Viewing all posts with tag: Portfolios of the Poor  

FAI's Jonathan Morduch on "The Hidden Tragedy of the Poor"

Recently Upsides sat down with FAI’s Jonathan Morduch to discuss his views on the current state of microfinance and his current project – US Financial Diaries.  Morduch highlights that whether in the developing world or the US, the poor face many of the same financial struggles, which is why understanding money management strategies at the household level a crucial step to providing more effective financial services to the poor . . . 

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The New York Times: How Credit-Card Debt Can Help the Poor

Today The New York Times features a perspective from Shaila Dewan on the importance of credit and saving in the lives of the poor.  Dewan highlights that life without credit can be expensive and severly limiting in terms of accessing housing and other services or dealing with emergencies.  She also notes that savings and credit are interconnected and quotes FAI's Jonathan Morduch on his own observations of the relationship between this activities from his research in Bangladesh . . . 

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Who Pays for Transactions? How Much?

One of the many important questions in the transition to mobile and/or electronic money is who will bear the costs associated with using the system. This question is particularly salient since the Kenyan government announced it was planning to begin taxing mobile money transfers, adding to the cost of the system. The Kenyan government seems to believe that operators will absorb the cost of the tax, but others suggest that it will be passed on to consumers, "picking the pocket of the poor."

Who will bear the cost of the tax and the other costs of operating mobile money systems? On a theoretical basis, this is an easy question to answer: the people who benefit will bear the costs—if those costs are lower than the benefits. In economic theory, it is even irrelevant who is initially charged for the costs, as costs will be passed on to those willing to pay to receive the benefits (known as tax incidence).

Practically, it’s a hard question to answer because we have very little information on the true costs and benefits of any money system . . . 

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Chris Dunford on the Books and Papers that Influenced his Thinking on Savings

FAI asked Chris Dunford to tell us about books and papers that really made a difference in how he thought about savings and the poor. This is his response:

Portfolios of the Poor: This book has changed the “narrative” in the microfinance community more than any other since the founding of the microfinance industry. Though the effort to promote a “client-centered” approach (a.k.a. demand-driven rather supply- or product-driven) has been concerted for over a decade, this book is what made clear and compelling both the importance and implications of starting with an understanding of what the client is already doing. But it goes further to help us understand what the poor are doing, not just those who step forward to be clients of current microfinance services. The book’s orientation and messages liberate us from the institutional straightjacket to revisit fundamental questions of what we might do to help the poor help themselves deal with financial issues. For me and my colleagues at Freedom from Hunger, and apparently for so many others, the book resonates with the stories we’ve been hearing from clients for decades and gives us a broader perspective in which to situate those stories.

What has this to do with savings? The composite picture from financial diaries gives us vivid understanding of the roles and variety of savings in the financial management tool kit of the poor . . . 

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Formality and Informality: Lessons from the new Findex Survey

The Findex project helps to correct a long-standing imbalance in evidence on global finance: an abundance of data on the supply of financial services but curiously little that’s systematic and comparative about global demand. Together with the IMF’s Financial Access Survey, we’re finally getting a clear picture of the holes in global financial access. 

There’s a lot to celebrate now that the Findex is here. So much so that it’s striking that it took so long to create a constituency for the efforts. Stanley Fischer had initiated the push in 2004 as head of the Advisors Group for the UN Year of Microcredit, and I joined Princess Maxima of the Netherlands in pushing the agenda forward in advisory roles with the UN in 2005. But it was the Gates Foundation’s support of the World Bank research group in 2010 that ultimately got us here.

The Findex headline turns out to replicate an earlier count of the global financial gap: half the world is unbanked, about 2.5 billion adults, the same bottom line that came from aggregating a range of independent surveys from ten years ago. But even if the headline is familiar, the Findex delivers rich details . . . 

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Living on 100 Rupees a Day

Last week Public Radio International reported on two young middle-class Indian men who spent three weeks in Bangalore living on 100 rupees a day followed by one week living at India’s controversial new poverty line of 32 rupees a day (roughly equal to 60 cents). “When you’re living on that amount, life is all about innovation,” says Tushar Vashisht  in this story“…because every hour you’re thinking at least 10 minutes on that hour how you’re going to survive the next hour.” It's an interesting story that underscores many of the findings from Portfolios of the Poor: How the Worlds’s Poor Live on $2 a Day, foremost among them is that these two young men used savings to fund their daily existence. They didn’t experience the erratic shifts in daily income that characterizes poverty in India and other parts of the global south. “Somebody doesn’t pop out of the ground and give you $2 every day,” says Daryl Collins, co-author of Portfolios of the Poor, in this PRI story. “What is the most difficult is that sometimes it’s $5 and then it’s nothing and then it’s $1 and then it’s $2 and then it goes back to nothing.” Additionally, she adds “Somebody who is living on 100 rupees a day, they could indeed be living on 40 rupees a day because they are sending so much back home to the villages."

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Documenting Divides

Philadelphia, Mississippi has come a long way since 1964, when members of the Ku Klux Klan murdered three idealistic young men for investigating the burning of a black church, a tragedy that fueled pressure to pass the Civil Rights Act of 1964. Visit Philadelphia today, as members of the U.S. Financial Diaries team recently did, and the topic of conversation is just as likely to fall to economic struggles as it is to lingering racial tensions.  

Eastern Mississippi is no economic backwater. Companies are investing, and banks do steady business. But while racial divides were once the clearest obstacles, parents today worry about economic opportunities and pitfalls. Check cashers, pawn shops, and car title lenders operate a few blocks from bank branches. Citizens work hard, but jobs for unskilled workers often pay poorly and offer limited benefits. Even as racial divides ebb, economic divides run deep.

How does that translate into the financial lives and decisions of individuals?

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What about financial access in the U.S.?

At FAI, we spend most of our time thinking about financial access overseas. Yet, increasingly, we can’t ignore the conversation happening right here in the U.S. Last year, the FDIC released its first-ever survey of un- and under-banked households, which revealed that some 9 million American families have neither a savings nor a checking account, and an additional 21 million families that do have such accounts also patronize non-bank financial outfits such as check cashers and payday lenders.

Households operating outside the financial mainstream are nothing new, but the attention they are receiving certainly is. The past few years have seen a rush of interest from policy makers, socially minded nonprofits, financial educators, journalists, and even big banks hoping to add to their retail ranks. Conversations about the unbanked tend to revolve around two main premises. First, that the reason people don’t have bank accounts is because they don’t realize they’d be better off if they did. Second, that the host of financial firms people use in lieu of banks—such as check cashers, pawnshops, payday lenders, rent-to-own stores, and tax refund advance outfits—exploit customers with higher-than-warranted interest rates and wind up trapping people in a cycle of debt.

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The Half Billion Dollar Question: What’s so important about savings anyway?

Last week I was a guest in Seattle at the Bill & Melinda Gates Foundation Global Savings Forum. The Forum brought together a diverse and thoughtful group of people working to push the global savings agenda. Stuart Rutherford and I had the chance to talk about lessons from the financial diaries and Portfolios of the Poor, and found that our job was made much easier given that several of speakers ahead of us on the agenda, includingMelinda Gates, had already done an excellent job of communicating important messages about how the poor live their financial lives.

The big news out of the Forum was, of course, the Gates Foundation’s unveiling of their $500 million Global Savings Fund, a collection of grants to help create savings accounts for the poor. The grant builds on the argument that the poor can save, do save, and want to save – but they seek better ways to do so effectively.
 
During a break, I was talking to an academic friend who asked me – “Yes, but who would ever question that idea?” It was a reminder that it’s easy to forget how contentious the idea is that the poor can save . . . 

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The Update on Hamid & Khadeja from "Portfolios of the Poor"

For those of you who followed the story of Hamid and Khadeja, the Bangladeshi couple introduced in Chapter 1 of "Portfolios of the Poor", we have an update on them from Stuart Rutherford’s recent visit to Bangladesh. We are excited to learn the couple is healthy and their household finances appear to have become further diversified and formalized. 

The family is very much together and still living in Dhaka but in better housing. The second son is now eight, in school and well. Hamid seems to have put his poor health behind him and is still driving an auto-rickshaw (natural-gas powered these days). His income is up, as is Khadeja's. It is Khadeja who has changed the most: she is much more
self-confident and is running a very busy one-woman sari-selling business. Between them they now earn about 14,000 taka a month ($199 USD) – considerably more than in 2000 and 2005. At market rates the four of them are now earning per capita $1.68 a day, or $4.28 PPP . . . .

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“Let’s get real!”: More astute commentary on the microfinance impact statement

If you only read one critique of the recent microfinance impact "statement," it should be Chris Dunford’s over at Freedom from Hunger. We’ve taken the liberty of excerpting our favorite parts for you and explaining why exactly we agree.

First, Chris says of Freedom From Hunger’s own experience with serious impact research: “The results…have validated some of our claims and failed to validate others. We are challenged to embrace the revealed weaknesses and to reflect with our practitioner partners and take action collectively to make important improvements in our products and services.”

We wholeheartedly agree that taking evaluation more seriously can help MFIs improve what they’re doing.  We’ve pointed to BASIX as another good example of an organization that has used evaluations as a powerful force for constructive change in the way it offers financial services to the poor.

“The recent research studies in India and the Philippines seem to conform to best practices of credible impact research, so let’s accept the results for what they are, which are mostly positive and realistic.” 

Yes. Microfinance is not the answer to ending poverty as we know it—nor should it be . . . 

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Can you actively manage five financial accounts?

In this excellent post, Kate McKee highlights the intensive financial life of Hiram, a smart Kenyan entrepreneur with a thriving car rental business.  Because one single institution cannot meet all his financial needs, Hiram has to patch together services from five different institutions. 

He has five financial accounts, each for a specific purpose –
1. Loan from an MFI
2. Loan from another MFI
3. Business account at a large international bank only to cash checks
4. Savings account at another bank to deposit cash
5. Mobile account (M-PESA) to allow him to receive electronic payments and reduce the amount of cash he needs to carry around.

The evidence is mounting that poor households rely upon an array of surprisingly complex financial tools, and lead active financial lives because they are poor, not in spite of it. They create “portfolios” that leverage both informal networks and formal institutions to address their immediate and long-term needs . . . 

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When does insurance make sense?

In his useful assessment of microinsurance schemes, Paul Mosley proposes the idea of “quasi-insurance” – the provision of risk-protection through non-insurance routes such as loans and savings in markets where microinsurance is lacking or insufficient. Mosley purports that “in every case where a choice has to be made concerning choice of risk management strategies it is desirable to assess whether such non-insurance options may offer a lower-cost or more effective method of protective the poor than microinsurance.” 

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