Tri-Co Philly: Access to Finance: Why Low-Income Households and Small Businesses in the US lack the financial products they need - a Philly Perspective

Access to finance can be crucial to small businesses managing through growth, keeping the doors open during lean times, and responding to opportunities. Yet, the number of community banks who have traditionally served them has fallen sharply and continues to drop. As pointed out by Morduch, low to moderate income (LMI) households, just like their counterparts in developing countries, face what Rutherford called “The Triple Whammy:” i) low incomes, ii) uncertain and inconsistent income, and iii) a lack of adequate financial tools to help them manage the difficulties that arise from these. While the microfinance revolution that started in Bangladesh and Bolivia launched an industry providing formalized loans and other financial products to hundreds of millions of people in poverty in developing countries access to finance among low and middle income households in the US continues to be problematic.

This course aims to look at the importance of access to finance to small businesses and low and moderate income households, identifies how and why this access is lacking and examines efforts to address this issues. We will first look at LMI households, the interactions of income and the difficulties of financial management, examine why or why not the tools deployed in the microfinance industry in developing countries would work in the U.S. We will examine different formal and informal financial offerings available in the US both historically and currently, the role of government in ensuring access to finance, the work of NGO’s and the work of the formal financial system, including the banking sector, fintech and credit unions. We will also examine why so little investment goes into LMI communities and efforts to bring in more. We will also look at how the traditional banking sector struggles to provide loans to small businesses and how innovations in and adjacent to the sector are providing more access, and more potential harm to small businesses.

As part of the learning experience, we will directly engage with a number of important organizations in this space within Philadelphia, either bringing representatives into class or visiting their sites.