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> Posted by Elisabeth Rhyne, Managing Director, CFI
The following post was originally published on the CGAP Blog.
A great transformation is shifting the weight of global power, population, and economic growth from what was once called the first world to what can no longer be called the third, and more precisely toward the middle-income countries that are still, somewhat anachronistically, labeled emerging markets.
Through that shift, enormous numbers of people are moving out of poverty into the “vulnerable” class. Living on perhaps $4 to $10 per day, they are not quite middle class, but they possess, for the first time, a small amount of discretionary income above bare survival. In many countries, this group is, or will soon be, the largest segment of the population. For the first time, these hundreds of millions of households are starting to figure as prospective customers in the market analysis of companies around the world.
There is also a transformation going on in financial services, built on these rising incomes and fueled by information technology breakthroughs. Now is a time of creativity and experimentation with new products, providers, and delivery systems for financial services – and, importantly, outreach to previously excluded clients.
The responses of businesses and even nations to the opportunities presented by these demographic and technology shifts will create winners and losers. The winners will be companies that address this market while it is still relatively open, thereby securing their position in the world of the future. The winners will be nations that open their financial systems to the creative business models needed to serve these new customers, and thereby promote a productive and connected citizenry.
> Posted by Kim Wilson, Fellow, Center for Emerging Market Enterprises and the Feinstein International Center, Tufts University
The Financial Inclusion 2020 project at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
Growing Income, Growing Inclusion: How Rising Incomes at the Base of the Pyramid Will Shape Financial Inclusion by Sonja Kelly and Elisabeth Rhyne deftly summarizes the relationship between income and formal financial services. It maps those countries that can begin to look forward to big chunks of their populations moving up the economic pyramid. The good news is that incomes are increasing – those earning $1 or $2 a day can anticipate doubling that amount soon.
The bad news is that financial inclusion watchers consider the emerging “vulnerable class” –those with a daily income of $4 to $10 – to be financially included only when formal suppliers reach them. Sure, formal inclusion is one kind of inclusion and certainly helpful for some. But the informal to formal continuum is linear. It misses many lateral possibilities that, taken together, could produce multiple robust and interlocking financial ecosystems, with formal options constituting just one part of those systems.
Conventional wisdom goes like this: I am poor and therefore dwell in a primordial, financial murk. As I crawl out of the murk via more income, formal products nudge me onto the dry banks of financial evolution. I am complete. Such thinking feels so natural, so right, so logically unassailable.
But conventional thinking has not proven out this linear progression. While the Kelly and Rhyne paper points to 1) a strong correlation (.76) between income and account ownership and 2) increased access to formal financial services accompanying increased income for the bottom 40 percent of the population, it also says, “for individuals, participation in one sector may not replace or preclude participation in the other. Customers will pick financial products and providers from across the spectrum of formality to meet their needs.”
This last sentence captures my imagination. It inspires me to entreat our financial philosophers: why focus your genius on dragging customers kicking and screaming into banks, or decamping reluctant bankers to the countryside in search of business they don’t want?
Why not, instead, focus on helping folks receive all the benefits we ascribe to the formal system – transparency, safety, convenience, reliability, fair pricing, and privacy – without the expenses of that system (those hefty reserves, that costly supervision), while at the same time improving upon those benefits?
> Posted by Sonja E. Kelly and Elisabeth Rhyne, Fellow and Managing Director, CFI
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
This post is based on research from the Mapping the Invisible Market project published in the paper Growing Income, Growing Inclusion by Sonja E. Kelly and Elisabeth Rhyne. The paper was released today, and can be downloaded at mapping.financialinclusion2020.org/growing-income-growing-inclusion.
The World Bank, UN, and The Economist are all talking about it: growing income around the world. The UN’s goal to halve the number of people living in poverty by 2015 has already been achieved, and the media frequently spotlights growth in emerging markets contrasted with reports of malaise in the EU and US economies. In low and middle-income economies, it isn’t just the wealthy or the well-connected who benefit from this growth. Real incomes are rising among the poor, moving hundreds of millions of people from extreme levels of poverty into levels at which they begin to have more income flexibility.
Over the course of this decade, the bottom two quintiles in many of the world’s most populous countries will see movement into and even beyond the “vulnerable class,” defined as having an income of $4 to $10 per day. Read the rest of this entry »
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