Last week a coalition of NYC-based nonprofits released a report on the financial status of immigrants in Queens. It’s part of a growing body of research drawing attention to how financial service providers can meet the distinct needs of America’s massive immigrant market. Just last summer the Center for Financial Services Innovation published a national, in-depth analysis of immigrants’ financial needs and recommendations for addressing them . .
Read MoreViewing all posts with tag: Informal Providers
Thriving but Still Vulnerable in the US
The latest household profile from the U.S. Financial Diaries project presents the story of Mateo Valencia, 31, and Lucia Benitez, 30. Mateo and Lucia are an unmarried couple currently living in Queens, New York after moving to the U.S. from Ecuador in 2005. They live with their four-year-old son Pablo in a three-bedroom, one-bathroom townhouse, and they rent out rooms to friends and relatives who are between homes or jobs. Mateo and Lucia are in many ways emblematic of the American immigrant experience. They came to the U.S. with hopes of building a better life and while they are not truly secure yet, they are finding opportunities. They each work multiple jobs and actively seek additional income earning opportunities. But Mateo and Lucia live much of their financial life outside the formal financial system. They deal primarily in cash, so there is little information to support a credit score and they do not have long-term savings or health insurance. Their undocumented status also undermines their ability to invest in the long-term . . .
Read MoreNYT: In Lending Circles, a Roundabout Way to a Higher Credit Score
Earlier this week, The New York Times published a feature on new initiatives aimed at bringing informal savings groups into the formal financial sector:
Read MoreWhile informal lending circles among families, acquaintances, co-workers and neighbors are familiar to hundreds of millions of people all over the globe, they are rarely recognized by mainstream financial institutions . . .
New From USFD: Profile of A Single Mom's Financial Balancing Act
The U.S. Financial Diaries project, a joint initiative of NYU Wagner’s Financial Access Initiative (FAI) and The Center for Financial Services Innovation (CFSI), reveals hard-to-see aspects of the financial lives of working Americans, providing new insight for the design of financial services policies, programs and products for a broad range of Americans.
Each of the project's Household Profiles presents the financial life of one family in the USFD study. While these families are not necessarily representative of the total sample, they illustrate recurring themes: households struggling with income volatility, unplanned expenses, and finding ways to save and invest, but also using creative–and sometimes counter intuitive–budget and money management strategies to help make ends meet. . . .
Read MoreUSFD Project Releases New Report on Informal Finance
People run their financial lives with a variety of tools. The first tools that come to mind are likely to be formal, like checking accounts and credit cards. But households often use informal tools that are harder to see from outside, like short-term loans from friends or relatives. Some people use informal financial services because they lack access—or believe they lack access—to quality products or because they do not trust formal options. It’s tempting to think that these informal tools are last resorts, or second-best solutions, but informal financial mechanisms are often combined with formal tools, and sometimes are preferred . . .
Read MoreFormality and Informality: Lessons from the new Findex Survey
The Findex project helps to correct a long-standing imbalance in evidence on global finance: an abundance of data on the supply of financial services but curiously little that’s systematic and comparative about global demand. Together with the IMF’s Financial Access Survey, we’re finally getting a clear picture of the holes in global financial access.
There’s a lot to celebrate now that the Findex is here. So much so that it’s striking that it took so long to create a constituency for the efforts. Stanley Fischer had initiated the push in 2004 as head of the Advisors Group for the UN Year of Microcredit, and I joined Princess Maxima of the Netherlands in pushing the agenda forward in advisory roles with the UN in 2005. But it was the Gates Foundation’s support of the World Bank research group in 2010 that ultimately got us here.
The Findex headline turns out to replicate an earlier count of the global financial gap: half the world is unbanked, about 2.5 billion adults, the same bottom line that came from aggregating a range of independent surveys from ten years ago. But even if the headline is familiar, the Findex delivers rich details . . .
Read MoreThe Update on Hamid & Khadeja from "Portfolios of the Poor"
For those of you who followed the story of Hamid and Khadeja, the Bangladeshi couple introduced in Chapter 1 of "Portfolios of the Poor", we have an update on them from Stuart Rutherford’s recent visit to Bangladesh. We are excited to learn the couple is healthy and their household finances appear to have become further diversified and formalized.
The family is very much together and still living in Dhaka but in better housing. The second son is now eight, in school and well. Hamid seems to have put his poor health behind him and is still driving an auto-rickshaw (natural-gas powered these days). His income is up, as is Khadeja's. It is Khadeja who has changed the most: she is much more
self-confident and is running a very busy one-woman sari-selling business. Between them they now earn about 14,000 taka a month ($199 USD) – considerably more than in 2000 and 2005. At market rates the four of them are now earning per capita $1.68 a day, or $4.28 PPP . . . .
Virtual Conference Day One: Managing money, drivers of behavior and the role of MFIs, part 2
Mechanisms to Manage Money – continued
• During the course of the research, it was seen that higher dependence on informal means was seen more in urban settings than rural in spite of higher and more regular incomes due to factors like mobility of clients, lack of secure tenure etc. The challenge is to figure out how to mitigate these risks so as to ensure supply of formal financial services to these customers.
• Informal mechanisms though used widely have a risk of monetary loss associated with them and in the past experience; the losses as a percentage of savings have been significantly high.
• Chris Linder wondered about the non-financial methods the poor use to manage risk and queried as to whether there were ways in which MFIs could package non-financial risk mitigation services to the clients along with financial services. Peter cited the experience of construction savings banks in Europe and mentioned that formal financial intermediaries may indeed have a role in providing linkages between the financial and non- financial sector.
• The presence of MFIs in the geographies studied varied widely. In South Africa they were absent, in India the presence was limited and in Bangladesh they were present in most of the respondent households. Even where they were present, they were seen as one among the many options available to clients rather than as ‘The’ financial service provider.
• Some respondents mentioned Post Office savings schemes as a formal savings option available to the poor. But as evidenced by the diary households, this option was suited to relatively better off clients than the poor though the accessibility was quite good especially in rural areas. The constraint was the lack of flexibility in the product and the inability to leverage it for short-term credit requirements.
New ways to strengthen old ways: M-PESA and informal finance
When organised financial services reach people who have for generations used informal mechanisms to manage their money, one of the most important features they bring is reliability - ensuring, for example, that loans and savings withdrawals are disbursed in full and on the promised day, or that deposits and repayments are collected and recorded accurately. It matters because informal devices and services, despite their many virtues, are not always reliable. The problem with moneylenders, most poor people will tell you, is not so much that they charge high interest rates as that you can't depend on them to give you a loan in the first place. Savings clubs of one sort or another are a boon when they work well, but they don't always work well. Storing money with a neighbour keeps it out of the greedy hands of your husband, but when you need to get it back in an emergency the neighbour may not have the cash ready at that moment. Unfortunately, this is sometimes the case with MFIs as well. Nothing irritates me more than to hear MFI staff telling their clients, "sorry, can you come back next week?" When that happens, their services are no better than those that poor people can find for themselves in the informal sector.
But it’s an oversimplification to think that organised services are better than informal ones . . .
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