I’ll get to the chickens and their late night antics soon. Believe in my willingness to tell you about the chicken parties.
But first, let me mention that there are 2.5 billion people in the world today who remain outside of the formal financial system. These “unbanked” people don’t have bank accounts or credit cards, and don’t have access to formal loans. So when the World Bank recently went on a quest to find out more about how this actually works out for people, the question they asked locals around the world was as follows:
“Imagine that you have an emergency and you need to pay £1,300 ($2,000). How possible is it that you could come up with £1,300 within the next month? Is it very possible, somewhat possible, not very possible, or not at all possible? Would you use a credit card, dip into your savings, or ask your employer, friends or family for help?”
For the lucky ones, credit cards, bank accounts, and savings offer quick and easy solutions. Other options exist if you’re shady like me; sneaking cans of beer into the pub to save cash, or being that loathsome creep who goes missing when it’s their turn to buy the next round. But for people only earning a dollar or two a day, and without a bank account… what are THEY going to do?
The most unexpected response came from Peru, where people hold “polladas”, or chicken parties. Now don’t go thinking that the chickens are running around in glittery hats or something, because chicken parties involve a person charging their family, friends, neighbours to come around, eat chicken, and drink beer. The attendees know that they’re essentially at a fundraiser, but the person in need of fast cash feels less like they’re begging or borrowing. Of course, the favour is expected to be returned down the track, when someone else has an unexpected financial emergency.
The chickens aren’t saddled with as much responsibility in Ghana, where many women use a system known as sou-sou. It involves someone visiting houses every day to collect tiny amounts of money, and charging one day’s contribution per month in exchange for the service. This system is a response to the problem of other household members “borrowing” any loose change that is around the house, and enables the woman to gradually build up savings. Plenty of the women using the sou-sou system actually have bank accounts, but aren't able to get to the bank every day.
The broader question is obviously how to make formal financial services available to low income people in developing countries. The current international financial system wasn’t created with these people in mind, so innovation is required in order to create products and services that can help these people to save, borrow, and gain more control over their lives.
Modern innovations are changing everything
Back in 2002, researchers in Uganda, Botswana, and Ghana noticed an interesting phenomenon happening on mobile phones. Phone companies there had a feature which allowed people to send mobile phone credit to someone else’s phone. Soon enough, though, the locals started using it not as a way to transfer phone credit, but to transfer value. If you send phone credit to your sister in another town, and she then passes that credit onto a neighbour who pays her cash for it, you’ve effectively sent her an instant money transfer – without either of you having a bank account.
Things developed from there, and in 2007 the M-Pesa service was launched in Kenya, which allowed people to borrow and repay money via local airtime resellers. The next phase of M-Pesa allowed people to make payments and send money via their phones. These days it can also be used to deposit and withdraw money, and pay money into bank accounts. By 2012, there were over 12 million M-Pesa accounts in Kenya, and the service has now expanded to other parts of Africa, India, and Eastern Europe. And M-Pesa is just one company in an industry with lots of new, experimental things going on.
While overcoming extreme poverty often seems to be about things like vaccinations, better farming, and literacy, there’s a massive role that financial services can play in improving the lives of the poor. By providing reliable ways to plan for emergencies, support family members in other towns, and borrow money at reasonable rates, life will become less precarious and more productive for hundreds of millions of people.