Wednesday, March 24, 2010

The need of the unbanked - or why is transformational banking necessary

What is it that poor communities really need in as far as financial services are concerned? Do people with a low income and very little money really need financial services? Because if they do not need financial services, what are we busy with... this banking the unbanked thing. So, I thought that I would list the things that I think people need in communities with limited resources, just to get the ball rolling:

  • They have the need to be able to receive remote payments electronically, without having to take a day out and to travel. Many people in poor communities need payments from families working in cities or elsewhere or use government grants or handouts as the means for subsistence. The act of receiving these payments are often expensive and complex.
  • The ability to be able to save towards a target is not available. Even if some-one cultivates the discipline, the actual mechanisms (putting cash in a bottle or savings clubs etc.) are not convenient or safe. Many people want to buy something big or are planning a major expense (e.g. sending their kids to university etc.). The correct way that they should do this is by means of a targeted electronic savings product.
  • If something happens (like an accident or an unplanned expense for instance), poor people also need access to lending products. Better still, many of these mishaps can be catered for by well-designed risk products. Most of these new financial products are only possible with efficient, electronic payment systems.
  • I do believe that poor people also need to be able to have a record of their financial transactions. This is important from a number of perspectives, but the most important (I believe) is that such a transaction record will enable financial education. It is (for instance) extremely difficult to produce and manage a budget, if no record of financial transactions exist.
Many studies seems to indicate that the need really exists, But what do you think?

2 comments:

srikrishna bhat said...

I really liked this blog. You have presented the points very clearly. Verifiable Electronic Identification is one more challenge for the people in the bottom of pyramid. So a lot of efforts are needed to see that the payment reaches the person it is meant for. This makes the whole payment delivery process becomes complex. I suppose mobile payment system with biometric identification could be one of the solution.

Eric said...

I agree for the first point but do not agree completely for the other ones. I think that unfortunately poor communities can't save money for the future as their first concern is today and tomorrow.

I have been living in Morocco for more than 20 years and unbanked people (mostly in the country side) are indeed unbanked because:
- They can't save a lot
- They are paid by cash (if they have a paid-job)

However, I think that there should be another reason for using electronic money: being paid in another way than cash. For example, I assume that if farm managers could avoid having thousand of dirhams (Moroccan currency) in an easy-to-steal box to pay all their employees, they would do so.