The Case for Microsavings

When it comes to nerding it up on how the world’s poorest actually manage on extremely small incomes, Portfolios of the Poor is a real achievement: a meticulous reconstruction of the entire financial life of several hundred people living on less than $2/day in three developing countries.

I haven’t quite finished it, so this is no review (you can find a good one here.) But it doesn’t take long to zero in on one amazing finding from the research: every poor household they studied had savings of one kind or another. Even the poorest. The instruments may almost always be informal, the sums may be tiny. But for people dealing with income that isn’t just small but also discontinuous and unpredictable, saving is an absolute necessity.

Portfolios of the Poor is yet another part of the mounting indictment on the conceptual muddle in the old-time microcredit movement, and another part of the now burgeoning case to reimagine credit as one part – and far from the most important part – of a much wider microfinance movement where improved access to microsavings mechanisms play the leading role.

Because not everyone needs a loan. But everyone needs a safe place to save.

2 thoughts on “The Case for Microsavings”

  1. Good point about savings.

    Also worth noting is the seriousness in borrowing and repaying that is present amongst these poor people i.e. poor person borrows and repays another poor person. Generally it is all taken very seriously, honourably and compassionately. Those who don’t repay are soon identified and marginalised in these informal schemes.

    An example I would give of the use of cash seriously is that it costs $1 to grind a bucket of grain but if the person does not have cash then it costs 5 litres which depending on the season is worth anything from $1.50 to $2.00 and he is only left with 15 of the 20 litres. So, obviously it is better to have the cash, rather than lose food that is in short supply by giving it in as the price for grinding. So the $1 is kept for such key areas of expenditure. If a family use a bucket a week for food then $52 will pay for all the grinding and they get 1040 litres meal. If they have no cash then the 1040 litres becomes 780 litres. To make it back up to the 1040 litres then they need to buy 260 litres i.e. 13 buckets which at $6 a bucket is $78 dollars less than the $52 above plus they need more buckets because they will still lose 5 litres from every extra bucket they buy to pay for the grinding.

    Sorry but not very good at arithmetic and presenting this but $2 a day is $60 per month so the money will be spent where it is getting the best return i.e. grinding and paying for it by cash rather than grain.

  2. sorry the words in the second paragraph .. “is $78 less” should read “is $78 more”.

    Don’t put me in charge of two dollars a day. Obviously not good enough at arithmetic. Ho hum.

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