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The Mobile-Finance Revolution
How Cell Phones Can Spur Development
JAKE KENDALL is Senior Program Officer for the Financial Services for the Poor program at the Bill & Melinda Gates Foundation. RODGER VOORHIES is Director of the Financial Services for the Poor program at the Bill & Melinda Gates Foundation.See more by Jake KendallSee more by Rodger Voorhies
The roughly 2.5 billion people in the world who live on less than $2 a day are not destined to remain in a state of chronic poverty. Every few years, somewhere between ten and 30 percent of the world’s poorest households manage to escape poverty, typically by finding steady employment or through entrepreneurial activities such as growing a business or improving agricultural harvests. During that same period, however, roughly an equal number of households slip below the poverty line. Health-related emergencies are the most common cause, but there are many more: crop failures, livestock deaths, farming-equipment breakdowns, even wedding expenses.
In many such situations, the most important buffers against crippling setbacks are financial tools such as personal savings, insurance, credit, or cash transfers from family and friends. Yet these are rarely available because most of the world’s poor lack access to even the most basic banking services. Globally, 77 percent of them do not have a savings account; in sub-Saharan Africa, the figure is 85 percent. An even greater number of poor people lack access to formal credit or insurance products. The main problem is not that the poor have nothing to save -- studies show that they do -- but rather that they are not profitable customers, so banks and other service providers do not try to reach them. As a result, poor people usually struggle to stitch together a patchwork of informal, often precarious arrangements to manage their financial lives.
Over the last few decades, microcredit programs -- through which lenders have granted millions of small loans to poor people -- have worked to address the problem. Institutions such as the Grameen Bank, which won the Nobel Peace Prize in 2006, have demonstrated impressive results with new financial arrangements, such as group loans that require weekly payments. Today, the microfinance industry provides loans to roughly 200 million borrowers -- an impressive number to be sure, but only enough to make a dent in the over two billion people who lack access to formal financial services.