Lorena Moscovich - Jefa de Experimentación - LabPNUDArg
Carolina felt very lucky. She was given one of the new houses in the neighborhood. However, it brought her many unexpected payments. She went to a bank to ask for a personal loan, but she did not have a payslip, and banks refused to lend her money. Therefore, she went to a loan shark and has very much regretted it since she felt threatened if she did not manage to pay the onerous installments. Poor people pay more for financial services. They run risks when they access to them in the informal financial sector. They also run risks when they cash all their money out to avoid the costs of going to distant ATMs and because they cannot use their debit cards in the local shops. Juana also needed some extra money to meet her debts. She got it thanks to a Rotating Credit and Savings Association lead by women in the “barrio”. A third neighbor, Felipe, found a way to prove that he pays his services regularly in a payment kiosk, and even without a payslip, he could get a credit from a bank at a lower price.
These narratives from Carolina, Juana and Felipe were shared with us by several informants and organizations we interviewed to learn more about the problem of financial inclusion, and to map its stakeholders. We learnt that there is a division between informal finances and financial inclusion. It means that for some people being outside the system is a deliberate choice for ideological reasons. At the same time, experts show that less advantaged people can either choose informal or formal tools depending on the situation. For instance, they can use a Rotating Credit and Savings Association, and at the same time, buy food using a debit card of a social program provided by the Government. Another interesting finding is that many people have bank accounts but they do not want to acknowledge it. This gap between the actual access and the use of financial services is not captured by information on financial inclusion regularly collected by different institutions such as the World Bank. In Argentina, around 80% of the people have a bank account (ENIF 2019). And there are 1.25 debit cards per adult but the amount of operations is one of the lowest in the world, 22 per adult and year (ENIF 2019). Credits are crucial to have access to housing, and for productive purposes as well. However, Argentina has the lowest amount of credits (15% of the GDP) in Latin America.
Furthermore, the fintech sector has a voice in financial inclusion. New technologies help people build new markets within their neighborhoods. In Argentina, there is more than one smartphone per person; this can become an opportunity to improve financial inclusion using new technologies. However, the lack of access to the internet, the cost of mobile data, and more generally the lack of digital education still are important barriers for the development of these tools. Moreover, the infrastructure for an extensive use of tools such as virtual wallets is still scarce. According to informants, another drawback is the business model of the fintech industry. It improves its prototypes based on trial and error of minimum viable products. However, when it comes to financial services for people in poor neighborhoods, there is only one try, if it fails (developing an app, or a virtual wallet, etc.) people lose their confidence (and their money), and there is no second chance.
Why financial inclusion would be a Lab friendly topic? First, it is a frontier challenge that encourages us to think of solutions out of the box. And, according to our exploration, innovation can emerge from the less expected places. Regular payments (even in cash) can be used as proof of financial background. On the other extreme, hitech solutions, such as blockchain, are being used for the same purpose. GIS techniques can be helpful to track the ownership of informal business; for instance, if someone spends 40 hours a week in a hair salon, it is very likely that this person is the owner of this shop, and this information can be included in their financial records.
Financial inclusion is an issue that typically crosses problems that allow us to work breaking the silos of UNDP bureaucracy. Financial tools are crucial for development. According to the UNCDF, for instance, just having savings contribute to more resilience, income, security, control and privacy, less stress, better services and smoother consumption. It has to do with gender, education, inclusion, sustainable cities, access to basic services, such as water and renewable energies, among others. In all, having savings contribute to the SDGs 1, 2, 3, 4, 5, 6 and 11.
Source: UNCDF available at https://impactpathways.uncdf.org/
Not only financial inclusion allows us to work across silos in the country office, but also to foster collaboration within the Accelerator Labs Network. In different countries, Labs are concerned and working on this topic. Ecuador is focused on saving groups of rural women. In Somalia and Zimbabwe, people rely on technologies like virtual wallets due to the lack of bank infrastructure or to the lack of trust in existent financial institutions. In Ethiopia, almost all transactions are in cash, and people, unlike other countries, do not trust technology.
We have finished our immersion in the problem, mapped the issues and stakeholders, and we look forward to going to the field to map solutions and design our experiments. We will keep you posted!