Dr Collins’ work is grounded in a deep understanding of the financial behaviours of low-income people across the globe, leveraging the experience of executing Financial Diaries studies in Kenya, India, Mexico, South Africa, Tanzania, Mozambique, Pakistan and advising the US Financial Diaries.
Ten years on from the publication of her book, Portfolios of the Poor, Dr Daryl Collins’ work seems even more relevant. With the shift of digital technology into low-income households, many financial practices that had previously only existed informally, in the shadows, are increasingly taking place online and becoming more formal.
Dr Collins shared invaluable insights from her experience on a panel at the ASIC forum entitled, Including the Excluded. Journalist, Michael Parker sat down with her afterwards to find out more.
People are moving into the digital economy no matter what.
Dr Collins sees new technologies mostly as a positive force for financial inclusion, however she cautions that technology for technology’s sake is not a sound basis for innovation. There are hazards and, in many cases, some quite abstract concepts that originate in the sphere of formal finance that need to be introduced to people for whom the concepts are often completely foreign.
A lot more thought needs to be given to ensuring low-income households genuinely understand the concepts that underpin so many formal financial practices and institutions. Dr Collins believes that the introduction of new digital services should have a strong educative component to them so they are empowering.
“The opportunities for e-commerce and the sharing of money are enormous. And while there are benefits of bringing low-income people into the digital economy, we need to be careful. People need to understand digital transactions and how much data you expose, or don’t expose,” Dr Collins says.
“Low-income people really don’t have a lot of agency. They are mistreated, usually, by the government, by hospitals, by every large institution you can find; they really get a bit of a raw deal and they’re not valued. So the idea of taking someone who is low income and telling them they have something of value is, in itself empowering. But how do you manage that to their best advantage?”
Understand the problem and the culture
Dr Collins says that the best examples of introducing new digital services are cases where the technology was applied to solve a genuine problem.
“So, think about finding THE problem, and tie it to the cultural sensitivities that are needed to solve that problem.”
The success story she cites for a culturally sensitive service is M-Pesa, the mobile phone money transfer service that was started in Kenya in 2007 and has since spread to many other countries.
“The hook for M-Pesa was getting money home. Transactions are emotional. So when you use M-Pesa to send money home it is seen as a ‘thank you’ for raising that child, and given that you are trying to be polite and gracious to your parents, you don’t want them going to a lot of trouble; and so M-Pesa enabled the parent to feel comfortable and secure, and they got the money right away.”
Dr Collins makes the point that dignity needs to be front of mind, when delivering services to low-income people. She provides the salient example of waste pickers to prove the point:
“They go into garbage and pick out things that can be recycled. Obviously, these are people who get very smelly all day. So to ask them to walk into a bank and stand in line, during banking hours, before they are able to get themselves clean, is pretty humiliating. If you’re serving that population, giving them their dignity is a critical piece of the service. They will repay with loyalty, and that is critical in this financial inclusive world. You’re betting on the future, betting that they will stay with you as their incomes improve.”
Another aspect of low-income households moving to digital that Dr Collins believes is mostly beneficial is in assessing creditworthiness:
“Rather than using technology to scale the size of a savings group up, digital scale works best in allowing the accumulation of captured digital transactions. If somebody belongs to several different groups and all those transactions are captured then you can see how the repayments happen, and how the saving happens, and you can create a much better score of that. And then the individual alone might get a loan, which is far better than a group loan. It is far better to give the creditworthiness to the individual and not to the group as a whole, where creditworthiness varies,” she argues.
Tomorrow is dawning today
As for the near future, her outlook is largely positive, seeing technology – and not just financial technology – improving the lives of low-income households. She sees continuing downward force on the costs of providing all sorts of services, and the promise of more realistic and robust data being used to create credit scores, even apps that optimise decisions about when to go to market.
“Creating opportunities for people who are bringing goods to market, to know where and at what price they should bring goods to market. Those types of applications can be incredibly useful,” she says.
There is no doubt the landscape is changing fast, and the digital economy is transforming the old structures of informal financial services. The industry needs the insights of people like Dr Daryl Collins to ensure that transition works in the best interests of low-income communities.