Portfolios of the poor
Daryl Collins, one of the authors of an important new book (Portfolios of the Poor: How the World's Poor Live on $2 a Day), discusses how the world's poorest manage their cash flows in an interview in The Boston Globe. Collins explains just how sophisticated some of the poor are at managing their often irregular cash flows:
Here is an interesting mechanism...They call it money guarding. If you get a fairly decent chunk of money, you give it to a money guard, a neighbor or relative or friend that you trust and say, "Hold this, and don't let me touch it." Sometimes the same money guard asks you to hold their money, and so when someone comes to borrow money, you say, "It's not my money." It works.
The difficulty of saving money - as evidenced by the need to resort to a money guard - just might explain the popularity of microcredit. If it's that difficult to save up for a big purchase or investment, it's probably simpler to borrow for it and repay over time. Considering the recent unflattering findings about microcredit, however, perhaps it's time for the microfinance community to focus more on access to savings rather than access to loans.
(Thanks to Giulio Quaggiotto for the pointer.)
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The microfinance community has already begun to focus more on ac
The microfinance community has already begun to focus more on access to savings. The SEEP Network (a microenterprise practitioners forum) has a savings-led working group. Presently, savings-led microfinance services are driven by NGOs such as CARE, Oxfam, CRS, and others. The Gates Foundation has granted about $30 million to those top 3 NGOs over the next 3 years for savings-led programs. I work with a Christian microfinance organization, HOPE International, that is expanding its savings-led services.
It's important to remember, though, that while savings may be in great demand by the very poor, neither savings-led nor credit-led microfinance is a miracle answer. These are tools to give the poor more choice in determining their own livelihood. It is not helpful to set expectations based on hype, and then describe the first randomized study as the final verdict, not pretty, unflattering. Good business results and uncertain short-term social results is a normal first study outcome. Let's just keep learning, improving, and studying.
But more access to savings? Yeah, I think that is a good idea, too.
The real hero of this study is Stuart Rutherford...
The real hero of this study is Stuart Rutherford. He is the one who pioneered the use of the financial diary. His book, The Poor and Their Money, is the predecessor to this book and provided the analytical framework that led to the current book.
By the way, the key message of the book: "Whether or not the microfinance movement was right to stress loans for microenterprises, or has been too slow to embrace savings and other services, its greatest contribution is, to us, beyond dispute. It represents a huge step in the process of bringing reliability to the financial
lives of poor households." Chapter 1 p. 26.
I wonder if the randomistas would be able to pick up on this benefit of microfinance?
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