World’s poor lack access, not savvy

NYU (US)—The first in-depth examination of how the world’s poorest households patch together their financial existences—many on less than $2 a day—finds they do so with sophistication and complexity.

Jonathan Morduch, public policy and economics professor at New York University’s Robert F. Wagner Graduate School of Public Service and director of the Financial Access Initiative, along with researchers Daryl Collins, Stuart Rutherford and Orlanda Ruthven spent a year recording biweekly household “diaries” of villagers and slum dwellers in Bangladesh, India, and South Africa, tracking penny by penny how these individuals and families manage their money.

Their findings published in Portfolios of the Poor: How the World’s Poor Live on $2 a Day demonstrate that the poor are not living hand-to-mouth, but save and borrow with an eye towards the future; that they are maintaining complex financial lives because they are poor, not in spite of it. The research suggests the real tragedy of poverty is not just that the poor have limited resources, but that they lack access to the financial tools and services that would enable them to best leverage the resources they do have.

“Common misperceptions about the capacity of the poor to manage finances limit the scope and potential impact of policy and available financial tools,” says Morduch. “Microfinance demonstrates that many poor households are fundamentally bankable, and can borrow, invest, and repay loans. Our systematic research revealed unexpected insights into the realities of living on $2 a day, and compels us to ensure financial reform is not boxed in by the original vision of microfinance. The insights we found support a broadening of the scope of microfinance policies to deliver loans for general purposes, enable savings, and add meaningful consumer protections.”

Among the families the researchers met are Hamid and Khadeja, a Bangladeshi couple who are active money managers despite their limited income of $70 per month; Nomsa, an elderly South African woman who cares for her four grandchildren on a limited government stipend; and Sandeep from Delhi, who leverage an extensive network of friends and neighbors to develop informal financial partnerships, from taking a loan from a neighbor to participating in local savings clubs.

Understanding how these poor households manage their financial lives—even learning that they do in fact possess financial “portfolios”—could provide an important foundation upon which to build policy agendas and sustainable financial tools. The authors’ recommendations for reimagining and enhancing microfinance-driven solutions include facilitating cash flow, providing increased consumer protections, providing better savings products, and expanding microfinance beyond entrepreneurship.

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