Financial Inclusion at the Bottom of the Pyramid

Despite all the recent technological changes in the world, are things getting better for everybody? Many people are seeing large improvements in their standard of living when compared to their previous situation, even though on a first-world comparison it may still be relatively small. A lot of people still have it bad and are languishing at the bottom of the pyramid, standing on the lowest rung of the ladder.

This book takes a look at this large part of the world’s population and considers how they handle their money. Here technology is making inroads. If you have access to a mobile phone, you can do a lot more compared to people just one generation ago, often for a significantly lower price. When you don’t have a lot of money, even sending a little to someone else can cost a lot, representing a much larger share of a little bit, thanks to banks and middlemen all wanting their cut. When you don’t have a lot, you don’t necessarily have a lot of choice nor can shop around. It can really be “take it or leave it” territory.

Credit must be given to the authors for producing a book that does not compromise its intellectual quality, whilst remaining easy-to-read and engaging. It is suitable for a general, curious reader as well as the more involved professional or academic who may have different needs and expectations. The authors have resisted the temptation to overly “point fingers” or campaign for change; the stories can talk for themselves and the solutions being deployed do not need any hype.

The problem is not isolated to a few people in a few countries. As the authors note: “In the world today, over two and a half billion people who earn wages and support families do not use a formally recognized financial services provider. They are cut off from the institutional services that the wealthy take for granted. For them, the world of old finance is like an Aztec pyramid: broad at the base, with a set of steep stairs ascending to the sacred temple at the top. Not everyone can access the riches and opportunities that lie at the top of the pyramid. The stairs are too steep and the price of admission is too high. These billions of people live at the bottom of the pyramid. They do the best they can to find shelter, support their families, run their small businesses, and conduct their financial affairs without the benefit of safe and reliable institutional financial services. They are the financial nomads. They live from day to day, and they climb the steep stairs of the pyramid to use institutional financial services only when they are able or when they have no other choice. This can create a downward spiral due to steep prices, penalty fees, and escalating costs of short-term credit. Because of bad experiences or foreknowledge of the high costs, they avoid the pyramid, and use only cash or patronize the world of alternative financial services—the world of loan sharks and payday loans.”

It hardly feels great does it? In the first world we may not give a second thought to pressing “buy” on Amazon.com for a book we want (such as this?), until the credit card bill comes in. Need a coffee? Wave your iPhone at a card reader in Starbucks and job done. On the other side of the world, not only would the scale of these transactions exceed a person’s daily if not weekly income, but also the flexibility to even consider doing this doesn’t exist. Problems also exist in first-world countries, with people paying disproportionately more, often living week-to-week on revolving credit and paying through the nose for the privilege. It is just they are at the bottom of another pyramid; they are in the same lowly position, looking upwards.

In the book the authors look at how the pyramid and its problems can be reformed and redesigned. Technology will help democratise this process. Of course, those with a lot to lose will hardly stand idly by and watch as their “cash cows” are slaughtered. Change is coming; some things will change with a massive wave, some things will take a bit longer, but change they will. Reading this excellent book will make you better informed and maybe even make you want to inspire and embrace the inevitable.

You should be depressed reading the book, yet it offers hope and shows positive change. It doesn’t mean you shouldn’t care, but it gives hope.

Financial Inclusion at the Bottom of the Pyramid, written by Carol Realini & Karl Mehta and published by Friesen Press. ISBN 9781460265529. YYYY

I have long been an advocate for small-scale banking and microlending as an effort against payday loans and $100 crises that send people into years' long spirals of debts and insecurity. Transfer fees, money orders, charges on ATM withdrawls, the physical risks of carrying cash and banks inaccessible to "global financial nomads" without huge initial deposits make being poor extremely expensive and unnecessarily punitive for working people. Realini studies innovative solutions made possible by ubiquitous technology, particularly mobile phones, which offer global, no-frills accounts and the ability to take in deposits of checks by photo, swipe credit cards and pay via a chip and pin or QR codes. The security implication is very clear as well--money moved via traditional halwa networks is impossible to trace, but people use the halwa networks because they are starved of other methods. Offer easy, better financial transactions and the halwa fade away, leaving crime and terrorism finances fewer places to hide.

This book has some excellent insights about social entrepreneurship involving Bottom of the Pyramid clientele. I really enjoyed it!