By Daniel Kreps, conference attendee
The second plenary session at Microfinance USA 2010 focused on wealth creation opportunities for low income people. “Is Saving More Important than Credit” was the title of Andrea Levere’s opening address and the subsequent panel she moderated. Through her work at the Corporation for Enterprise Development (CFED), Ms. Levere helps disadvantaged communities build financial assets through matched savings programs and advocating public policy initiatives that create products for low income households.
The U.S. government spends upwards of $367 billion a year on wealth building policies such as home mortgage interest tax deductions, 401k retirement savings plans and, more recently 529 college savings plans and health savings accounts. However, these initiatives primarily benefit the rich with over 45% of the benefits going to households earning $1.25 million per year. In her speech, Ms. Levere outlined a more balanced, three point approach for assisting the less “well-heeled” build their financial assets.
- Matched Savings. Savings is an essential anti-poverty tool and according to Ms. Levere, the poor will save at “unimaginable rates” with the proper incentives. Saving encourages the poor to aspire to own their own homes and send their children to college. It was noted that homeowners with Individual Development Accounts (IDA) were two to three times less likely to have faced foreclosure during the recent recession and that children with savings accounts were seven times more likely to go to college.
- Matching Sources and Uses of Funds The key to business success is having access to the right kind of funds for differing business needs. The well-to-do can start businesses with equity raised from friends and relatives; the poor need equity grants or the “patient capital” that come from such funders as Opportunity Fund, one of the sponsors of the conference.
- Eliminate Barriers to Scale Ms. Levere stated that microfinance institutions in the U.S. must learn to use the internet more effectively to build scale for micro-savings products. She mentioned SaveTogether.Org as one US-based social business working to do just that.
Microfinance is not a “silver bullet” that will single handedly eliminate poverty but is a critical tool for solving this very complex issue. Now is the time, Ms Levere declared, to get the public policies right for creating better options for the poor to build their assets and become as productive as they can be.
Daniel Kreps is an experienced international banker focused on creating access to financial services for the poor. View Daniel’s blogs at bankingonthepoor.blogspot.com