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Microfinance Forum 2008 (1-1.Why Do The Poor Need Financial Services)


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1-1.Why Do The Poor Need Financial Services

Stuart Rutherford 氏(マイクロファイナンス機関SafeSave 共同代表)

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Published in: Economy & Finance
  • The average monthly income for most rural poor is less than Rs 2000/month, which is less than our monthly telephone bills. I think it is high time that we start thinking seriously about these people and how we can help them to earn some decent income.
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Microfinance Forum 2008 (1-1.Why Do The Poor Need Financial Services)

  1. 1. Why do the poor need financial services? Some ideas Some evidence  from research  from informal finance Some implications  for microfinance providers Rutherford, Tokyo November 2008: Introduction
  2. 2. Monowara works in a tea stall and her husband drives a rickshaw Their income is small, irregular and unreliable Much of it is spent quickly on basics – food and the means to cook it Rutherford, Part I: Ideas
  3. 3. As a result, they lack cash to buy anything else – clothes, medicines, schooling, household goods, tools, a home, a business, land… What can they do? Hope for gifts? Sell assets (which then need to be replaced)? Go without? Or dig, somehow, into past or future income? Rutherford, Part I: Ideas
  4. 4. Rutherford, Part I: Ideas That task – getting access to past income (via savings) or to future income (via loans) for expenditure now – is what financial services do. It is in huge demand by the poor It is used to cope with life-cycle needs, emergencies, and opportunities It is needed to manage money on a day-to-day basis, and to plan for future expenditure (whether anticipated or unexpected) Arguably, the poor need financial services more than any other group
  5. 5. Rutherford, Part IIa: Evidence from research Finance is the intersection of time and money. ‘Financial diaries’ study households every few days for a year to see how they manage their money Diaries done in Bangladesh, India and South Africa show that the poor are intensive money managers Far from living ‘from hand to mouth’, they constantly seek opportunities to save and to borrow
  6. 6. Hosneara had five different ways to save Of 250 poor and near-poor ‘diary’ households: All saved and borrowed, using not less than 4 and some as many as 10 kinds of instrument Some instruments, such as reciprocal borrowing and lending among friends and neighbours, were universally used Households intermediated sums that were often larger than their total annual income Poor households regard money management as a vital everyday task Rutherford, Part IIa: Evidence from research
  7. 7. Informal finance has developed many elegant ways of satisfying the primary money management task – turning savings into usefully large lump sums You can ‘save up’ using a mobile deposit collector Or ‘save down’ using a moneylender Or ‘save through’ using a ROSCA In each case, a series of small savings is transformed over time into a usefully large lump sum of money Rutherford, Part IIb: Evidence from informal finance
  8. 8. Saving up (save now, get the lump sum later) Mrs K works as a deposit collector Each day she collects a small deposit from her many clients After an agreed number of days she returns most – but not all – of the money to the saver, and keeps the rest as her fee Her clients therefore earn a negative rate of interest on their savings – and yet they are delighted with the service Rutherford, Part IIb: Evidence from informal finance
  9. 9. Saving down (save later, get the lump sum now) M is a mobile moneylender as well as a shopkeeper Each week he collects a small repayment on the loans he gives to villagers He takes his fee by cutting a percentage from the loan at the time he gives it. His fee is somewhat more than Mrs K fee for deposit collecting He offers an alternative way of using the same savings to form a lump sum Rutherford, Part IIb: Evidence from informal finance
  10. 10. Rutherford, Part IIb: Evidence from informal finance Saving through (save for a term, get the lump sum at some intermediate point) A ROSCA (Rotating Savings and Credit Association) is a do-it-yourself way for a group of friends to turn the same savings into a lump sum Each time they meet, each member puts in a small fixed sum, and one member walks away with the total – her ‘lump sum’. They go on until everyone has had their lump sum. Then they may start again. Salma, Morjina and Ruby are road maintenance labourers. They are members of a six-woman ROSCA
  11. 11. So: when poor people devise financial services for themselves, they emphasise the basic task of turning savings into a usefully-large lump sum They do this by saving ‘up’, ‘down’ or ‘through’ (or all three), depending on what’s available locally The intermediating function is more important to them than the way it is done, or what the sums are used for Rutherford, Part IIb: Evidence from informal finance
  12. 12. When Grameen Bank started microcredit in the late 1970s it focussed on women taking loans for small businesses The loans were like the moneylender’s: repaid in small weekly amounts that could be saved from ordinary household cash flow Not surprisingly, borrowers used the loans for all sorts of purposes Rutherford, Part III: Implications
  13. 13. Microfinance in Bangladesh has gradually responded to the real needs of its clients It has quietly accepted that loans are used for all purposes It has added savings services, both short- term and long term Bangladesh microfinance clients can now use their MFIs to turn savings into useful lump sums in the short and the long term, and through both savings and loans Rutherford, Part III: Implications
  14. 14. For more: The Poor and Their Money, OUP Delhi 2000 (on the financial needs of the poor and how they use informal finance) Portfolios of the Poor, Princeton, May 2009 (on the financial diaries research) Grameen II, The First Five Years, at (on the way Grameen has adapted its services to meet the realities of customer demand) see also for more on my views and my experiments