoming a platform.
Highly. Initially I was going to say if your eyes glaze over when someone talks about finances, don’t bother. But as I read more, I realized that when we talk about banking, we talk so much about how people live their lives that this book really did transport you in many ways to the reality of fellow human beings we’d otherwise never hear about. What I’ve talked about is just the tip of the iceberg. It was incredibly interesting, and made me aware of such huge progress going on in the world that I was previously completely incognizant of.
*I have been compensated for my time reading and reviewing this book. Regardless, all opinions are 100% honest and my own.*