Elaine Smith

What is the healthy balance between giving poor communities access to services and goods and teaching them not to consume more that they can afford? Who is paying attention to the debt level of the population in fast-growth countries?

Several countries have faced unprecedented growth in the last 10 years. Growth can be identified in several layers of the population, but the fast track of the poor has been catching the attention of several corporations, locals and multinationals. A book by C K Prahalad called The Fortune at the Bottom of the Pyramid discusses how corporations could take advantage of the characteristics of the poor, highlighting different cultures in different countries through case studies where companies and opportunities were identified in places like India, Brazil, China, Mexico, Russia, Indonesia, Turkey, Thailand and South Africa. These countries alone have 70% of the world’s population.

The book has extensive detail about how to provide goods and services to the poorest people in the world. But it also reveals a very intriguing interest in fighting poverty and still being a profitable company. And there is nothing wrong in being profitable. The more profitable a company is, the higher the chances of a long-term CSR (corporate social responsibility) plan that gives part of its success back to the community. Or this should be the ideal scenario in the ideal world… Now looking back to Mr Prahalad’s book, there are a number of mentions of NGOs and other civil society organizations which, along with aid agencies, the private sector and the government, have an opportunity to reach and change the life of 4-5 billion consumers in the bottom of the pyramid. So leaving aside the management guru style that teaches corporates that it is possible to do well by doing good mainly through innovation, I would like to raise the concern about the ability of the BOP (bottom of the pyramid) to identify risks of over-consumption of services and goods. Being more specific, how is the financial education being targeted to the population?

One should think that part of the responsibility of financial education to the lower-income population falls with the companies providing the goods and services – cars, appliances, homes, consumer goods, everything from staples to discretionary. Right? But most companies do their part, making corporate social investments in the environment and creating jobs and investing in innovation in the community where they are located. So why is the concern of financial education left only to the services industry? Should it be the focus for FSPs (financial services providers)? Are they the only ones to be ‘blamed’ for the credit lines being extended to the people willing to consume? Isn’t it a result of a response to the corporations’ creations of goods and services?

There are several initiatives around the world tackling financial education. FSPs are trying to do what is expected from them. In what is described as a multi-stakeholder effort dedicated to promoting and expanding financial inclusion and education, we can see a movement involving government officials and central banks, financial institutions both private and public, foundations, investment firms, financial NGOs, insurance companies, community centers, media, etc. But looking at the voracity of consumption of emerging countries’ populations and the debt level of the average person, maybe the message is not being communicated properly. It is either the financial education provider’s message is not being clear, or the consumers are ignoring the risks. One says the message in low volume; the other prefers not to listen. So we cannot actually blame FSPs (generally speaking) for profiting from credit splurge in emerging countries where interest rates are outrageous.

What we know is that if an individual is included in the formal economy, the amount of taxes collected by the government grows and a track of the credit use is made, so positive credit scoring can be followed. In turn, corporations are better equipped with consumer market intelligence to make decisions for future investments, promoting a positive mood for better profits and enhancing the chance for a long-term CSR that is resourceful for the community. So if this multi-stakeholder movement that wants to provide financial education to populations in the base of the pyramid really does its job, everyone wins, right?

Elaine Smith is development manager at Instituto Geração.