Can cell phones help reduce world poverty?

February 20, 2014 at 8:06 am 2 comments

I’ve always loved the expression that if you give a man a fish he eats for a day, but if you teach a man to fish he eats for the rest of his life. But let’s remember that no matter how good the teacher or how eager the student , if no one can afford to buy a fishing pole the best training in the world will go to waste.

Can cell phones help solve this dilemma? According to researchers at the Bill and Melinda Gates Foundation, yes. They argue in the most recent issue of Foreign Affairs that mobile phones have the potential to drive down the costs of serving the poor in developing nations; help these citizens save by ending their reliance on cash and, most intriguingly, by providing data on the unbanked and under banked that will enable financial institutions to develop products that cater to their unique needs and create underwriting models that will allow financial institutions and burgeoning financial cooperatives to lend to the poor with more confidence. Although the analysis deals with world’s poorest nations, there are lessons for both credit unions and bureaucrats seeking to serve people of modest means in this country.

According to the researchers, many of the 2.5 billon persons who live on no more than $2.00 a day have capital they would like to save but no institutions in which to deposit it. Branches are expensive and reaching out to the poor can be prohibitive. As a result, 77 percent of the world’s poor have no access to basic banking services. This means that if they have to get money to a sick relative or hope to send money earned working away from home back to their family they have to rely on someone to physically deliver their money.

It doesn’t have to be this way. The World Bank estimates that 89% of people in developing nations have access to mobile technology. Properly harnessed the sick relative can have money digitally delivered to her hospital, money from a far away job can be quickly and safely sent home and financial institutions can cost effectively offer bank accounts and other products as they gain knowledge about these new customers.

In Kenya, a mobile banking product called M-Pesa allows its members to transfer money electronically. 62 percent of Kenyans now participate in the program in comparison to the 10 percent typical of micro lending programs.

Are there lessons for this country? You bet. First, let’s keep in mind that many of the underserved in this country are going to have cell phones long before they have bank accounts.

Secondly, let’s not put regulations in the way of serving the underserved by imposing costs that don’t have to be there. As technology gets more sophisticated NCUA should continue to scale back physical branch requirements for underserved areas.

Third, technology is moving so fast that if you have a robust online presence and nothing else, you better literally get on the phone quickly. The poor person deciding which financial institution will best protect his savings and help them grow is going to choose based on the quality of a financial institution’s app.

Finally, the researchers relate how cell phones have helped spawn cooperatives of members who like to meet periodically as a way of using group pressure to impose financial discipline. My guess is that none of these savers had to have a common bond beyond a commitment to saving for the future. As technology changes the definition of community, credit unions must be given the opportunity to change, as well.

Entry filed under: Advocacy, General, Regulatory. Tags: , , , .

When it comes to lending it’s about young people, stupid NCUA’s Transparency Double Standard

2 Comments Add your own

  • 1. new york's state of mind  |  January 17, 2017 at 9:38 am

    […] to offer services directly to consumers rather than work with a middle man. In addition, research indicates that the unbanked and underbanked are much more comfortable using a smart phone then going into a […]

  • […] to offer services directly to consumers rather than work with a middle man. In addition, research indicates that the unbanked and underbanked are much more comfortable using a smart phone then going into a […]


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

Trackback this post  |  Subscribe to the comments via RSS Feed

Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 484 other followers