From Kentucky to Kenya: Celebrating Financial Inclusion’s Potential – And Facing its Limitations
Editor’s note: Throughout 2017, NextBillion is organizing content around a monthly theme, dedicating special attention to a specific sector alongside our broader coverage. This post is part of our focus on financial inclusion for the month of June.
Check out these discouraging statistics and guess which country they’re from:
- Almost 60 percent of the population is struggling financially, due largely to “an unhealthy amount of debt, irregular income and sporadic savings habits.”
- Almost 50 percent say their expenses are equal to or greater than their income, and over 40 percent have a hard time paying their bills and making credit payments.
- Even among those considered “middle class,” 23 percent are living paycheck-to-paycheck.
Which emerging market fits this profile: Kenya? India? Mexico? You probably saw this punchline coming from a mile away, but the answer, of course, is the U.S. Research from the Center for Financial Services Innovation has shown that even in one of the world’s richest countries, a surprising number of people are experiencing – at least to some extent – the same financial stresses common in the world’s poorest.
Looking at the spread of economic uncertainty from emerging markets to developed ones, it’s hard to know how to feel. On the one hand, it’s fascinating and even perversely unifying to consider that in spite of everything that separates us, we’re all engaged in a common struggle. Across cultures, people are dealing with income scarcity and volatility, trying to patch together a decent living from a variety of sources, in the absence of a steady, good-paying job. Many financial inclusion researchers seem to share that fascination, as evidenced by the recent proliferation of studies from industry heavyweights like the Center for Financial Inclusion and CFSI’s Rachel Schneider and NYU’s Jonathan Morduch. Though these studies reveal significant differences in the financial health and prospects of low-income people in developed and emerging economies, they also show more similarities than you’d expect.
But beyond any superficial feeling of global solidarity those shared struggles might inspire, let’s be honest: The situation is depressing and difficult to fathom. While it was once common for Americans to marvel from a distance at how poverty could be so prevalent among natural resource-rich countries in the Global South, many are now asking the same questions about us. Fortunately, many others are asking – and answering – a more important question: What can be done to improve things?
In the past month, our guest writers have covered a number of stories that both illustrate the common challenges faced in developed and emerging markets, and propose solutions. Ignacio Mas, a researcher himself, shared his (unsuccessful) struggles to regain lost money and a lost digital identity after using a digital bank – then contemplated the risks digitization could pose to poorer customers. David Porteous explored why alternative lending has failed to migrate from developed markets to emerging ones, and how fintech can turn that around, while his colleagues at BFA discussed how machine learning can help providers extend credit to the underserved, and how fintech can be effectively translated to customers in low-income markets. And most significantly (for NextBillion), MetLife Foundation President Dennis White shared his insights on the shifting global financial inclusion landscape, as we launched the MetLife Foundation-sponsored NextBillion Financial Health site. You can read these posts and many more in our Financial Inclusion Month series, which concludes today.
But in spite of the legitimate excitement and optimism generated by the many promising innovations we’ve covered this month, it’s hard to avoid some concern about their limitations. The financial inclusion movement can have a significant and lasting impact on people’s lives – especially as its focus shifts beyond just usage toward a deeper emphasis on the overall financial health of customers. But this is likely to have little impact on the broader problem: Not to put too fine a point on it, but low-income people aren’t struggling simply because they lack appropriate financial products. In many cases, they’re struggling largely because high-income individuals and businesses – and their enablers and beneficiaries in government – are keeping too much of the money for themselves.
That’s not to say that profit is bad, or that it’s wrong to be wealthy: The development of profitable businesses is key to economic growth and a major driver of poverty reduction, and many corporations and wealthy individuals use their money to do a great deal of good in the world. But any definition of business success should take into account the impact on workers, the environment and the surrounding community – not just the maximization of short-term value for shareholders. And simply creating jobs isn’t enough: Just as financial access doesn’t equate to financial health, having a steady job doesn’t necessarily equate to having a healthy, happy life – even in emerging markets where jobs are scarce.
To its credit, the financial inclusion community seems to recognize the extent to which inequality drives and necessitates its work: For instance, many of the top policy solutions outlined in Morduch and Schneider’s recent U.S. Financial Diaries research focus on addressing the underlying issue of low and volatile income, and CFI also regularly discusses the role of low wages in common financial struggles. It would be great to see the sector move even further in that direction, calling more openly for a solution to what – along with climate change – may be the defining global challenge of our time. Unless people are given higher and more reliable income, healthy working conditions and access to adequate government benefits when hardship strikes, the problems of poverty will remain beyond the power of financial inclusion, or any other sector, to fix – and that’s just as true in Kentucky as it is in Kenya.
James Militzer is the editor of NextBillion.