1 / 28

By Daryl Collins , Jonathan Morduch, Stuart Rutherford and Orlanda Ruthven

By Daryl Collins , Jonathan Morduch, Stuart Rutherford and Orlanda Ruthven. I. The Problem. $2…. 40% of the world live on $2 a day or less. If you earn $2 a day it’s easy to assume. You live hand-to-mouth You can’t plan for the future You can’t save

damon-rivers
Download Presentation

By Daryl Collins , Jonathan Morduch, Stuart Rutherford and Orlanda Ruthven

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. By Daryl Collins, Jonathan Morduch, Stuart Rutherford and Orlanda Ruthven

  2. I. The Problem

  3. $2…

  4. 40% of the world live on $2 a day or less If you earn $2 a day it’s easy to assume... You live hand-to-mouth You can’t plan for the future You can’t save You can’t have much of a financial life

  5. II. Financial Diaries

  6. What are the Financial Diaries? Household surveys that track penny by penny how poor households in India, Bangladesh and South Africa manage their money.

  7. Why Financial Diaries? Small-scale anthropological studies Financial diaries Large, one-time surveys Mixed-research methodology Captures the complexity of people’s lives Systematic in data collection

  8. Improved data quality Sources of funds = Uses of funds (Expenditures + other outflows) (Income + other financial inflows) Margin of error

  9. Improved data quality over time 100% 50% 0% -50% -100% -150% After about 6 interviews, the margin of -200% error of data collection decreases to an average of 6%. -250% -300% -350% -400% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Number of interviews One-time interviews miss a lot.

  10. III. Lessons

  11. 1. The poor are active money managers • Respondents patchedtogether a wide array of services and devices: • Informal • Semi-formal • Formal • Bangladesh example • On average the Bangladeshi households push or pull through financial services and devices each year a sum of money ($839) =2/3 of their annual cash income. • No household used less than 4 financial devices. • 1/3 of them used more than 10.

  12. Microfinance savings account Microfinance loan Life insurance Remittance to home village Interest free loan from neighbor Shopkeeper credit Home savings Savings held for neighbors Rent arrears Cash in hand Wage advance Saving with a moneyguard Loans to others

  13. 2. Being poor isn’t just about low incomes The poor face a “triple whammy” Low incomes Irregular and unpredictable incomes Lack of appropriate financial tools

  14. $2 a day is just an average…… Traders Small Farmers Seasonal variations in monthly income

  15. Pumza, South Africa • She supports herself and four children as a street food vendor, and with a small government child support grant • Her average monthly income is $120 • On slow days, she doesn’t earn enough cash to buy fresh stock for the next day • During lean times she borrows from a moneylender at a monthly interest rate of 30% or uses her savings. Pumza’s greatest challenge is her irregular income.

  16. Pumza, South Africa Net cash flows, aggregated weekly, US$

  17. The challenge of living on $2 a day is that $2 a day is just an average $50 $40 $30 $20 $10 $0 -$10 4/2/2004 7/9/2004 3/20/2004 4/16/2004 4/30/2004 5/15/2004 5/29/2004 6/11/2004 6/24/2004 7/30/2004 8/13/2004 8/27/2004 9/10/2004 9/25/2004 10/9/2004 11/6/2004 10/22/2004 11/19/2004

  18. 3. The poor can and do save • Saving is often in small amounts week after week • Formal sector devices often lack: • Convenience • Flexibility • But informal savings mechanisms can be: • Inflexible • Unreliable

  19. How Nomsa’s savings club works US$ converted from South African rand at $=6.5 rand, market rate

  20. Cape Town, South Africa Funerals affected 81% of households in South Africa. Fire and loss of property affected 19% of Diary households in Bangladesh Illness affected 50% of Diary households in Bangladesh and 42% of Diary households in India

  21. 4. More risks, but fewer financial tools • Responses to crisis Need to pull together adequate financing at the right moment. Sell assets Exhaust savings Take on high-interest loans

  22. Thembi’s Brother’s Funeral US$ converted from South African rand at $=6.5 rand, market rate

  23. Kenneth, a shackbuilder in Cape Town Household income: $2.3 per person per day Kenneth’s Financial Portfolio Credit given -Credit to customers -Loan to neighbor Savings -Savings club -Bank account -Saving in house Credit taken -Bank loan -Store credit Insurance -Funeral insurance

  24. 5. Small businesses: Not just capital loans • Not all small businesses can use capital loans to expand their businesses • But they do need flexible credit and savings to bridge cash flow. • One of the most challenging aspects of small business is managing the debtors book

  25. VI. Conclusions

  26. Better portfolios Poor households maintain financial lives because they are poor, not in spite of it. Hidden tragedy of poverty: the poor lack tools to make the most of what they have. Next steps: scale-up ideas that are working. Open up to ideas and priorities that the poor have already made central in their lives.

  27. www.portfoliosofthepoor.com The Ford Foundation The Financial Access Initiative The Bill & Melinda Gates Foundation FinMark Trust DFID MicroFinance Regulatory Council Photos by Robin Saidman, www.vitaledgeaid.org

More Related