As Beth Rhyne captured in her recent blog on Nextbillion, before COVID-19 an alarmingly large portion of adults around the world were not financially resilient. 

Gallup asked people how long they could meet their basic needs if their income stopped – by drawing on reserves or selling something. The percentage of people who said their resources would last less than one month was 51% in Chile, 47% in Kenya and 61% in Vietnam. Along with other studies offering corroborating findings, it was clear at the beginning of 2020 that most of the world lack the resources to last even one month without income.

A crucial assumption that’s made by these and related studies, is that the risks people face, which may cause them to draw on their resources, are not systemic. When asked what they would do in an emergency, most adults in a developing country such as Kenya answered that they would sell assets, work more or rely on their social network. However, in a systemic crisis, there will not be a market for assets. They may lose their source of income or be unable to work. Everyone is in the same boat, which means their ability to assist each other may be affected. When estimating financial resilience, many did not consider this scenario, so the estimates are likely optimistic.

In a sense, financial health is too ambitious a target for these times. The definition provided by the Financial Health Network is that adults “are considered financially healthy when their daily financial systems allow them to be resilient and pursue opportunities over time”. In the current crisis even resilience – being able to deal with a once-off shock – does not adequately describe the scenario. For most low income families living in the informal economy in the world’s developing economies, the goal is survival under conditions where their income dries up for an extended period.

Data collected by BFA Global in the past few weeks, during the spread of COVID-19 around the world, provides close to real-time confirmation of the financial consequences of the pandemic. Incomes have decreased significantly for nearly a quarter of adults surveyed across Kenya, Mexico, Nigeria, South Africa and the United States, in a matter of weeks. The majority think that COVID-19 will adversely affect their financial well-being. Only some of these countries were in full lockdown when the survey was conducted. The situation will likely be worse now.

How can governments, enterprises and development partners around the world respond? This was the topic of this instalment of the webinar series co-hosted by Cenfri and the Digital Frontiers Institute (DFI).

Watch the webinar recording

During the webinar, experts Hennie Bester (Cenfri), Amolo N’gweno (BFA Global), Elisabeth Rhyne (former Managing Director of CFI Accion) and Paul Gubbins (Research Advisor to FSD Kenya) suggested several options for consideration:

1. Income support may be the best answer in the short term, but the resources to implement this in Africa are limited. Where possible, income support should be implemented quickly, within the next 2 months, and be as widespread as possible. While it is important to protect the vulnerable, it is also important to keep the dynamic sectors in the economy alive. These sectors pay wages and those wages pay for other services and remittances. When we begin to recover, it will be beneficial if those sectors can recover quickly. Therefore, we need an expansive set of support for the economy, not just for the most vulnerable. Can lockdown be tailored to offer a better balance between economic activity and viral control?
2. Hygiene and behavioural interventions. While countries should tailor their interventions to their context, one way in which a lockdown could be different in a developing country, is to allow flexibility around important informal economies. For example, hygiene interventions in the informal food supply chain can protect access to food and all of the livelihoods dependent on that, while making an effort to keep safe.
3. Write-off of obligations at national and household level. During the crisis the financial sector’s role will be to refrain from enforcing debt obligations, rather than acting as a savings or intermediation vehicle. This may include credit and other obligations such as rent, levies and premiums. National guidance in the form of directives on forbearance may help prevent chaos. Rethinking access to credit will be crucial in the recovery phase, when countries try to restart their economies. Governments and international bodies may have to offer guarantees on certain types of credit, given the likely reticence of financial institutions to lend.
4. Social networks and community support. While incomes will decrease throughout social networks, there are other forms of support that social groups can offer to each other. See the recent blog from FSD Kenya on how rural communities can assist urban communities during this crisis.
5. Utilize messaging and the high adoption of mobile phones to increase awareness and maintain contact between authorities and populations.
6. Specialised research to advise on policy response. Given the speed at which the crisis is unfolding and the limited resources available, we need research on the types of data that governments can and must collect to make decisions. The rulebook for containing the crisis has been written by high income countries. Their approach is likely not feasible in lower income countries. We need creative thinking on what the rulebook should be for developing countries and will need to update our thinking regularly to account for all the unknown and inherently unpredictable factors that determine our future.

There is a glimmer of light, however – in China they are finding that the micro-business sector is very resilient and digital lenders have stepped in to help recovery. Even if the road is not clear yet, we have the tools to address the crisis. Now we must act, and quickly.