2015년 9월 11일 금요일

[발췌: Collins, Morduch, Rutherford & Ruthven's] Portfolios of the Poor


출처: http://www.portfoliosofthepoor.com/book.asp; 구글도서; ...
지은이들: Daryl Collins, Jonathan Morduch, Stuart Rutherford & Orlanda Ruthven


※ 발췌 (excerpt):

About 40% of the world's poor, more than a billion, live on incomes of $2 a day or less...[T]he first book to explain systematically how the poor find solutions [:]

  • The authors report on the yearlong "financial diaries" of villagers and slum dwellers in Bangladesh, India, and South Africa─records that track penny by penny how specific households manage their money. ...
  • Most poor households do not live hand to mouth, spending what they earn in a desperate bid to keep afloat. 
  • Instead they employ financial tools, many linked to informal networks and family ties. They push money into savings for reserves, squeeze money out of creditors whenever possible, run sophisticated savings clubs, and use microfinancing wherever available. 
Their experiences reveal new methods to fight poverty and ways to envision the next generation of banks for the "bottom billion."

( ... ) In turning to prescription, the authors ask how the financial tools offered by the microfinance industry can be made better. A revealing chapter looks at the success of The Grameen Bank of Bangladesh─...─but the authors argue that more is needed [:]
  • They call for financial institutions to provide better cash flow management systems that allow for small deposits and withdrawals at any time; long-term contractual savings products that allow the poor to limit the effects of expensive events like weddings and funerals or with emergencies and large purchases; and general purpose loans (a departure from the current trend of loaning for the purpose of setting up a business).

Contents:
Chapter 1. The Portfolios of the Poor  (p. 1)
Chapter 2. The Daily Grind  (p. 28)
Chapter 3. Dealing with Risk  (p. 65)
Chapter 4. Building Blocks: Creating Usefully Large Sums  (p. 95)
Chapter 5. Price of Money  (p. 132)
Chapter 6. Rethinking Microfiance: The Grameen II Diaries  (p. 154)
Chapter 7. Better Portfolios  (p. 174)
Appendix 1: The Story behind the Portfolios  (p. 185)
Appendix 2: A Selection of Portfolios  (p. 211)
Acknowledgments  (p. 243)
Notes  (p. 247)
Bibliography  (p. 265)
Index  (p. 273)

※ 발췌 (excerpt): From Chapter 1, The Portfolios of the Poor

( ... ... ) For those of who don't have to do it, it is hard to imagine what it is like to live on so small an income. We don't even try to imagine. We suppose that with incomes at these impossibly low levels the poor can do little for themselves beyond hand-to-mouth survival. Their chances of moving out of poverty must depend, we assume, either on international charity or on their eventual incorporation into the globalized economy. The hottest public debates in world poverty, therefore, are those about aid flows and debt forgiveness, and about the virtues and vices of globalization.[n.1] Discussion of what the poor might do for themselves is less often heard. ( ... )
[n.1] To get a sense of the debates, the most sharply worded arguments for aid-fueled strategies are in Sachs(2005), which is countered by Easterly (2006). Wolf (2005) makes the case for globalization, while Stiglitz (2005), for example, points to its limits.
CF. J. Sachs (2005), ....
W. Easterly (2006), ....
Wolf (2005), ...
J. Stiglitz (2005), ....

Most of your money is spent on the basics, above all food. ( ... ... ) In short, how do you manage your money if there is so little of it? These are practical questions that confront billions every day [:]
  • They are also starting points for imagining new ways for businesses to build markets that serve those living on one or two or three dollars per day.
  • They are obvious starting points as well for policymakers and governments seeking to confront persistent inequalities.
Though these question about the financial practices of the poor are fundamental, they are surprisingly hard to answer. Existing data sources offer limited insights. Neither large, nationally representative economic surveys of the sort employed by governments and institutions like the World Bank, nor small-scale anthropological studies or specialized market surveys, are designed to get at these questions. Large surveys give snapshots of living conditions. They help analysts count the number of poor people worldwide and measure what they typically consume during a year. But they offer limited insight into how the poor actually ^live^ their lives week by week─how they create strategies, weigh trade-offs, and seize opportunities. Anthropological studies and market surveys examine behavior more closely, but they seldom provide quantified evidence of tightly defined economic behavior over time.

( ... ) several years ago we launched a series of detailed, yearlong studies to shed light on how families live on so little. ( ... ) [:]
  • The first findings was the most fundamental: no matter where we looked, we found that most of the households, even those living on less than one dollar a day per person, rarely consume every penny of income as soon as it is earned. 
  • They seek, instead, to "manage" their money by saving when they can and borrowing when they need to. 
  • ( ... ) a surprisingly large proportion of income gets managed in this way─diverted into savings or used to pay down loans. In the process, a host of different methods are pressed into use: storing savings at home, with others, and with banking institutions; joining savings clubs, savings-and-loans clubs, and insurance clubs; and borrowing from neighbors, relatives, employers, moneylenders, or financial institutions. At any one time, the average poor household has a fistful of financial relationship on the go.
( ... ) two thoughts that changed our perspective on world poverty, and on the potential for markets to respond to the needs of poor households. ( ... ) [:]
  • First, we came to see that money management is, for the poor, a fundamental and well-understood part of everyday life. It is a key factor in determining the level of success that poor households enjoy in improving their own lives. ( ... ) often fundamental to achieving those─health, education, wealth─broader aims.
  • Second, we saw that at almost every turn poor households are frustrated by the poor quality─above all the low reliability─of the instruments that they use to manage their meager incomes
This made us realize that if poor households enjoyed assured access to a handful of better financial tools, their chances of improving their lives would surely be much higher.
   The tools we are talking about are those used for managing money─financial tools. ( ... ) The importance of reliable financial tools runs against common assumptions about the lives and priorities of poor families. It requires that we rethink our ideas about banks and banking. [:]
  • Some of that rethinking has already started through the global "microfinance" movement, but there is further to travel.
  • The findings revealed in this book point to new opportunities for philanthropists and governments seeking to create social and economic change, and for businesses seeking to expand markets.

Financial Diaries

To discover the crucial importance of financial tools for poor people, we had to spend time with them, learning about their money-management methods in minute detail. We did so by devising a research technique we call “financial diaries.”
  • ( ... ) we interviewed poor households, at least twice a month for a full year, and used the data to construct “diaries” of what they did with their money. Altogether we collected more than 250 completed diaries.
  • Over time the answers to our questions about how poor households manage money started to add up and reinforce each other—and, 
  • importantly, they meshed with what we had seen and heard over the years in our work in other contexts: in Latin America and elsewhere in Africa and Asia.
   We learned how and when income flowed in and how and when it was spent. Looking at poor households almost as one might look at a small business, we created household-level balance sheets and cash-flow statements, focusing our lens most sharply on their financial behavior—on the money they borrowed and repaid, lent and recovered, and saved and withdrew, along with the costs of so doing.
  • Our understanding of these choices was enriched by the real-time commentary of the householders themselves. We listened to what they had to say about their financial lives: why they did what they did, what was hard and what was easy, and how successful they felt they had been. 
  • It was, surprisingly, the tools of corporate finance—balance sheets and cash-flow statements—that offered the structure with which we could begin to understand what it takes, day by day, for poor households to live on so little.

[A case of such financial diaries of a couple in Bangladesh: ]
  • (description of their background and housing in Dhaka, the capital.)
  • A fifth of the $70 was spent on rent (not always paid on time), and much of the rest went toward the most basic necessities of life—food and the means to prepare it. By the couple’s own reckoning, which our evidence agrees with, their income put them among the poor of Bangladesh, though not among the very poorest. By global standards they would fall into the bottom two-fifths of the world’s income distribution tables.
  • a partly educated couple trying to stay alive, bring up a child, run a one-room home, and keep Ha-mid’s health in shape—on an uncertain $0.78 per person per day. You wouldn’t expect them to have much of a financial life. Yet the diversity of instruments in their year-end household balance sheet (table 1.2) shows that Hamid and Khadeja, as part of their struggle to survive within their slim means, were active money managers.
  • Far from living hand-to-mouth, consuming every taka as soon as it arrived, Hamid and Khadeja had built up reserves in six different instruments, ranging from $2 kept at home for minor day-to-day shortfalls to $30 sent for safe-keeping to his parents, $40 lent out to a relative, and $76 in a life insurance savings policy. In addition, Hamid always made sure he had $2 in his pocket to deal with anything that might befall him on the road.
  • ( ... ... )
  • Hamid and Khadeja’s involvement in finance did not mean that they ended up with debts that they found impossible to manage. Although their “net worth” (the balance of their financial assets and liabilities) was negative, the amount was small relative to their total annual income, and their “debt service” ratio—...—was manageable. Negative net worth was in fact quite rare in our sample: among the 152 households we studied in South Africa, only 3 percent were in this position. We should not assume, then, that poor households are always deeply in debt and always have negative net worth. The reasons for this phenomenon, and for many other aspects of balance sheets like Hamid and Khadeja’s, are explored in more detail in later chapters, and are on show in the portfolios found in appendix 2.
  • Balance sheets like this one, however revealing, don’t tell the story of how Hamid and Khadeja managed their money on a day-today basis. That story comes from studying cash flow rather than balances—from tracing the ebb and flow of cash into and out of savings and loan and insurance instruments. ( ... ... )
  • This book reviews the recorded behavior and commentary of our 250 diarists to show how and why they intermediated as they did, and how and why better, more reliable instruments would help them do it more successfully.
In addition to saving, borrowing, and repaying money, Hamid and Khadeja, like nearly all poor and some not-so-poor households, also saved, borrowed, and repaid in kind. [:]
p. 10
  • ( ... ... )
  • But because our story is focused on how poor households manage money, we have focused our discussion only on those transactions where cash was involved.
We also tracked changes in physical assets, like livestock and land, and found them to be important in the portfolios of the poor. However, we noticed that most of the wealth changes over the year were in financial rather than physical wealth.
  • tracking a “net worth profile,” including physical as well as financial assets, over time. ( ... ... ) 
  • Physical assets certainly made up the larger proportion of net worth ( ... ) However, we found that physical assets changed very little over the year. ( ... )
  • The action was instead in financial assets. Taking a snapshot of household portfolios would have missed the dramatic change in financial assets and led us to mistakenly focus on physical assets as the more important part of net worth to understand. The data suggest that although households certainly can and do save in physical assets, financial management is the stepping-stone to understanding how households build net worth.

   Following Hamid and Khadeja’s financial activity every two weeks allowed us to discover other types of behaviors, constraints, and opportunities that are not revealed in large, nationally representative surveys.
  • ( ... ... )
  • they had credit with a shopkeeper, for example, took loans from neighbors, lent out a little to others, and stashed money in a hiding place at home for themselves and for others.
  • ( ... ) these practices form a large part of their financial lives.
   It was sobering, then, to find that we would have missed much of the action had we undertaken only single, one-time interviews of each household. Using the South African data, we did a “flow of funds” analysis—comparing all inflows to all outflows of money in each time period for each household—and found that, in the earliest interviews, we were often missing more than half of a household’s financial activity in a given week. 
  • It took roughly six rounds of interviews and visits before we felt confident we had something close to the full story.
  • ( ... ... )
  • But those fragments of data eventually resolved into yearlong movie reels that changed our understanding. The frame-after-frame views revealed much greater levels of financial activity than large surveys usually show, and much more active management of finances.
  • Without the pieces, it would have been easy to imagine that Hamid and Khadeja would be unsophisticated about their finances because they are only partially literate, or would be unable to save in a disciplined way because they are so poor. We might have blindly accepted arguments that they are especially eager for loans to run a small business, or that, if offered loans, they would fall rapidly into deep debt. Or we might have assumed that because money is tight, they would always demand rock-bottom prices.
  • All of those assumptions are right some of the time. But they are wrong much of the time. Uncorrected, they can mislead businesses that plan strategies to work with households like Hamid and Khadeja’s, and misdirect policymakers who design interventions to hasten their escape from poverty.

Portfolios (p. 13)

What explains Hamid and Khadeja’s unexpectedly intense financial life? ( ... ) Khadeja told us, “I don’t really like having to deal with other people over money, but if you’re poor, there’s no alternative. We have to do it to survive.” When you live on a small, irregular, and uncertain income, we learned, just getting food on the table is hard to manage out of current income. Managing all of life’s other expenditures out of current income is next to impossible. Whenever you need to make such an expenditure—( ... ... )—there are three common courses:
  • First, in the worst case, ( ... ... )
  • Second, you may be able to raise the money by selling assets, ( ... ... )
  • Third, in the best case, you can use past income or future income to fund today’s expenses.
   The third course entails the decision to intermediate—the decision to save (to store past income that can be spent at a later date) or to borrow (to take an advance, now, against future income). More simply, it is the choice to set aside something out of current income that can be used to build up savings or pay down debt.
  • Small incomes mean that poor people are more often than others placed in the position of needing to intermediate. The uncertainty and irregularity of their income compounds the problem by ratcheting up the need to hold reserves, or to borrow when the income fails to arrive. 
  • For these reasons, we would argue that poor people need financial services more than any other group. 
  • Poor households with a pressing need to intermediate have to manage a collection of relationships and transactions with others—family, neighbors, moneylenders, and savings clubs, constituting a set of formal, semiformal, and informal financial providers—that can fairly be described as a portfolio.[n.11]
[n.11] By “semiformal providers” we mean microfinance organizations and other nonbank providers, such as NGOs, that offer services to poor clients. They are sometimes referred to as “MFIs”─microfinance institutions.
   Economists and anthropologists have built rich and independent literatures on the constituent parts of these portfolios. We now know quite a bit about how moneylenders set prices and how local savings clubs operate.[n.12]  Economists have further contributed to understanding how well the pieces come together to smooth the ups and downs of household consumption.[n.13]
  • But what has been missing is a close look at how portfolios function: not just how well the pieces work but how they work together. Focusing on how gives new insight into the day-to-day nature of poverty and yields concrete ideas for creating better solutions for it.

( ... ... )


Small, Irregular, Unpredictable

It would be wrong to claim that Hamid and Khadeja’s is a “typical” portfolio of the poor. ( ... ... ) Therefore, we cannot claim that the behavior of our 250 households is typical of poor households throughout the world. Nevertheless, it is striking how many commonalities we found among our households, despite the differences in their environments.

   Every household in our 250-strong sample, even the very poorest, held both savings and debt of some sort. No household used fewer than four types of instrument during the year: ( ... ... )
  • These numbers refer to the type of instruments used: the number of times these instruments were used in the year was of course much greater. In Bangladesh, for example, the 42 households between them used just one instrument—the interest-free loan—almost 300 times in the year.
  • In all three countries total cash turnover through instruments was large relative to total net income: in Bangladesh and India it ranged between 75 percent and 330 percent of annual income, and in South Africa reached as high as 500 percent for some households.
  • Some instruments seem universal: almost every household borrowed informally from family and friends, and many, including the very poor, reciprocated by offering such loans to others. Certain kinds of savings clubs and savings-and-loan clubs were found in all locations in all three countries, though with local variations.
  • We heard the same themes over and over again when we asked our households to comment on what they were doing: many of the diarists told us they found informal transactions unpleasant but unavoidable; many, like Khadeja, also said they wished they had better ways to save.
   Of all the commonalities, the most fundamental is that the households are coping with incomes that are not just low, but also irregular and unpredictable, and that too few financial instruments are available to effectively manage these uneven flows. It is a “triple whammy”: (1) low incomes; (2) irregularity and unpredictability; and (3) a lack of tools.
  • In the villages, farmers earn the bulk of their income during two or three peak harvest months, earning nothing during troughs. Farm laborers get a daily wage when there’s work to do; at other times they sit around idle, migrate to towns, or scratch a living from other sources.
  • In the cities and urban townships, self-employed folk like Hamid have good and bad days. Women’s paid work in the town, such as maidserving, is often part-time, occasional, or temporary. 
  • Unless they are very fortunate, even full-time, permanently employed poor people suffer at the hands of employers who pay irregularly.
  • ( ... ... ) If you did earn a steady two dollars per day per person, you could plan more easily and enter into more fruitful relationships with financial partners. ( ... )
   These facts made us see how policy perspectives on poverty can hamper understanding.
  • The “dollar-a-day” view of global poverty ( ... ) It captures the fact that incomes are small, but sidelines the equally important reality that incomes are often highly irregular and unpredictable.
   ( ... ) When we asked how they managed to do this when so many transactions were ongoing, Khadeja said, “We talk about it all the time, and that fixes it in our memories.” One of their neighbors remarked, “These things are important—they keep you awake at night.”
  • For all the households we came to know through the diaries, living on under two dollars a day requires unrelenting vigilance in cash-flow management—strategies to cope with the irregularities of income
  • Short-term cash-flow management is vital to ensure that the family doesn’t go hungry, and chapter 2 takes a closer look at how the diary households manage this basic task.

Coping with Risk and Raising Lump Sums  (p. 17)

Longer-term money management in poor households, we found, is associated in particular with two other concerns. 
  • The first is how to cope with risk. ( ... ... ) in Chapter 3.
  • The second concern around which longer-term money management revolves in poor households is the need to build or borrow usefully large sums of money, the subject of chapter 4. ( ... ... )
   We have just identified three needs that drive much of the financial activity of the poor households we met through the financial diaries:
  • 1. Managing basics: cash-flow management to transform irregular income flows into a dependable resource to meet daily needs.  <Chapter 2>
  • 2. Coping with risk: dealing with the emergencies that can derail families with little in reserve.  <Chapter 3>
  • 3. Raising lump sums: seizing opportunities and paying for big-ticket expenses by accumulating usefully large sums of money.  <Chapter 4>


The Portfolio Perspective  (p. 19)

The main categories of personal financial behavior—borrowing, insurance, and saving—are associated in our minds with the typical needs that they serve. ( ... ... ) It would be tempting to imagine that the three topics described at the end of the last section would be principally about borrowing (Managing basics), then insurance (Coping with risk), then saving (Raising lump sums).
  • In reality, life doesn’t always allow us to match instruments with uses quite so neatly. We all know of cases where an insurance policy or a pension had to be unexpectedly cashed in to serve some unexpected need, for example.  ( ... ) The poor households we met in the diaries were especially likely to combine many different kinds of instruments to achieve their needs, and this is one of the main reasons their portfolios turned out to be surprisingly complex.
  • For example, ( ... ... )
   However, within the broad categories of “saving” and “borrowing” there are important distinctions, and it is possible to associate certain kinds of saving and borrowing with specific needs. 
  • The kind of saving needed to manage day-to-day basics, for example, is different from the kind of saving needed to raise usefully large sums. For the first kind, poor households seek to keep money in places that they can access freely and frequently, both to maximize the amount they save and to ensure that they can retrieve the savings at short notice. Security is important, but so is convenience. Reward (in the form of interest receivable) is of less importance: thus they may hide savings at home or entrust cash to their next-door neighbor.
  • When households try to build savings into large sums, the mix of characteristics shifts. Now security is very important, since the money may have to be stored for some time as it builds, and reward is valued more highly. 
  • But a new characteristic enters the mix—structure. The poor, like all of us, tend to want to have their savings cake and eat it, but when you’re more hungry than average, the temptation to eat it is all the stronger. Structure—in the form of curbs on the liquidity of the savings, and rules defining the term, timing, and value of deposits—helps self-discipline, as the poor often know. ( ... ... )
   Similarly, the three drivers of need may cause the poor to approach different kinds of lenders who offer loans that vary in value, term, price, repayment structure, and availability. 
  • Sometimes local informal lending, which tends to be interest-free, will be best for day-to-day management, but on the other hand it may also make sense to take a larger loan from a more formal lender in order, say, to buy a stock of food if it can be stored safely at home.
  • The diaries show that in Bangladesh, for example, bigger loans often come from microfinance institutions, but sometimes diarists deliberately choose a more expensive moneylender because the looser repayment schedule fits their needs better, or because the money must be found quickly after an emergency has struck or a not-to-be-missed opportunity has arisen.
  This is not to suggest that poor households are blessed with an abundance of choice when they are deciding where to place savings or where to seek a loan: unfortunately, that is almost never the case.[n.17] But to the extent that they have choice, they exercise it.
[n. 17] While the main problem of poor households is lack of choice, there are local markets in which competition among microfinance providers has grown considerably, including markets in Peru, Nicaragua, the Philippines, and Bangladesh. Real competition will likely increase, but it remains far from the norm.

Perplexing Prices  (p. 21)

These insights come from considering the financial activities of poor households as portfolios composed of a mix of instruments, and then tracking those mixes over time to discover how they were deployed.
  • We would not have spotted them if we had just looked at how households use individual instruments, or looked at their mix of instruments at just one moment in time.
  • We would have missed the way in which sums are “patched” together from an array of instruments, and we could not have fully appreciated the hopes and stresses that accompany this process, nor the play of intrahousehold relationships.
  • For example, we wouldn’t have discovered that while Khadeja stores money for others, her husband chooses to keep some of his reserves out of her hands, storing it instead with his employer: ( ... ... ) The financial diary methodology forced us to confront our assumptions and take a fresh look at the financial lives of poor people.
   This is especially so when it comes to understanding prices. ( ... ) Using our portfolios, we have been able to look closely at deals as they played out over time and at the social environment in which deals are struck, and we find that the pricing story is complex at an even more basic level than understanding supply and demand.
  • Some poor households pay fees for good ways to save—an idea that may be puzzling to those of us used to being paid interest on bank deposits, rather than having to pay for the service.
  • Our surprise is amplified when the fees, interpreted as interest rates and expressed on an annualized basis, seem very high. Savers who use roving deposit collectors—the susus of West Africa are the best-known examples— generally save daily for a month and then get back, at the month’s end, all their deposits less one day’s worth. That’s a monthly rate of minus 3.3 percent, or minus 40 percent at an annualized rate.
  • Minus 40 percent a year on savings? Can that be rational? But to a mother in a poor household saving 10 cents a day to ensure she can buy 3 dollars’ worth of schoolbooks for her daughter before the school term starts next month, 10 cents is an eminently affordable fee. Where else can she be sure of getting the money out of temptation’s way, and enjoy the discipline of having a collector call on her each day to make sure she saves?
   As with savings, so with loans. Households pay finance companies and moneylenders amply for the chance to borrow. Top interest rates, expressed on an annualized basis, are the equivalent of 200 percent or more—astronomical relative to the kinds of charges levied by US or UK banks.
  • According to the diaries, however, few of these “high cost” loans are actually held for a full year. In South Africa, for example, most are held for less than a month; some for just a week.
  • The conversion into annualized interest rates allows us to compare interest charges on loans of different durations, and the year is a convenient standard. But the diaries show that the attempt to gain clarity by annualizing may distort the nature of the costs and choices.
  • For example, a 25-cent fee charged for a moneylender loan of $10 for a week may sound quite reasonable even to Hamid the motor-rickshaw driver, who earns just $2.33 per day and for whom a $10 loan may mean the difference between being able to buy his son new clothes for the Eid festival and having him go to the mosque in last year’s rags.
  • But on an annualized basis (assuming compounding of the interest) such a loan costs 261 percent per year. That doesn’t sound at all reasonable. One of the lessons from the diaries is that interest paid on very short-duration loans is more sensibly understood as a fee than as annualized interest. ( ... ... )
   The adjustment works in reverse, too. 
  • For example, when policy-makers say ( ... ) that microcredit providers offer a good price as long as it beats the annualized interest rate charged by moneylenders, there is something amiss.
  • The diaries show that few borrowers would expect to pay the high moneylender rates for a relatively large, long-term loan. Annualized rates may not be the most appropriate way to compare a large, yearlong microcredit loan with a small, short-term loan from a moneylender, and poor households may not be behaving irrationally if they sometimes choose the moneylender over the microcredit provider.
   Other pricing conundrums are there to be looked at, as we do in chapter 5. Poor households may choose portfolio combinations that rich-country financial advisers would regard as odd.
  • For example, they may be quite happy to take a loan—paying a high price for doing so—even when they could instead draw on their own savings accounts. That may sound odd when opportunities for secure saving are plentiful, but when it’s hard to find a safe place to save, the perceived value of savings already made is that much higher.
  • To give themselves security, the poor may even borrow in order to have something to save. Khadeja did just that. [:] 
  • She spent part of a loan she took from a microlender (at about 36 percent interest for a yearlong term) to buy gold. The microcredit loan represented a rare opportunity to get her hands on a sum large enough to buy a substantial lifelong asset offering security against the disruptions in family life so common and so painful for women like her—divorce, desertion, or death of her husband.
  • She wasn’t often given the chance to borrow in this way, so she thought it best to grab the opportunity at once. The fact that the loan could be repaid in a series of small weekly payments made it manageable: it allowed her to use a year’s worth of small weekly savings to achieve a single big lump of savings. Price was only one aspect of the loan, less important than the repayment schedule that matched installments to the household’s cash flow.

Reimagining Microfinance  (p. 23)

The world is paying attention to the connections between poverty and finance as never before, and over the past decade the idea that poor households are “bankable” has been widely embraced.
  • This transformation in thinking provides great hope for the households we came to know.
  • Part of the credit goes to Muhammad Yunus, the Bangladeshi economics professor who, in December 2006, received he Nobel Peace Prize for the work that he and the Grameen Bank have done over the last 30 years. The Grameen Bank proves that households like those in the diaries can save and borrow—and repay their loans promptly and with interest.
  • By 2006, Grameen was serving over six million poor customers in villages throughout Bangladesh. Two competitors, ASA (Association for Social Advancement) and BRAC (a name, not an acronym), operate at similar scales and fully cover their costs by charging interest and fees. Early pioneers in Latin America and elsewhere in Asia have independently helped to lead this movement.
   ( ... ... )

   One of our goals in launching the financial diaries was to revisit some of the main issues in the debate about providing financial access to the poor.
  • Is credit the main need for financial services felt by poor households?
  • Should the credit go exclusively to small enterprises, or can other ways of fighting hardship and lack of opportunity be identified? 
  • Should most of it be disbursed to women, organized into groups who share responsibility for each other’s loans? 
  • Is making sure that everyone has a bank account enough to achieve that broader purpose?
   When Yunus started Grameen, his focus was not on microfinance but on microcredit. Moving to microfinance from the narrower goal of microcredit begins with the recognition that poor households want to save and insure as well as borrow.
  •  ( ... ... )
  • The financial diaries show in daily detail why the shift from an exclusive focus on microcredit to the broader microfinance is an important and welcome advance. But the diaries also show the need to push further.
   The idea of microcredit has long been associated with the promotion of enterprise: to enable people to purchase productive assets and working stock to set up in business. 
  • Microcredit has thus come to be closely associated with the customers’ “microenterprises” (the name signals their small scale; often such enterprises employ just the owner and no other workers.)
  • When the turn toward microfinance opened possibilities, it did not entail a reassessment of the uses for micro-credit. A fundamental but easily overlooked lesson from the diaries is that the demand for microcredit extends well beyond the need for just microenterprise credit.
  • The poor households in the study seek loans for a multitude of uses besides business investment: to cope with emergencies, acquire household assets, pay schooling and health fees, and, in general, to better manage complicated lives.
  • In chapter 6 we show that microcredit is often diverted from its intended uses (of running businesses) to other uses ranked more important by households. This lesson has not yet been well recognized by promoters of microcredit and microfinance.
   Organizing borrowers into groups who pledge joint liability for each other’s loans (also known as “social collateral”) has been the chief mechanism to ensure repayment on unsecured loans to the poor. But microfinance institutions and banks are experimenting increasingly with small loans to individuals, disbursed against smaller land parcels, deposits or liquid assets, or even against strong credit records already established.
  • In this endeavor, they can learn from the cash flows of borrowers and the individual lending arrangements of the informal sector, reported in detail in these financial diaries.
   Pledges to ensure that each individual has a bank account might be the first step toward an inclusive financial services sector. Promoting bank account outreach—even if it didn’t help the poor to borrow, would surely enhance their access to a safe place to save and a simpler and cheaper way to move money around.
  • But the Indian experience shows that developing the physical (branch) infrastructure of banks, and even pushing accounts and subsidized loans toward the poor, will not address issues of access unless products are priced to allow banks a good return, and designed to suit the lifestyle, income levels, and cash flows of the poor.

Reliability—on a Global Scale for the Poor  (p. 26)

( ... ) the microfinance movement: a huge step in the process of bringing reliability to the financial lives of poor households.
  • general environment of unreliability ( ... )
   Through their financial behavior, poor households show that they are impatient for better-quality services, inventive in bending such services to suit their own purposes, willing to pay for them, and longing for more reliable financial partners. ( ... ... )

   ( ... ) Irrespective of how microcredit loans were used, borrowers appreciated the fact that, relative to almost all their other financial partners, microfinance providers were reliable.

  • That is, the loan officers came to the weekly meetings on time, in all kinds of weather; they disbursed loans in the amount they promised at the time they promised and at the price they promised; they didn’t demand bribes; they tried hard to keep passbooks accurate and up-to-date; and they showed their clients that they took their transactions seriously.
  • In return, we noticed that these Bangladeshi microfinance clients often prioritized the repayment of microcredit loans above those of other providers. ( ... ... )
   Could it be, then, that financial services will become the first globally reliable service that the world’s poor enjoy? We hope the insights described in this book will help achieve that end.



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