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The poor are different

How many people in the world have bank accounts and what do they use them for? You would think there would be answers to those questions, given that banking is the quintessentially global business, and is important not only in the West but in developing countries, where banks can help poor people save, borrow and invest. The extent of banking around the world is much patchier and less predictable than one might expect. Of course, bank usage tends to increase with income both globally and within countries.

The bigger surprises concern how people use banks and other financial institutions. One might expect that, outside the West, banks (which tend to be relatively expensive) would be used largely for business. This entirely is NOT the case. The vast majority of people in developing countries—88%—say they use banks solely for personal use. The commonest reason for taking out a loan, for example, is to pay for family emergencies (typically someone falling ill). That is followed by school fees, home construction and the expenses of a wedding or funeral. In Africa, 38% of those with bank accounts say they use them to receive remittances from family members abroad. In contrast, one particularly important reason for having an account in Europe, Central Asia and Latin America is to bank money from the government, either salaries or benefits. In short, banks in the West are purposely meant to be used to save money whereas those in developing countries are for borrowing money. A popular form of saving in most developing economies is the savings club. A group of people get together to bank their pennies regularly and each month the club pays out the entire pot to each member in turn. How is this type of banking system sustainable for the people and the economy as a whole?

Little is also known about the banking practices of the poor, women and young people. Banking displays a significant gender gap. In developing countries, 46% of adult men say they have an account, but only 37% of women have.

Levels of banking also rise with income and education. For instance, it is more common for an educated person with tertiary education (not necessarily university education) to have a bank account than those with little or no education at all. One of the commonest reasons people give for not having an account is the paperwork. People would prefer to keep monies at home to deal with personal and family emergencies. So in effect it means the poor are different because they cannot read or write to understand basic banking terminologies.

The moral of this write up then is that, apart from income, all other things matter- Education! Policies surrounding banking make a big difference. The question then one may ask is does the government in developing economies make it easier for banks to spread or develop? Must one necessarily have to go to a physical structure such as the banking hall to do any form of business transactions i.e. send or receive money? Are the banks in developing economies making the poor much different from the rest in the lower income quintile?


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