Financial Citizenship

by Isaac Salem

We spend a lot of time at Darden discussing the optimal financing mix for a business to utilize. This consideration of tax shields and risk tolerance takes for granted though the complex and interconnected mechanisms developed economies have established in order to allocate capital. In developing economies, the ways savings are channeled to productive uses is still evolving and there are big differences between economies. These efforts to improve access to financing in emerging markets were a frequent focus of International Development panel at the Sustainability and Innovation conference.

Shital Shah of ShoreBank International and Rosita Najmi of the World Bank discussed why it is so important for individuals and businesses to have access to credit as well as some of the new methods being used to help improve financial access for underserved populations. Though several for profit development institutions have come under criticism recently for the high interest rates these institutions, microfinance lenders in particular, charge their customers, Najmi made a convincing argument for why financial inclusion is so important. For consumers around the world, savings is very important for planning. However, in economies with underdeveloped financial markets, too often this savings is forced to take the form of cash, which is insecure and inefficient. By providing savings alternatives for middle and low income workers, a virtuous cycle can begin whereby the purchasing power of consumers is increased and business can tap local savings to fund investment, bringing the cost of capital down. Further, such savings vehicles encourage more transactions to occur in the formal economy, which provides protection, dependability and lowers the cost of operating businesses.

Toward this end, Shah described one project ShoreBank has been involved with promoting mobile banking in Bangladesh. By partnering with the world’s largest NGO, BRAC, ShoreBank has provided mobile banking services to millions of people in Bangladesh. http://www.bkash.com/ShoreBank.php They leveraged BRAC’s large customer base in order to speed adoption. Now customers are able to receive and repay their BRAC microfinance loans through their phones as well as conduct an increasing variety of other transactions. Such low cost alternatives to traditional banks are gaining traction in much of the developing world as a way to integrate previously underserved populations into the financial system.

The role of technology in this process helps highlight the panel’s parting message. The challenges and opportunities in international development remain great. However, what is needed now are not international development experts. What are needed are experts in a particular field, such as telecommunications or remote banking. Students interested in pursuing careers in development were encouraged to develop a concrete skill set, rather than studying development itself. Increasingly, development financial institutions are relying on locals for strategic, political, and cultural expertise. Outside human capital can still be tremendously powerful, but it needs to be specialized.