adminMatsvimbo Dida : Financial Inclusion Matters
Over 1,5 billion people are multidimensionally poor with overlapping deprivations in standards of living, education and health. On the same note, close to 800 million people are vulnerable to falling back into poverty should setbacks occur. They live in near poverty. Researches have revealed that 1,2 billion people in 104 developing countries (including Zimbabwe) live on less than $1,25 per day while 2,7 billion people live on less than $2,50 per day.A population of 2,2 billion (15 percent of the world population) are either near or living in multidimensional poverty. Those just above the poverty threshold are living with the risk that any idiosyncratic or generalised shocks have potential of easily pulling them back into poverty. Three quarters of the world’s poor are said to be living in rural areas.
In this regard, we cannot leave issues of poverty and vulnerability when discussing financial inclusion. Poverty and vulnerability are linked, they are multidimensional and at times they are mutually reinforcing. The two are however not synonymous.
Poverty has been described as, “Pronounced deprivation.” While poverty may be linked to well-being commodities in such a way that the poor are those who do not have sufficient income (i.e. monetary terms), poverty may also be tied to some specific type of consumption, for instance people could be said to be house poor, food poor, health poor and so on.
Poverty is not just lack of money. Poverty may also be described as including lack of access to the instruments and means through which the poor could improve their lives. Financial inclusion experts have also described poverty as various forms of deprivation such as income deprivation, basic needs and human capabilities.
Poverty is complex in nature and vulnerability and social exclusion concepts are also related to poverty. Some experts have argued that poverty arises when people lack key capabilities, and so have inadequate income or education, or poor health, or insecurity, or low self-confidence, or a sense of powerlessness, or the absence of rights such as freedom of speech.
This view of poverty as deprivation was supported by World Bank who stated that poor people are often exposed to ill-treatment by institutions of the state and society and are powerless to influence key decisions affecting their lives. Viewed this way, poverty is a multidimensional phenomenon and less amenable to simple solutions.
The rate of capital accumulation by the poor is slow. The view that the poor lack capacity, have low incomes which leads to low demand for goods and services and ultimately also leading to low productivity is summarised in the famous Poverty Vicious Cycle Phenomenon illustrated below.
The diagram also illustrates that the resultant low productivity also leads to low incomes which also lead to lack of capacity.
Vulnerability on the other hand has been described as, “the risk of falling into poverty in the future, even if the person is not necessarily poor now. It is often associated with the effects of “shocks” such as ill-health, death of a bread-winner, drought, a drop in farm prices, or a financial crisis.
Vulnerability is a key dimension of well-being since it affects individual’s behaviour in terms of investment, production patterns, and coping strategies, and in terms of the perceptions of their situations.
Viewed differently, vulnerable groups are those exposed to external risks, economic shocks, stress and conditions which leave them internally defenceless. In the circumstances, individuals or groups in the society who feel economically insecure are perpetually in the survival mode instead of attacking and making aggression in as much as developmental decisions are concerned.
Any country which does not change direction soon in terms of focus on financial inclusion, will end up where it has left! It is a worldwide proven phenomenon that financial inclusion can help reduce poverty and vulnerability. Components of financial inclusion such as micro-credit can break the poverty vicious cycle by the injection of funds (i.e. capacity) resulting in low income turning into higher income, higher savings and investments, which in turn will continue to generate higher income since capacity would have been increased. The diagram below demonstrates how vicious cycle can be broken through micro-credit.
The United Nations Development Programme (UNDP) 2014 sought to identify people who are “structurally vulnerable” in the society due to their historical background or unequal treatment they receive from the rest of the society. Quite notably, one of the mission of the World Bank is to arrest poverty and vulnerability.
Poverty and vulnerability are not new phenomena but it is the increase due to financial instability and environmental pressures such as climate changes which are potentially undermining the progress in human development. National policy frameworks should ideally protect the poor and the vulnerable. However, The UNDP noted that due to the world turning into a global village, policy frameworks are always trailing behind changes which are happening and threatening the efforts by countries to alleviated poverty and vulnerability. UNDP Human Development Report 2014 stated, “National policy space to enhance coping capabilities is increasingly constrained as globalisation deepens”
The report further states that there is also under-provision of the types of public goods, both national and global, thereby making it difficult for the poor and vulnerable groups to build long-term coping capabilities and resilience.
Financial inclusion experts further added that fighting poverty requires fighting the conditions creating it, that is dealing with the forces which are depriving the poor of their basic needs and human capabilities. Zimbabwe is trailing behind in terms of this and the poor are getting poorer as the conditions creating poverty are increasing at a much faster rate than the rate of their attempted treatments. This is working against financial inclusion.
Active labour market policies and vulnerability
United Nations Development Programme (UNDP) 2014 highlighted that active labour market policies are not enough for developing countries who are faced with problems of underemployment since most jobs would be in the informal sector. According to UNDP, Zimbabwe has 44,1 percent intensity of deprivation of multidimensional poverty. This reflects a high degree of vulnerability and calls for conceited efforts from the authorities to strategise inclusive developmental frameworks for the country.
Should banks bank all the poor?
No. Some people are multidimensionally poor. They require intense assistance which does not make business sense for private investors. Agreeably, every society suffer some setbacks and risks of some sort but there are some individuals or groups within the societies which suffer more than others. Some groups in the society are less vulnerable to risks than others and even recover quickly. The UNDP states that it is these vulnerable groups that need protection and should be engaged in inclusive financial development.
In financial inclusion, we group the poor into different categories. The word ‘poor’ is not at all derogatory but an economic term to describe a state of wealth of an individual. There are mainly three categories of the poor. The first segment are the poor, followed by the near poor, and lastly the absolute poor.
The first two categories can be accessed by the financial industry profitably while the last who are in absolute poverty are internationally, a subject of the Government. They are best assisted through donations and Government social security funds. Invariably, NGOs and corporate bodies are seen assisting in the name of corporate social responsibility (CSR), and not for profit.
However, still participation in the formal financial sector by those who are in the poor and near poor segments must pose fewer risks for these vulnerable, low-income people who have little experience with formal finance and who have low levels of financial literacy and capability. In the same token, considering that Zimbabwe is largely composed of the informal sector players, any financial institution which has a resentment for financial inclusion should be warned that they may not survive in their businesses. That resentment is like one who drinks poison and waits for the other person to die.
Financial institutions should practice financial inclusion not out of compliance of any regulation but out of realisation that it is a shareholder wealth creation strategy especially so in Zimbabwe. The industry needs to be aware that it is not what we eat, but what we digest that makes us strong; not what we gain but what we save that makes us rich; not what we read but what we remember that makes us learned; and not what we profess but what we practice that gives us integrity desired by the financially excluded.
It is not adequate to only know the subject of financial inclusion without practicing inclusive finances in the industry. One author summed it all when he said that it is possible to “store the mind with a million facts and still be entirely uneducated”. It is imperative to practice financial inclusion.
Disclaimer: Please note that this article was written in private capacity of the writer and the views have nothing to do with any institution which the writer may be associated with.
Online Reporter