Meeting turns and informal money lenders may be the only financial services available to low-income people within the next 50 years if shortcomings in the formal financial sector are not addressed.
This is according to Dr Jonathan Lashley, research fellow at the Sir Arthur Lewis Institute of Social and Economic Studies (SALISES), whose recently published study found that poorer individuals and households had become marginalized by mainstream institutions.
Presenting the findings of Joining The Second Revolution: From Micro-Credit To Micro-Financial Services In The Caribbean on Monday at The Mount Restaurant, University of the West Indies’ Cave Hill Campus, last week, he said credit unions, commercial banks and utility companies all had a role to play in fostering greater inclusion.
Lashley suggested that credit unions needed to get back into the community.
“It is evident from a historical perspective that the credit union movement has grown and in so doing,
the larger credit unions have expanded beyond their original constituents to the general population.
“This has had two main effects, a lack of knowledge of the character of members and a distancing from the original community. . . ,” he wrote, and this resulted in impersonal methodologies like collateral-based lending over character-based lending.
Lashley said the adoption of standardized products to serve the general population had resulted in products with limited flexibility to serve lower-income individuals.
He suggested that larger cooperatives provide back-room support to smaller credit unions so as to reduce the cost of compliance that is passed on to members.
“Another useful addition to the product portfolio of credit unions and which would benefit all its clients is the facilitation of the receipt of remittances.
“The IRNet system provides one such option if the current regulatory environment was adapted to allow credit unions to deal in foreign exchange,” Lashley said in his report.
With regard to commercial banks, the academic suggested that they may have to balance commercial feasibility with social responsibility through the reduction or removal of minimum deposit levels and the lobbying of Government for the reduction or elimination of the minimum deposit rate on savings accounts below a certain threshold.
Lashley said utility companies, retail stores and insurance companies should design products “that can deal in small sums and are appreciative of the variability of income throughout the year”.
“For utility companies there are the options of pay-as-you-go metering and fixed payment schemes that spread bills across the year or other time period based on average consumption.
“For retail stores and insurance companies there are the options of introducing variable repayment levels and payment holidays throughout the year dependent on client income and insurance cover on items which may be considered as major purchases for those on lower incomes,” he said. (NB)
