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

In his broad analysis of business and the BOP, The Fortune at the Bottom of the Pyramid, C.K Prahalad points out that being poor is expensive. With a lack of products and services tailored to fit their needs and incomes, they languish in exploitative informal markets that often prevent them from escaping the cycle of poverty.

According to an article in Progress magazine, poor people in developed countries have the same problem:

“In the US, the Brookings Institution has just published a report on working families in Philadelphia. It shows that the poor pay more for everyday goods and services – more than better-off families pay for exactly the same products. The same thing is happening in the UK. (Poor people) cannot access mainstream financial products such as bank accounts and end up paying more for cashing cheques and paying bills. With mainstream credit unavailable or inappropriate, over 2 million people took out a home credit loan in the last 12 months, with average APR rates of 177 per cent.”

Financial education, strengthening of Community Development Finance Institutions, and new products such as ’basic bank accounts’ are proposed the fill this gap. Similar initiatives have been tackling poverty in developing countries with variable levels of success. To me, this seems like one more opportunity for lessons learned in ’the South’ to be transferred to ’the North’, and vice-versa.

Reading this article reminded me of a discussion session I was a part of at the World Social Forum in Mumbia. Through a translator, a woman from the favelas in Brazil and a woman from South Central LA discovered that they faced a remarkably similar set of problems in their respective communities. Making this connection seemed to be the first vital step in demystifying the issues, in order to then work together to solve them.

The piece concludes with a set of recommendations for policy makers in developed countries: “We need to make these markets work for low-income people. Financial markets should be obliged to provide services and products that meet the needs of those on low-incomes. Labour markets need to function better, to equip them with the skills to access good-paying jobs. And investment markets need to recognise the assets and opportunities of deprived areas – which often have strategic locations and untapped demand.” All sound advice, whether applied to the poor in Philadelphia, or in the slums of Nairobi or Mumbai.