Noble: The ‘underbanked’ and the $100 bill; the real solution is accessible electronic banking for all

Much of the discussion about the introduction of the polymer $100 bill conflates the evil of ‘dark’ money with persons who have been shut out of the banking system.

The persons who deal in ‘dark’ money have self-selected to operate outside the system; but there are those who are unable to use our banks and credit unions. It has been estimated that the latter may account for a quarter or more of our population.

Photo: A barber on the job.

The danger, posed by both, is significant to our economy. But while the self-selected ones attract our attention, the excluded ones remain invisible. Tales of ‘rich’ poor people, like our fabled barber, enthral and deflect us from reaching lasting solutions while the large problems are ignored.

The World Bank has called corruption—the abuse of public power for private gain—the single greatest obstacle to economic and social development (World Bank, 2001). Corruption and the ‘shadow’ economy have a link in that both are illegal and often complement each other. In some places, the ‘shadow’ economy has been estimated at almost a third of the official economy as measured by GDP.

There is established literature which shows that “the relationship between the share of the unofficial economy and the rule of law (including corruption) is strong and consistent across several measures. Countries with more corruption have higher shares of the unofficial economy” (Johnson et al, 1998).

It should be made clear that this discussion re the unofficial economy includes legal and illegal (shadow) activities. Unreported earnings from self-employment is not on the same side of the continuum as trading in stolen goods or peddling of drugs—the latter is illegal the same way tax evasion is.

To fix the problem of ‘dark’ money requires strong institutional arrangements. We, in this country, apparently favour tax amnesties instead of the strengthening of the Board of Inland Revenue and the Financial Intelligence Unit. The size of the take from the amnesties marks a huge failure.

Photo: A satirical take on tax evasion.

In June 2011, Minister Dookeran indicated receipts of $1.8 billion and in 2019 Minister Imbert announced an increased take of $2.4 billion—up a third from the 2011 figures, and five times Minister Imbert’s original estimate. To put these figures in context, property taxes are estimated to be in the region of $250 million.

Put another way, the current fiscal deficit is $5.3 billion or just over twice the size of the amnesty take. But this money is likely not to be ‘dark’ money made from illegal activities.

Are we truly interested in shrinking the underground or even just the ‘shadow’ economy? We need to connect the dots between unpaid taxes, our weak institutions and the quality of our public infrastructure—health and schools and roads. The inconsistent application of rules by public officials encourage corruption which increases the unofficial and the ‘shadow’ economy. The insistence by Government offices on using cash perpetuates the problem.

If we increase tax compliance, it may prompt citizens to demand better services from the Government, thereby reducing the waste and corruption. The presence of social media and citizen journalism will help in this regard.

The elephant in the room is the unbanked and underbanked among us. The unbanked has no connection with the banking system, while the underbanked may have an account but use pawnshops, money lenders and remittance services—all high cost alternatives—for their financial needs. Much of the costs associated with these alternative finance providers are avoidable with a bank or credit union account.

Photo: A loans officer talks to a potential client.

We need to recognise that the grubby guy, outside workplaces or close to banks, has been replaced by fancy institutions who now offer you quick money for anything you desire; but at horrendous interest on an easy payment plan. But access to cash is readily available.

The result? These newish lending institutions make more money than the vilified traditional banks; but most people do not realise this. The problem is that, in turn, the banks fail miserably at helping the short-term requirements of fast and convenient access of the lower paid persons to their own funds.

Unexpected expenses and emergencies represent a major challenge for this group. Why should they put their money where they cannot get it in times of need? Meanwhile, our credit unions languish in comparison to their counterparts in Grenada or Barbados.

It is a myth that persons who work for small wages cannot save since sou sous are our heritage. ‘Financial education’ is another myth that disenfranchises many, even as they long for it. We fail to explain, in simple terms, to our people how they may manage their money.

Our goal should be to bring people out of poverty and a bank or credit union account is a vital step in that direction since it allows savings to take place.

Photo: Signing up for a loan…

Income feeds your stomach, but assets change your head. That is you really act differently when you have a cushion of assets so that you can strategise around important opportunities in life. 

“When you are living from pay check to pay check, you just think about how you are making the next day or the next week or the next month happen. But when you have a set of resources that allows you to think about your future in a positive way, you can strategise about the future, create and take advantage of opportunity.” (Oliver and Shapiro, 1995).

But banking halls are intimidating places burdened with perceptions of prejudice. The various fees can cost more than can be afforded, salary processing time is longer than desired. Slow customer service and branch closures levy a huge cost.  The photographs of the recent lines show who suffers in the bank lines.

Technological advances, which the banks now use to ease the processing of money by the better off clients, should seek to include our poor and decrease bank fees. If we adopted the electronic banking model of the Standard Bank of South Africa—whose ‘branches’ are in grocery stores and shopping centres and use cards with memory chips and personal information, including fingerprints, to allow direct deposits from employers—what would happen to our economy?

Maybe, the acquisition of the Bank of Baroda by Ansa McAl with little ‘brick and mortar’ commitment will be the edge of that wedge? Who knows?

It is time to open the doors of opportunity to all of God’s children” (Martin Luther King, 1963).

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