March 28

Tanya Ladha / Elisabeth Rhyne

Dollar by Dollar or Goat by Goat: How Financial Health Translates Across Oceans

Meet Shabana. She is a middle-aged woman, lives in a large metropolis and works at one of the city’s bustling train stations. One day, she suffered a severe workplace injury and wasn’t able to work for weeks. With no support from her employer, she realized how financially vulnerable she was, and decided at that moment to make a change. After recovering from her accident, she began saving almost 30 percent of her income, and after a year was shocked – and empowered – by the considerable financial cushion she had built herself.

Shabana, by Micheal Mori of Dalberg

Shabana (right). Photo: Michael Mori, Design Impact Group

Shabana’s story is one of resilience in the face of vulnerability, one of adapting daily habits, one of planning and achieving goals. It is a story of financial health, and it is universal. While Shabana lives in Mumbai, India, her story is relevant for millions of individuals around the world, both in developing and developed countries, including here in the U.S. It is this core concept that pushed the Center for Financial Services Innovation (CFSI), in partnership with the Center for Financial Inclusion at Accion and funded by the Bill & Melinda Gates Foundation, to explore how a U.S.-oriented financial health framework could translate into a developing world context.

For decades, practitioners in the U.S. and abroad have approached financial inclusion with a focus on access, usage and behavior change. In 2015, CFSI introduced a financial health framework that shifted the focus to the outcomes we hoped consumers would achieve. CFSI defines financial health as having effective daily financial systems that build resilience from shocks and the capacity to pursue opportunities.

In 2016, Dalberg’s Design Impact Group, the research partner in this project, traveled to urban and rural centers in both India and Kenya to find out if this framework could be applied to people living outside the U.S.

What did we find? The concept of financial health resonates just as strongly in lower-income countries as it does in the United States.

Think about it: People all over the world spend, save, borrow and plan in an attempt to gain financial stability and health, though they may go about these things in different ways. Collecting insights from individuals across 18 different urban and rural communities and through qualitative and quantitative research, the team was able to create a framework of six indicators of financial health for the developing world.

As published in our new report, “Beyond Financial Inclusion: Financial Health as a Global Framework,” we found that individuals are financially healthy when they:

  1. Balance income and expenses
  2. Build and maintain reserves
  3. Manage existing debts and have access to potential resources
  4. Plan and prioritize
  5. Manage and recover from financial shocks
  6. Use an effective range of financial tools

These indicators echo the U.S. framework, though because data is less available, they are somewhat more qualitative, combining measures of actual financial status with measures of habits and attitudes. Additionally, they are somewhat intertwined. For example, the ability to manage shocks depends in large part on having existing and potentially callable reserves. Together, however, they form a solid portrait of financial health in any context.

Turning back to Shabana – the fundamental elements of her story are universal. But there are several factors unique to her circumstances and others in developing-world contexts which have outsized influence and impact on financial health. In order to adequately acknowledge these differences, we created four contextual factors that affect financial health in the developing world:

  1. Absolute income level: respondents in deep poverty have limited bandwidth for financial health
  2. Income and expense volatility: extent and timing of variations in income and expense flows, including whether they are predictable
  3. Social network: range of family, friends and community contacts available for informal financial arrangements
  4. Financial role: status within household (e.g., dependent, contributor, key financial decision maker)

Cataloging the alignment and divergence between individuals in the U.S., India and Kenya revealed powerful opportunities for financial services providers, and market and policy researchers. For example, we found that many people, even those who are surprisingly poor, use financial tools – but these tools aren’t typically bank accounts, mortgages or insurance. People save in goats, gold or construction materials; they borrow from family, friends and employers; and they cultivate social relationships to call on in times of stress. Among the people we surveyed, formal financial services are only beginning to penetrate. This suggests that providers of financial services need to recognize that most of a person’s financial life may be lived somewhere they simply cannot see. And as a result, products should be designed to fit into the systems people are already using, however informal.

Researchers and policymakers interested in improving financial health across the globe can use this framework to ground themselves in understanding how financially healthy their target populations already are. Using the indicators and factors to survey key constituents and track their progress over time would create an effective and standardized method for practitioners around the world.

Next up, we’ll begin testing the framework in more countries, both to validate the framework and to continue advancing the sector’s understanding of the financial health of the billions of people on the outskirts of the global financial system.

As for Shabana, after saving her rupees for a year, she said she could not believe how much she had collected. She had crafted a daily system which created resilience over time and afforded her opportunities that had not been available to her previously. She has taken some powerful steps toward achieving financial health.

Whether in rupees or dollars, goats or social capital, a global financial health framework can bring impactful returns. And isn’t that an idea worth spreading?

Want to learn more about financial health? Join CFSI at the annual EMERGE Forum this June in Austin, Texas.


Tanya Ladha is a Senior Manager at the Center for Financial Services Innovation and Elisabeth Rhyne is managing director at the Center for Financial Inclusion at Accion.

Photos: Michael Mori, Design Impact Group




Base of the Pyramid, financial inclusion, research, savings