By Jennifer Rimbach
Any humid, mid-summer evening stroll through Manhattan reminds me of the agglomeration economy’s complex problem of poverty. The divide between the rich and the poor is wide. In the shadows of skyscrapers with rooftop bars and penthouses lurk some of the city’s most destitute and homeless population.
Members Only: The Power of Banking and Financial Inclusion
The name of the game is development. The World Bank estimates that 2 billion people live on less than US$2 a day and 1 billion people under $1 a day. Another statistic approximates two-thirds of the world’s poor as being unbanked.
Despite having traveled throughout six continents and in some of the most remote and rural areas, these numbers will always shock me.
Solving World Poverty
How can you make money if you never had money? In many parts of the world, economic and social mobility is a dream most people do not have the luxury of imagining. The United Nations Capital Development Fund recognizes this challenge and is working to develop public-private partnerships to promote economic development in the world’s 49 least developed countries. During my time here, I have been convinced that financial inclusion for the poor, and especially poor women, is a key development tool in alleviating extreme poverty. Combined with education and financial literacy, providing people in poverty access to a range of financial services that includes not only micro-credit but also client-targeted products for micro-savings and micro-insurance can encourage economic stability at the household and community level. A World Bank study reports that financial deepening- increasing the provision of financial services- lessens income inequality and disproportionately impacts the poor. As conversations on the Post-2015 Development Agenda continue, it is important to acknowledge the increasing role of financial inclusion in development.
Get Rich or Die Trying
Despite controversial evidence from once highly acclaimed randomized control trials and other impact studies pointing to positive results of microfinance on the poor, there are a vast number of factors at play in the equation. Cultural, religious, political and legal barriers can dictate the successful uptake of any development assistance program. As a result, financial products must be targeted towards specific segments of the population if they are going to work and a regulatory framework must be in place along with a system of monitoring microfinance institutions.
While providing access to financial services to the poor may not lead to the eradication of poverty, it has the power to smooth economic consumption and reduce vulnerabilities. Microfinance has the ability to lessen the crippling effects of poverty. It provides a safety net for unexpected circumstances like sudden illness or death and can promote behavioral change within families by encouraging saving.
A final disclaimer is that poverty takes on many forms. While economists and development workers tend to focus on monetary poverty, those with little to no income are not necessarily shirked from other aspects of wealth. In fact, it is important to remember that the most economically impoverished can still lead an enriched life, especially in aspects such as spirituality and relationships.