I. Financial Insecurity
Hard-working people all over the world are living paycheck to paycheck, fearing for their financial future. What if that next paycheck doesn’t arrive? What if I get sick and can’t work for an extended period of time? What if I’m injured and lose my job? What will my family do? The vast majority of people on this planet live one paycheck away from financial disruption. And with no money left over to save for the future, there’s no hope of retirement, no hope of escaping this endless loop of financial fear.
Meanwhile, predatory financial service providers are taking advantage of this inequality, particularly among the millions of people worldwide who have no access to traditional banking services. Imagine this typical scenario: You’re working one, two, maybe even three jobs and barely making enough money to feed your family, yet every month you still manage to send money back home to help your elderly mother, who is still working but unable to pay her rent without your help. You have no credit, you’ve never had a bank account, and you know you couldn’t get a bank account if you wanted one. At the end of the month, you wait in a long line to cash your paycheck at a check-cashing place, where they take a sizeable percentage of your paycheck in addition to other fees. Then you wait in another long line to wire transfer some money to your mother, losing another large percentage of your hard-earned income. After all that, your mother is then required to forfeit an additional fee to collect the money, and depending upon where she lives, she may need to pay a hefty bribe or fine just to get past the roadblock set up outside the wire transfer service. She takes the money home, hoping she doesn’t get mugged, and hides it in a mattress, afraid that someone will steal it. By the end of this arduous process, many hours and many precious dollars have been lost.
In the 21st century, this is unacceptable. Technology has advanced to the point that this should not be happening anywhere in the modern world. And yet it happens everywhere, every day, in Mexico City and Mumbai, in Buenos Aires and Manila, in Los Angeles and Detroit. Billions of dollars, that could be going directly into local economies and helping people, are instead going to a small handful of predatory financial services like the ones described. On top of it all, the open-ended nature of these financial services means that money sent is extremely difficult to track. Organized crime syndicates and terrorist groups are taking advantage of these services to launder money and fund illegal activities that can have dangerous and staggering real-world consequences.
II. Financial Inequality
“Inequality is not just bad for social justice, it is also bad for economic efficiency.”
― Oxfam International
In 2013, 232 million international immigrants sent $550 billion in international money transfers to their loved ones. $49.5 billion of these remittances were lost to transaction fees. By 2016, total worldwide remittances are projected to be over $700 billion, with remittances to developing countries estimated to be $540 billion. Many transfers occur via informal channels which are unrecorded, and these channels are believed to represent 50% more than transfers recorded through formal channels.
Wire transfers represent a lifeline for millions of people worldwide, reducing poverty in many countries. During the recent worldwide economic contraction, these remittances helped support over 700 million people in developing countries. These transactions are important income resources for families to buy food, housing, education, healthcare or capital to open small businesses. In developing economies, remittals can represent a significant national income resource and comprise a relevant percentage of the GDP of developing countries. Eliminating predatory remittance fees would return billions of dollars to local communities each year. This added income would provide higher levels of economic growth by giving hard-working people everywhere more disposable income, resulting in higher rates of consumption, savings, and investment within local economies.
Digital technologies have given us the ability to make these types of transfers faster, easier, and less expensive. But despite advances in technology, wire transfer fees have not dropped. With emerging technologies, there is absolutely no excuse for things to continue as they have always been. The time for change is now.
III. Intentional Communities
“To build community requires only the ability to see value in others:
to look at them and see a potential partner in one’s enterprise.”
― Suzanne Goldsmith, A City Year: On the Streets and in the Neighborhoods with Twelve Young Community Service Volunteers
There are many historical models that point the way forward. A reading of the history of communities makes one fact very clear – it hasn’t always been this way. Cooperation and collaboration have traditionally been the primary means for the survival of the individual household, family, clan, or tribe. People working together with a shared goal. In the words of anthropologist Richard Leakey, “Sharing, not hunting or gathering as such, is what made us human.” The history of communities working together to support one another can be traced back to the beginning of civilization. From the earliest religious communities like the Buddhist Sangha and Taoist monasteries, to the Utopian experiments of the 19th century and the 20th century ecovillage, people throughout history have joined together with the concept of creating an intentional community. Communities have always played a vital and dynamic role in the desire to create a better world, and their survival has depended heavily upon a cooperative system of living and working together around common lands, shared food and labor. Cultural patterns of economic cooperation have been the means by which these communities have managed to survive and thrive.
However, as tribes and clans grew into civilizations and empires, the community ideal began to wane as dreams of self-sufficiency and self-reliance prevailed. We began to think of ourselves as individual and separate. But the fact remains that we are all connected, and what we all do impacts the world as a whole. When one of us does well, it spreads to the whole of humanity.
IV. Collaborative Finance
“A new movement is beginning, and it’s inspired by the public anger at a host of things, from the behavior of Wall Street and massive bank bonuses to the widening gap between the interest rate offered to savers and the rate charged to borrowers.”
― Don Tapscott and Anthony D. Williams, MacroWikinomics: Rebooting Business and the World
The next step in community-building and collective effort is the concept of collaborative finance, also known as the sharing economy. Disillusioned by corporate greed, people are once again looking to their own communities for collective support and financial empowerment. From the rise of peer-to-peer lending and crowdfunding to the resurgence of farmers’ markets and local cooperatives, collaborative finance is clearly the wave of the future.
Let’s take just a single example – Rotating Savings and Credit Associations, or ROSCAs. Also known as cundinas in Mexico, susu in parts of West Africa and the Caribbean, pandeiros in Brazil, tandas throughout Latin America, chit funds in India and Pakistan, and hui across East Asia, there are over 200 different names for these informal lending circles, which exist in every corner of the world. The basic idea is the same. A group of trustworthy community members are chosen to meet periodically (perhaps once a month) to contribute a fixed amount of money into a general “pot.” This money is then given to one of the members (which could be based upon immediate need or predetermined by lot). The group continues to meet at the appointed time until all group members have received the “pot.” ROSCAs have numerous, well-documented advantages among sectors of the population who often lack access to traditional financial services. Such informal financial arrangements are only one of the many ways that these local communities have rallied together to help those in need.
V. Inclusive Capitalism & Financial Inclusion
“The interconnectedness of peoples, countries, and economies around the globe is a development that can be used as effectively to promote prosperity as to spread greed and misery.”
― Joseph E. Stiglitz, from The Price of Inequality: How Today’s Divided Society
Endangers Our Future
Despite these innovations in collaborative finance and micro-finance, the fact remains that the inequality gap is unequivocally widening.
- 2.4 billion people live on less than $2 per day.
- 2.5 billion people around the world do not have access to basic banking services.
- 80% of the world’s working poor (at least 400 million families) still lack access to basic financial services.
- In the United States alone, about 9 million U.S. households do not have a bank account.
- Another 21 million U.S. households rely on financial services beyond traditional banks.
Meanwhile, policymakers have shown that equal access to banking and financial services is directly related to job creation, economic growth and economic stability. As demonstrated by the Consultative Group to Assist the Poor (CGAP), a growing number of policymakers are accepting the view that “financial inclusion is key to a stable economic system as a whole.” Furthermore, “evidence suggests that financial services do have a positive impact on a variety of microeconomic indicators, including self-employment business activities, household consumption, and well-being.”
Research has shown that financial access improves local economic activity. At the macroeconomic level, there is a well-established literature showing that financial inclusion is generally believed to causally impact economic growth. Financial inclusion benefits both the individual and their family, as well as the global economy and society as a whole. And yet, despite decades of international research and outreach initiatives, people all over the world continue to face unresolved social, economic, and regulatory challenges in their efforts to achieve financial inclusion and equality.
VI. Global Community Capitalism
As we move forward into the 21st century, now is the time to combine the economic lessons learned from collaborative finance with the collective ideals of financial inclusion and intentional community. It’s time we develop innovative platforms to take these groundbreaking ideas to the next level – to create a truly inclusive, global financial community where everyone on the planet has an opportunity to experience financial inclusion and help bridge the gap of economic inequality.
We are beginning to recognize the reality that we are all interconnected and thru the advances in technology and global communication, we are being reminded to come back together and usher in a new financial paradigm. What has worked for thousands of years in local communities, has recently been introduced to “pocket” communities, now has the opportunity to expand to the global community. When we all stay connected and committed to our local community, we each participate and share in the global community, we can all thrive together as one. The time has finally arrived for a truly inclusive, accessible, and secure global financial network.
“No power on earth can stop an idea whose time has come.”
― Victor Hugo
Ardener, Shirley and Sandra Burman. Money-Go-Rounds: The Importance of ROSCAs for Women. Bloomsbury Academic, 1996.
Aspan, Maria. “Banks Seek Profits, and a Better Reputation, from Low-Income Customers.” American Banker, 20 July 2012.
CGAP (Consultative Group to Assist the Poor). Advancing Financial Inclusion to Improve the Lives of the Poor: Annual Report, 2013. Washington DC: CGAP, 2013.
CGAP (Consultative Group to Assist the Poor). “Financial Inclusion and Development: Recent Impact Evidence.” CGAP: Focus Note, no. 92 (April 2014)
Goldsmith, Suzanne. A City Year: On the Streets and in the Neighborhoods With Twelve Young Community Service Volunteers. The New Press, 1993.
Gomez, Alida M. “Microcredit Lending to Female Entrepreneurs: a Middle East case study.” Journal of International Women’s Studies 14, no. 2 (March 2013): 30-38.
Leakey, Richard E. People of the Lake: Mankind and Its Beginnings. Anchor Press/Doubleday, 1978.
Stiglitz, Joseph E. Making Globalization Work. W.W. Norton & Company, 2006.
Stiglitz, Joseph E. The Price of Inequality: How Today’s Divided Society Endangers Our Future. W.W. Norton & Company, 2012.
Tapscott, Don and Anthony D. Williams. MacroWikinomics: Rebooting Business and the World. Penguin, 2010.
 Oxfam Internatonal: Growth with equity is good for the poor, June 2000
 Sources: The World Bank, The International Money Fund
 Richard E. Leakey, People of the Lake: Mankind and Its Beginnings
 Money-Go-Rounds: The Importance of ROSCAs for Women, ed. Shirley Ardener and Sandra Burman
 Source: World Bank
 CGAP (Consultative Group to Assist the Poor). Annual Report, 2013
 Source: Unitus
 Source: FDIC
 Source: FDIC
 CGAP (Consultative Group to Assist the Poor). Annual Report, 2013
 CGAP (Consultative Group to Assist the Poor). “Financial Inclusion and Development: Recent Impact Evidence.” CGAP: Focus Note, no. 92 (April 2014).