When discussion turns to the topic of “financial inclusion” and “banking the unbanked”, sceptics often ask a variant of the question “If people are so poor, how do they have any money left over to save?”
Fact is that low-income earners know the importance of saving a portion of their income for specific plans or just in case of emergency, and a variety of ways have been devised to fill the gap left by formal financial sector players. Around the world, people still save by buying livestock or jewellery, putting money into group savings devices such as Esusu in Nigeria, or even by simply accumulating cash under their mattresses or a waterproof container hidden somewhere in their home.
These methods of saving are inefficient, relatively unsafe and usually do not scale to meet the big expenses that life may bring. Unfortunately, they are also too often the only options available to low income earners because the formal banking sector is far from reach and does not offer products priced to meet their needs. Research shows that less than a quarter of all African adults have a bank account; this means that most Africans lack access to even the most basic financial product, a low-risk, reliable and inexpensive way to save money.
Even beyond savings, there is tremendous latent demand for appropriately priced credit, insurance and payment/remittance products. Poor people need loans to start or grow their businesses; they need insurance of various kinds to mitigate the many risks they and their families are exposed to on a daily basis; and they need safe and convenient ways of sending money to friends and relatives wherever they might be. Today, Governments and many private sector players across Africa are driving programs to increase financial inclusion; in the last decade technology began to play a central role towards achieving the vision. We hope that the trend continues.
For anyone looking to better understand how poor people manage to make ends meet, we recommend getting a copy of “Portfolios of the Poor: How the World's Poor Live on $2 a Day”. The book is an excellent resource – it presents a detailed study of the financial lives of over 250 poor families in developing economies, and how they use formal and informal tools to save money, obtain credit and generally smooth out the mismatch between their income and outflows.