Reading, in many ways, is like traveling. It can transport us to places we’ve never been, and teach us things we didn’t know we wanted to learn.
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.*
I will definitely be picking up a copy of this book. It sounds really fascinating and important. I have the great fortune of teaching cultures to my students, which means I spend a great deal of time learning with them. Just the other day we were comparing the opportunities of women in our country with those in developing words. One of my kiddos said, “You mean I can run a company when I grow up but some women can’t even have their own money?” Persepective is key.
It really is eye-opening!
Very enlightening post and something I had never thought of before. We think everyone is just like us with how they eat, dress, work, and save money then we are reminded when we read a book or travel to that country.
So true. It’s really interesting because it’s setting up an infrastructure that hasn’t taken very well here because of what we already have established, largely because what we have established here didn’t take there because of their geography, culture, and access.
That’s really interesting how Kenya took right to mobile payments. I also can’t believe it was a thing in places like the Philippines in 2000.
The system in the Philippines was the first, I believe! I didn’t even have a brick cell phone yet! It’s interesting to see where Kenya is heading because it took so well, too.
One problem that I would love to solve in the future is how to help unbanked individuals without creating extra demand for consumer debt. In many cases, the creation of banks for the lowest income earners comes the opportunities for banks to make money at usarous rates (sorry, don’t know how to spell that). In many countries, the first banks for the poorest of the poor are very much like payday lending companies.
I haven’t figured out how to solve the problem yet, or I would tell you the solution.
You totally need to read this, then! Very few of the companies discussed are traditional banks, and that’s precisely one of the problems they are solving. It’s more about access to credit to be able to build and expand with success than building debt. In our own country, check out Activehours!
I have a friend who has worked for several years doing aid projects in Africa, and she told me that one of the biggest upsides to mobile payments in Africa is how it has empowered women.
Before the days of mobile payments, the men would raise the chickens, grow the crops, etc., and then take them into the town to sell. Then, they would spend the money on alcohol, their woman on the side in the city, etc., and come home with a fraction of the money – certainly not enough for the woman to have any money to do anything on her own except (barely, if she was lucky) clothe and feed the family.
Now, though, with mobile payments, the woman sees EXACTLY how much money the family is getting for what gets sold in town. So, if the husband doesn’t come home with that money, she can start the Inquisition, whereas before, she just had to believe him when he said that he didn’t get much money for what he sold.
Mobile payments has done a lot to help raise the relative power of women in families in Africa.
It’s a shame it’s taken us so long in the U.S. to catch onto mobile payments and the power that it unleashes.
Wow, that’s really an incredible perspective, and one that didn’t get touched on in the book! I feel like another one needs to be written just on this aspect of it. Thank you for sharing!
I’m so glad you read and reviewed this book, because it’s so important to talk about this. I was just reading a post in which someone lamented that you can’t raise a family on less than $90K a year. Well, the median US household income is around $50K, so obviously you can! And this perspective on financial inclusion should remind all of us that most people in the world not only get by on far, far less, but they have the structural deck stacked against them for all the reasons you mentioned. Rather than griping about money, we should all be focused on what we can do to improve equity and opportunity for people in our own communities, and around the world.
I couldn’t agree more. This is a problem for everyone, whether we want to look it in the eyes or not. We’re raising a family for less than $90k/year. Send them my way and we’ll show them how it’s done! :p Teasing. Kind of.
Wow, this sounds like an amazingly interesting book. I love looking at finance in other countries, because we are so privileged here. Thank you for the comprehensive review! It’s definitely going on my reading list.
No problem, Shannyn! I hope you enjoy. You’ll have to let me know what you think!
I lend money to the poor via Kiva and it is amazing to see what they can do with so little.
I love Kiva, too. The exchange rate is largely what makes it so powerful if I understand everything correctly. One of the cool things about the businesses highlighted in this book is that they are for profit, showing that you can ethically make money and build people up at the same time. Doing so is in everyone’s interest.
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