By Ma. Verónica Moreno - Chief Solutions Mapping AccLabUNDPArg
Three challenges emerged from the exploration with key informants: payment methods, savings, and digital transition. Our fieldwork allowed us to understand what low-income people need and what strategies they develop.
Before moving on to what we learned from our fieldwork, let's consider the social context in which people develop individual and collective strategies.
Based on what we know
Living in poverty is expensive. People from low-income households and whose rights have been repeatedly violated can pay a higher price for certain services or products and, due to the lack of alternatives, fall into low-cost and high-rate perverse loan schemes, which have intimidating and even dangerous payment systems.
There is a significant gap between what people need and what banks offer them; from the use of unclear language, which not everyone can understand, to the lack of quick response when they fail to credit payments in small businesses, which live on a day to day basis.
Not all access to financial service represents an inclusion mechanism. There are schemes, even coming from the formal system, that generate or perpetuate exclusion; indebting people in a predatory way.
Microcredit, by itself, is not a transformative tool. It’s necessary to have a structural view of economic development models and the creation of value chains. The way out of poverty requires multiple interventions.
The situation in Argentina is critical; more than 35% of the population lives in poverty, women represent one of the most affected groups, and a large part of it is severely indebted. In fact, the barter economy has returned… even in the form of decapitalization (people exchange their possessions, knowing that they will probably not replace them again). There is so much to do.
Recognizing what is needed and what works (because the people themselves said so)
Despite the mentioned obstacles, people develop multiple strategies to overcome them. What do we find on our fieldwork? Let's go point by point.
Payment methods. Experts highlighted that payments are a daily situation; everyday we pay for something. Due to its frequency, payments can be the gateway to financial inclusion. If suitable solutions are adopted by people, they could promote the incorporation of new experiences, and/or of the formal financial system. Payments also represent specific benefits for consumers (practicality, financing, etc.) and for shopkeepers (increased competitiveness, etc.). We must start somewhere (Payments could be the first step?).
In popular neighbourhoods, we identified businesses that offered digital payment as a service added to their original offer (pharmacy, stationary, etc.). Their users value them because, where digital literacy is basic and there is poor infrastructure, it saves them commuting time. These providers, who pay with their computers, inspire confidence in the community because they are already known.
At a popular economy fair, we found two stalls offering digital payments. Both stood out for being very well organized, selling value-added products and, in one of them, the merchant presented himself with a personal card. We sensed that these businesses could inspire confidence in others.
Are payments, even digital ones, originally driven by trust?
Savings (when this can be done). Many experts agreed that savings could be a source of empowerment by allowing people to mitigate macroeconomic changes (unemployment, etc.) and to achieve more distant objectives. They remarked that it’s key to promote behavioural changes; the interviewees agreed.
In a communal bank, we had a Eureka moment. When asking its members what the main lesson learned from this participation was, there was no doubt: the acquisition of planning tools that they later transferred to their home economics. Instead of telling us about their (low) income, they highlighted their expenses. They recognized the need to stop buying things they didn't need (by their own parameters); accumulate perishable merchandise (which spoils without being consumed) and avoid the temptation of discounts. It’s not a matter of evaluating —from outside— the legitimacy of certain consumption over others, but of illuminating structural mechanisms that lead us to consume things that, in the end, we don’t even use. Sound familiar?
Since there is an intention to save, there is value in interpersonal agreements —in different areas— that allow the postponement/deprivation of consumption (not prioritized by individuals) or the accumulation of capital collectively. These agreements are based on trust, mutual support and a sense of community, and illuminate that when people collaborate, they can go further.
Physical instruments, such as piggy banks, are still effective in differentiating types of expenses. Another recurring strategy refers to the accumulation of material for home construction or improvement.
Digital transition. It’s a fact: young people are more receptive to incorporate technology. Intergenerational digital education practices, where they teach adults how to incorporate new experiences, are widespread. We also identify spaces for digital barter, but at the community level and through physical exchanges
Trust, proximity, social organization, and inclusive policies: key elements of financial inclusion
These mapped solutions are appropriated by people, regardless of whether they have designed them (or not). Among users, the barrier between beneficiaries and promoters is blurred. Most are crossed by trust and proximity. When there is social organization, processes accelerate.
Although we are addressing financial inclusion, we reaffirm something more important. We need people to implement strategies that are convenient for them, associative networks to build collaborative logics, and social actors (with the inescapable State responsibility) to promote inclusive development models. The financial dimension is no exception: no one is saved alone.
**This blog was just written before the emergence of the coronavirus in Argentina.
The coronavirus —among other consequences— will have a big economic impact among low-income or self-employed people, etc. Read more about COVID-19 possible effects on Latin American economy
-> How will COVID-19 affect the economies of Latin America and the Caribbean?