New financial diaries research from Malawi

A new report on financial diaries from Malawi has just been released by Microfinance Opportunities, the IRIS Center, and the Bill & Melinda Gates Foundation. The “Malawi Financial Diaries” specifically looks at the introduction of a mobile “bank on wheels” branch of Opportunity International Bank of Malawi (OIBM), and provides an analysis of whether it added value to customers in rural locations in Central Malawi.  Like some of our own work looking at the financial lives of the poor, the report provides some unexpected insights (as well as a few that are consonant with our own research) into how low-income families in Malawi manage their money.

The study found that banks and individual cash transfers dominated the financial service market—banks captured the “big money,” while individual cash transfers helped mediate day-to-day needs. Use of the OIBM van dropped off over time, though research found that several factors unrelated to the bank may have been at work here.

On the topic of risk management, cash flow was (unsurprisingly) unsteady—business owners commonly faced weeks of zero income, for example—and banks including OIBM played a smoothing role, though it was small compared to informal mechanisms. This fits in with research from financial diaries conducted by Daryl Collins, Stuart Rutherford and Orlanda Ruthven in South Africa, Bangladesh and India that uncovered the challenge of the “triple whammy” of poverty: that poor households not only struggle because their incomes are low and they lack good financial tools, but also because their incomes are irregular and unpredictable. 

Also, the Malawi diaries found that households commonly needed to pay lump-sum expenses that exceed the sample’s median weekly income for an entire household ($55). This is consistent with the “borrowing to save” strategies witnessed by Collins, Rutherford and Ruthven.  They saw that often poor households would take on a high interest loans rather than draw down their savings because it was so difficult to accumulate a usefully large sum to begin with, and taking a loan instead provided them with a structured repayment plan,  whereas when you’re saving, you’re typically on your own, with little structure or support.

We’re excited to see the financial diaries model implemented in another setting, and we hope the behavioral insights it provides can ultimately facilitate the creation of better financial products and policies for poor households.