Get out, stay out: how financial resilience helps end poverty

poverty

(Zeyn Afuang, Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Leora Klapper, Lead Economist, Development Research Group, World Bank


Hundreds of millions of people around the world live in extreme poverty. Global development work mostly focuses on helping those poor people become prosperous. Policy-makers generally support financial inclusion because it creates opportunities for poor people to build income by investing in business, education and other opportunities.

But the escape from poverty is not always a one-way trip. Once you climb out, there’s no guarantee you won’t fall back in. An equally vital but less well-understood development goal is to prevent people from becoming poor in the first place.

Alongside the global poor is a much larger group of people who are just an emergency away from the poverty line. Minority groups, women and the poor are at greater risk to financial emergencies than the rest of the population. For them, the climb out of poverty tends to be steeper and harder. It doesn’t need to be: policy-makers should concentrate on the importance of financial resilience for sustainable development and the ways that inclusive financial technology can get families more of the money that they need when they need it.

One estimate found that medical bills pushed 100 million people into poverty in the year 2010. Those in low-income economies are especially vulnerable, but so are those in wealthier places. In the United States, millions of people became poor during the global recession.

Financial resilience refers to the ability to maintain spending and living standards during an economic emergency. To measure it, the Global Findex survey asks people if they could come up with emergency funds equivalent to 5% of per capita gross national income in local currency within the next month. The survey also asks people where they would get the money.

Emergency funds

Financial fragility is a global problem. In the US, only 47% of poorer adults say they could come up with emergency funds – the lowest share among the major advanced economies of the G7. Wealthier US adults are nearly twice as likely to report being able to find the money. No other G7 country has an income gap of this magnitude.

The share of adults who say they could cover an emergency expense varies globally, as does the source of money. On average in high-income economies, three-quarters of adults report that it would be possible, compared with half in developing economies. In wealthier economies people mostly rely on savings, while in poorer economies they are more likely to pick up extra shifts at work, get a loan from an employer, or borrow money from friends or relatives. Vulnerable groups such as women and the poor are less likely to have access to savings and employment opportunities when times are tough.

The source of emergency funds can be a determining factor in whether people bounce back from an economic emergency or wind up in poverty. A study in Andhra Pradesh, India found that households often turn to expensive informal money lenders to pay for emergency medical bills. The combination of health costs and debt is devastating.

“[I]t is the interaction between these two factors…that is most significantly associated with a previously non-poor household’s descent into poverty”, the author writes.

Mobile money

People are more likely to ask friends and relatives for money than they are to take out a loan. A good way to improve financial resilience is to lower the cost of moving money through social networks. One of the most exciting innovations in this regard is mobile money technology, which allows people to send and receive money using text messages on simple mobile phones. Mobile money accounts are offered by telecommunications companies rather than traditional banks. They are most common in sub-Saharan Africa, but are gradually spreading to other regions, as the Global Findex shows.

Here’s an example of mobile money’s cost-cutting ability. In 2008, the average mobile money transfer in Kenya went to someone 124 miles away from the sender. A bus ride of that distance would cost about US $5, whereas the mobile money transfer fee would be only US $0.35. That’s a big reason why research has found that mobile money users are better able than non-users to collect money and maintain consumption levels during an emergency.

Remittances

Cross-border money transfers can play a similar role. People who have access to international remittances from migrant relatives are less likely to take out bank loans during a health crisis. One study found that on average, Mexican households doubled their debt burden when faced with serious health emergencies – but there was no such effect on households who got remittances from a relative in the US.

Using technology to reduce costs is one of the keys to improving financial resilience. Migrants blow roughly $25 billion annually on remittance fees, resulting in wasted opportunities for development. Banks charge almost 11% on average per remittance transaction, making them the most expensive service provider. Mobile money operators are the cheapest, at roughly 3% – which is the target outlined in the UN’s Sustainable Development Goal 10. Letting new service providers operate through telecommunications companies and banks could help bring down costs and improve the benefits of remittances.

Remittances, whether domestic or international, can play a big role in building financial resilience. Savings accounts and safety nets are among the other factors that can prevent people from falling into poverty. Policy-makers should draw on all these tools, and pay more attention to the importance of financial resilience for sustainable development.

Advertising

Advertising

Advertising

Advertising

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

The world is a book and those who do not travel read only one page

The European Parliament floating over the South China Sea

‘Once-in-a-generation opportunity’ will be squandered, warns Guterres, unless social, economic, environmental challenges are met

Tropical Cyclone Idai affects 1.5 million across Mozambique and Malawi, as UN ramps up response

Climate change recognized as ‘threat multiplier’, UN Security Council debates its impact on peace

From Shadows to Sunlight, Paraguay’s Road to Transparency

Theresa May expresses her optimism about Britain’s economic success while UK business outlook seems ominous

FROM THE FIELD: Weather reports come to aid of Uganda’s farmers

Why capital markets have no more reservetions about Eurozone

Environmentalists have removed nearly 40 tonnes of trash from the Pacific

‘Deteriorating’ human rights in Belarus amounts to ‘wholescale oppression’: UN expert

Azerbaijan chooses Greek corridor for its natural gas flow to EU

The UK’s River Thames has come back to life – with a seal population to prove it

How businesses can create an ethical culture in the age of tech

Security: better access to data for border control and migration management

10 months were not enough for the EU to save the environment but 2 days are

EU leaders let tax-evaders untouched

My Mothers

European Youth Vlog

China dazzles the world with her Silk Road plan to connect, Asia, Europe and Africa

A Sting Exclusive live from Brussels: Solheim’s consequential visit leading the world and the UN

Draghi indirectly accuses Germany of using double standards in financial issues

Britain’s poet laureate has created a prize to highlight poetry about the climate crisis

This Danish scheme is offering free kayak rides… for picking up trash

CHALLENGING THE ZEITGEIST OF DIGITAL – Change making projects innovate mobile support for refugees, inclusive environments, early breast cancer detection and more

“The Arctic climate matters: to what degree?”, a Sting Exclusive co-authored by UN Environment’s Jan Dusik and Slava Fetisov

Italy’s rescue operation Mare Nostrum shuts down with no real replacement. EU’s Triton instead might put lives at risk

Environmental labelling, information and management schemes are central to the circular economy

Here’s how we can use agriculture to fight climate change

Parliament cuts own spending to facilitate agreement on EU budget

The fat from your next takeaway meal could help clean up global shipping

This AI is working with a fleet of drones to help us fight ocean plastic

United States: UN human rights office welcomes California moratorium on death penalty

Tuesday’s Daily Brief: Libya civil war, African displacement, global trade tensions, terrorists’ children ‘secretly detained’, and more

Anti-vaccers: does the empty can rattle the most?

Mental health and suicide prevention – What can be done to increase access to mental health services in my region?

UN ‘prioritizing needs’, ramping up aid, as Hurricane Dorian continues to batter the Bahamas

UN civil society conference to focus on sustainable solutions for challenges of urban life

German opposition win in Lower Saxony felt all over Europe

Why poorer people suffer more from climate change

Gender inequality in the medicine field: two commonly issues

EU and China to do more in common if the global scene gets worse

World Digital Media Awards winners announced at WNMC.19 in Glasgow, in association with The European Sting

November infringements package: key decisions

EU Emissions Trading System does not hurt firms’ profitability

Malaria: Focus on pregnant women and children, stresses UN health agency report

Wednesday’s Daily brief: Day 3 of anti-hatred summit, UNFPA turns 50, Ben Stiller #WithRefugees, updates on Abyei

These are the 3 key skill sets workers will need to learn by 2030

FROM THE FIELD: Crisis in Kassala FROM THE FIELD: Crisis in Kassala

Greece leaves EU aid program, gets last 15 billion euro

EU Border and Coast Guard: new corps of 10 000 border and coast guards by 2027

UN condemns deadly attack on Burkina Faso church

Low productivity jobs continue to drive employment growth

These countries create most of the world’s CO2 emissions

This is how countries compare on gun deaths

A Sting Exclusive: “Paris is indeed our best bet for a secure climate future”, EU Commissioner for Environment Karmenu Vella cries out from Brussels

As human genome editing moves from the lab to the clinic, the ethical debate is no longer hypothetical

How digital can transform healthcare in Asia for millions of people

How Big Food is responding to the alternative protein boom

Victim-centred laws ‘paramount’ to combat online sexual abuse against children

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s