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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