There are different ways to access credit at the bottom of the pyramid. The most common way is through loans from family and friends. These loans are linked to savings, as the lender, although not necessarily happy to lend, does so to "save" for the future, making sure that when they need money in the future, they can obtain a loan from the person who is currently receiving the loan.
Another common way of obtaining credit is through street vendors, also known as "hawker or peddler". This is an ancient practice that I have described extensively in other writings. It involves delivering goods, especially clothing and lingerie, to households on credit and then collecting regularly with visits to the customer's home. These vendors have developed great skill in granting loans in low-income communities and are responsible for a significant volume of loans.
Pawn shops are another way in which savings and credit are combined. As will be seen in the next installment on savings, many people at the base of the pyramid save by buying metal pieces, especially gold and silver, which can be used as collateral or guarantee to obtain credit through pawn shops. This type of credit is common globally, and as an example, there is a famous TV series called "Pawn Stars", where it is mentioned that 20% of Americans do not have access to formal financial services, and these businesses may be the only alternative to obtain cash.
Credits from commercial houses are also common in these sectors. This type of credit can range from the acquisition of food in local stores to the purchase of appliances, furniture, and various household items in larger establishments. This type of credit does not explicitly state an interest rate, but generally, the price paid for the purchase is higher than what could be obtained with cash.
Despite not being the most common way to access credit in low-income sectors, lenders are the ones that often receive the most media attention. Among the different types of lenders, one of the most notorious and prevalent is the so-called "drop by drop" or "daily lender" which sets daily payment quotas to make it appear "affordable" to the customer. However, without explicitly stating the interest rate, the customer ends up paying exorbitant amounts in interest.
Another common way to access credit is through employer loans, which are often advances on salaries or short-term loans.
In addition, now have emerged the new Fintech, which, although presented as "high-impact social enterprises", often offer interest rates even worse than traditional money lenders.