NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Much of the discussion in financial inclusion revolves around poverty, and how to provide low-income people with the formal financial products and services they need.

But according to mobile money consultant and thought leader Ignacio Mas, poverty itself isn’t the biggest thing keeping the unbanked out of the formal financial system. “The key distinction between the formal and the informal – those with a bank account and those without – doesn’t have to do so much with income,” he says. “We tend to focus a lot on ’the poor,’ but you have plenty of very low-paid security guards, for example, in Africa, and they have bank accounts. Why do they have bank accounts and other equally low-paid people do not? Because they have a salary. And I think the correlation between those people who are banked and those people who receive a regular salary is very high.”

As Mas describes it, having a regular salary is a major part of what’s driving financial relationships at the BoP today. It’s also contributing to the growth of mobile finance, since when someone gets a salary, their employer has the incentive to arrange to pay them electronically. But the real question is how to reach those who don’t get a regular paycheck. “I think what we’re trying to do is to go beyond the salaried – which happens to be the vast majority of people,” says Mas. “No one is guaranteeing them an income. And that means that their money is not being delivered into an account, they’re being paid in cash. It also means they feel like they need more protections around them to smoothe all the volatility that there might be in their income flows.

“The real deep implication of this is that rules don’t work for them,” Mas explains. “For those of us with fixed salaries, financial planning is really a simple, infrequent affair. If I need to save money to go on a Christmas holiday with my family, I need to set aside 5 percent of my salary for the next three months. It’s not difficult to come up with that number. And tomorrow, there’s no reason to re-plan that, because there’s no new information – basically, tomorrow, the world will look very similar to how it looks today, because I’ll still be waiting for the same paycheck at the end of the month. So once you’ve made a plan, you stick to it.”

But if you’re informal, rules and plans go out the window, Mas says. “Because if today was a good day and you made twice as much money as you normally make, you shouldn’t be saving 5 percent, you should be saving 100 percent of the extra income. And if today was a bad day, you should probably be dis-saving to put food on the table. So the informal majority cannot live by rules – they need to decide what to do with their money every time they touch it. Which is why, in my view, financial planning is the core of the financial problem that they face.”

In Part 6 of our Mobile Money Movers series, Mas describes some long-standing informal mechanisms of financial planning and money management that are common among low-income communities, from indivisibility to peer pressure and “money guards.” He also discusses the possibility that these mechanisms could be incorporated into mobile money products – and the difficulty in getting financial partners to adapt their systems to low-income customers’ existing needs and behaviors – in the first part of a fascinating and wide-ranging interview.

Note: The series has included video interviews with:

• Sitoyo Lopokoiyit, head of Strategy for Financial Services at Safaricom
• Karim Khoja, CEO of Roshan
• Zahir Khoja, CEO of MasterCard’s Mobile Payment Solutions
• Greg Chen, Senior Financial Sector Specialist at CGAP
• Abhishek Sinha, co-founder and CEO of Eko