One of the main problems of the US is the poverty of the population. Oddly enough, microfinance organizations can help solve this problem.
In the coming years, poverty will be one of the country’s main social problems. This is a fairly old problem, but in recent years the situation has worsened. In 2021, 37 million people lived in poverty in the USA. That means the poverty rate for 2021 was 11.4%. In 2022, monthly poverty remained elevated in March 2022, with a 14.4% poverty rate for the total US population.
Polls and researches show that a fifth of Americas assess their financial condition as “difficult” or “very difficult”, another 46% call it “fair”.
U.S. Census Bureau estimates the share of Americans in poor financial condition at 24.6%. One way or another, a quarter of the country’s population does not have enough money to live on, and there is a feeling that this will not end soon. Almost 40% of respondents believe that the economic situation will not improve in the near future.
Many ways to combat poverty are proposed. Some experts suggest raising the federal minimum wage (now it’s $7.25 per hour). Others believe that technological possibilities can solve this problem. Social reforms show that stimulating entrepreneurship helps in the fight against poverty.
Why people take payday loans
Due to the high level of informal employment and relatively low incomes, citizens do not have access to traditional bank loans. But they do have access to payday loans. Over recent years, microfinance institutions in the USA have accumulated great expertise in working with people whose income does not exceed $1,000 – $2,000.
These companies have a huge resource, infrastructure, technology and experience to take advantage of. Payday loans are actually a supporting financial instrument for a whole segment of the US population that are ignored by banks because of the high risks and low profitability of small-dollar loans.
In March 2022, we conducted a study – we found out what a regular Minnesota resident takes a payday loan MN for. A significant part of the loans was related to urgent needs – to pay for utility bills, to repair a car or equipment, to pay for medical services and to cover tuition fees. Most borrowers apply for loans online, funds are typically transferred to their bank accounts within a few hours.
In 2022, payday loans in Minnesota are also often used to start a small business. According to the latest industry analysis, the share of citizens in the total portfolio of microfinance institutions is 80%, individual entrepreneurs – 10.4%, and companies – 9.6%. The share of entrepreneurs is growing in 2022, and there are many self-employed who take payday loans.
How payday loans help the US population
The microfinance market in the USA continues to evolve, but it is already seriously influencing the situation. Online lending services make finance available anywhere in the world – even where it is difficult to borrow cash.
Companies also open access to loans to people with bad credit history and help improve it. This, in turn, eventually opens up access to banking products for them, such as mortgages, car loans, etc.
Payday loans also increase the financial and technical literacy of the population. Every year, the proportion of borrowers of older age groups who use exclusively mobile applications to get loans is growing. For some, this is literally the next installed application after Telegram and WhatsApp. When borrowers move to the next level of relationships with financial institutions, online application is no longer exotic for them.
The Federal Reserve System is working on introducing a leverage indicator for lending to reduce the risk appetite of lenders. However, companies in the microfinance market are already working according to the risk-based pricing scheme, assessing the potential risk, but at the same time they do not reject loan applications but offer affordable rates and flexible terms.
According to the statistics, in 2021, there were 37.2 million people in poverty, approximately 3.3 million more than in 2020. This is a third more than 5 years ago. One of the lessons that Americans have learned in recent years is that it is better not to waste time waiting for the situation to improve. The choice is small – either hope for a miracle and avoid whistling in the house or take action and use available financial instruments.