Can the US Lean to Help the Poor by Following the Example of other Countries?

The United States is no stranger to falling behind other countries in some areas. For example, our overall educational scores leave a lot to be desired. Our country has also been lagging a bit when it comes to making financial services that are focused on helping the poor. Recently, Arjan Schutte, the founder of the LA based venture capital firm Core Innovation Capital, spoke in San Francisco on this very topic. One example that Schutte spoke on was the mobile-based money transfer company, M-Pesa. This company launched in 2007 in Kenya and has revolutionized the way that people in that country interact with the economy. This service allows people to send and receive money and to even pay bills electronically, even if they do not have a bank account.

Vodafone Group, a telecommunication corporation that funded development of the Kenyan money transfer system said that the value of transactions that flowed through the M-Pesa system in Africa grew by 26 percent over the last year; all the way to over $40 billion. The service was used by nearly 14 million customers who made at least one financial transaction within a 30 day period during that same period of time.

While all of this is going on overseas, the poor and unbanked in the United States typically rely on alternative financial service providers. Some experts believe that having more alternatives, like M-Pesa available in the US would help to diversify the small dollar lending market, while giving underbanked and unbanked people more opportunities to participate in the American economy in a meaningful way. According to Schutte, Clearly there is a lot to learn from what is happening around the world,” with regards to the approach used by the US for helping the working class poor consumers.

Schutte’s company has made investments in companies, like Vouch and Oportun, both of which recently launched to help United States residents who do not have access to the traditional banking industry’s services. There are well over 16 million US adults who do not have checking accounts, and that use alternative financial services, according to the latest data published by the FDIC. These households, have average annual incomes of roughly $25K and spend nearly $2500 each year on service fees and interest to the alternative financial service providers of their choice. This data came thanks to a report released in 2014 by the inspector general of the US Postal Service.

There is no doubt that there is a pressing need to serve low income communities in the United States, but doing so won’t be as simple as just copying the financial services that have been proven to work well in other parts of the world. There are varying bank infrastructures, credit ratings systems and lender access decisions that will have to be weighed and studied before new financial service providers and systems take root amongst the general population here at home.

The financial services provided to lower income households in the United States has been worse than it ought to be for some time now. Of course, part of the reason that there are limitations on the choices that poorer families have has been due, in no small part, to the big banks closing up shop in lower income communities. It could be possible that specialized adaptations of some of the systems that have worked in other countries may help to stimulate growth in the alternative financial services industry, while providing more financial stability for the nation’s poorest working households.

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