What do you think?
Rate this book
Portfolios of the Poor: How the World's Poor Live on $2 a Day
Nearly forty percent of humanity lives on an average of two dollars a day or less. If you've never had to survive on an income so small, it is hard to imagine. How would you put food on the table, afford a home, and educate your children? How would you handle emergencies and old age? Every day, more than a billion people around the world must answer these questions. Portfolios of the Poor is the first book to systematically explain how the poor find solutions to their everyday financial problems.
The authors conducted year-long interviews with impoverished villagers and slum dwellers in Bangladesh, India, and South Africa--records that track penny by penny how specific households manage their money. The stories of these families are often surprising and inspiring. 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."
Indispensable for those in development studies, economics, and microfinance, Portfolios of the Poor will appeal to anyone interested in knowing more about poverty and what can be done about it.
The authors conducted year-long interviews with impoverished villagers and slum dwellers in Bangladesh, India, and South Africa--records that track penny by penny how specific households manage their money. The stories of these families are often surprising and inspiring. 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."
Indispensable for those in development studies, economics, and microfinance, Portfolios of the Poor will appeal to anyone interested in knowing more about poverty and what can be done about it.
296 pages, Hardcover
First published January 1, 2009
198 people are currently reading
6755 people want to read
About the author
Daryl Collins
3 books7 followersDaryl Collins is co-author of Portfolios of the Poor and Managing Director at Bankable Frontier Associates. Daryl’s work focuses on linkages between understanding of low income household financial management and the business case for providing financial services. Daryl, who has extensive experience in managing financial diaries (including in Kenya, India, Mexico, South Africa), also supervised the CGAP Smallholder Diaries project. Daryl began her career as an emerging market economist at a New York investment bank before moving to South Africa in the late 1990’s. She ultimately joined the finance faculty of the University of Cape Town, where she leveraged a successful career in portfolio management into research on the financial behavior of the poor. Daryl holds a B.Sc. and a M.Sc. in economics from the London School of Economics, and a Ph.D. from New York University.
Ratings & Reviews
Friends & Following
Create a free account to discover what your friends think of this book!
Community Reviews
Displaying 1 - 30 of 95 reviews
April 7, 2011
I had the wrong idea in my head about what this book was about. I thought it would be individual stories about people who struggled to get by; the choices they had, the trials they faced, the final outcomes they arrived at.
It is no discredit to the book that it was not. Instead, it was an account of data collected and conclusions drawn from a large number of 'financial diaries' that poor families in Bangladesh, India and South Africa kept over a long period of time. The focus was on how the very poor manage their small amount of money in the unfavorable circumstances they live in...and how microfinanciers could improve their lives by improving the conditions under which they allow lending, saving, etc. All this with the goal of improving the quality of life for the poor, naturally.
It was interesting, but mainly fiscal instead of human as I had hoped. If you are fascinated by money matters and have a heart to help the poor, this is a very educational book to read...though how long it will remain relevant in the ever-shifting world of finance is difficult to ascertain.
It is no discredit to the book that it was not. Instead, it was an account of data collected and conclusions drawn from a large number of 'financial diaries' that poor families in Bangladesh, India and South Africa kept over a long period of time. The focus was on how the very poor manage their small amount of money in the unfavorable circumstances they live in...and how microfinanciers could improve their lives by improving the conditions under which they allow lending, saving, etc. All this with the goal of improving the quality of life for the poor, naturally.
It was interesting, but mainly fiscal instead of human as I had hoped. If you are fascinated by money matters and have a heart to help the poor, this is a very educational book to read...though how long it will remain relevant in the ever-shifting world of finance is difficult to ascertain.
April 6, 2017
Understanding the Daily Reality of Global Poverty
This book makes a major contribution to our understanding of global poverty.
Portfolios of the Poor reports the findings of a series of detailed, year-long studies of the day-to-day financial practices of some 250 families in India, Bangladesh, and South Africa, including both city-dwellers and villagers. The authors conducted monthly, face-to-face interviews with each family, focusing on money management and recording every penny spent, earned, or borrowed in “diaries” that formed the principal source for their observations. In the process, they made discoveries that will surely be surprising to some readers:
■The poor rarely live from hand to mouth. “[N]o 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.”
■Lack of money is just one of the financial characteristics of poverty. It’s equally important that poor people’s income is both unpredictable and irregular. Crops come in two or three times a year, yielding whatever the weather may permit and the market may bear; between-times a family may have no cash income at all. A son might get a job for a day but not again for a week or a month. Illness or injury may interrupt a family’s income. And so forth.
■Rather than helpless victims of their poverty, the authors found, the poor are remarkably sophisticated about the financial circumstances of their lives. “We came to see that money management is, for the poor, a fundamental and well-understood part of everyday life.”
■Microlending is just one of the financial services needed by the poor to lift themselves out of poverty. “[W]e 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.”
■Most observers regard money-lenders as simply a scourge of the poor, as they are so very often. However, given the dearth of mainstream money-management alternatives, there are many circumstances in which it’s logical for poor people to turn to money-lenders for short-term cash loans. “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.”
Scholars, activists, and policymakers alike have quarreled over the question of global poverty and what to do about it for more than half a century. More often than not, the disputes they air in official policy debates, in the news media, and in scholarly journals are grounded in statistics developed by the United Nations and the World Bank — figures that usually represent worldwide averages. Therein lies much of the trouble.
The most widely accepted benchmark for world poverty today is $2 a day per person, as determined by the World Bank. However, you have to dig deeply before you can understand what the World Bank and the United Nations actually mean by “$2 a day.” They’re not referring to those two one-dollar bills you may have crumpled up in your pocket or purse. To correct for economic differences from one country to another, they use the concept of Purchasing Power Parity (PPP).
In theory, PPP takes into consideration the sharp differences in how much $2 will buy in any given country as compared to the global norm. But in practice the experts have widely differing views on what method should be used to calculate PPP and, in effect, what is the global norm. As if that isn’t bad enough, the most commonly used techniques to calculate PPP are based on each country’s economy-wide standard of living. In other words, the definition of poverty might depend in part on the price of big-screen TV sets and BMWs or their equivalent. In hopes of correcting that problem, scholars have been writing papers for several years about “poverty-based PPP,” excluding anything but goods and services commonly demanded by people living at subsistence level, but none of the approaches they’ve proposed has yet been officially adopted.
The whole question of PPP, then, is so confusing — and so confused — that the authors of Portfolios of the Poor have rejected the concept. They base all their calculations simply on the prevailing exchange rates between local currencies and the U. S. dollar. To which I say, amen.
The four co-authors of this book are an intriguing bunch. Two are men and two women. (Daryl Collins, the lead author, is female.) All four are products of elite universities: Oxford, Cambridge, Harvard, and the London School of Economics, though only one, Jonathan Morduch, is currently an academic. Morduch teaches development economics at NYU’s Wagner School of Public Policy in New York; he is an expert in microfinance. Daryl Collins, Stuart Rutherford, and Orlanda Ruthven are all development practitioners with practical field experience — Collins with a Boston-based global consultancy, Rutherford with a microfinance institution he founded in Bangladesh, and Ruthven with DFID, the UK equivalent of USAID.
(From www.malwarwickonbooks.com)
This book makes a major contribution to our understanding of global poverty.
Portfolios of the Poor reports the findings of a series of detailed, year-long studies of the day-to-day financial practices of some 250 families in India, Bangladesh, and South Africa, including both city-dwellers and villagers. The authors conducted monthly, face-to-face interviews with each family, focusing on money management and recording every penny spent, earned, or borrowed in “diaries” that formed the principal source for their observations. In the process, they made discoveries that will surely be surprising to some readers:
■The poor rarely live from hand to mouth. “[N]o 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.”
■Lack of money is just one of the financial characteristics of poverty. It’s equally important that poor people’s income is both unpredictable and irregular. Crops come in two or three times a year, yielding whatever the weather may permit and the market may bear; between-times a family may have no cash income at all. A son might get a job for a day but not again for a week or a month. Illness or injury may interrupt a family’s income. And so forth.
■Rather than helpless victims of their poverty, the authors found, the poor are remarkably sophisticated about the financial circumstances of their lives. “We came to see that money management is, for the poor, a fundamental and well-understood part of everyday life.”
■Microlending is just one of the financial services needed by the poor to lift themselves out of poverty. “[W]e 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.”
■Most observers regard money-lenders as simply a scourge of the poor, as they are so very often. However, given the dearth of mainstream money-management alternatives, there are many circumstances in which it’s logical for poor people to turn to money-lenders for short-term cash loans. “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.”
Scholars, activists, and policymakers alike have quarreled over the question of global poverty and what to do about it for more than half a century. More often than not, the disputes they air in official policy debates, in the news media, and in scholarly journals are grounded in statistics developed by the United Nations and the World Bank — figures that usually represent worldwide averages. Therein lies much of the trouble.
The most widely accepted benchmark for world poverty today is $2 a day per person, as determined by the World Bank. However, you have to dig deeply before you can understand what the World Bank and the United Nations actually mean by “$2 a day.” They’re not referring to those two one-dollar bills you may have crumpled up in your pocket or purse. To correct for economic differences from one country to another, they use the concept of Purchasing Power Parity (PPP).
In theory, PPP takes into consideration the sharp differences in how much $2 will buy in any given country as compared to the global norm. But in practice the experts have widely differing views on what method should be used to calculate PPP and, in effect, what is the global norm. As if that isn’t bad enough, the most commonly used techniques to calculate PPP are based on each country’s economy-wide standard of living. In other words, the definition of poverty might depend in part on the price of big-screen TV sets and BMWs or their equivalent. In hopes of correcting that problem, scholars have been writing papers for several years about “poverty-based PPP,” excluding anything but goods and services commonly demanded by people living at subsistence level, but none of the approaches they’ve proposed has yet been officially adopted.
The whole question of PPP, then, is so confusing — and so confused — that the authors of Portfolios of the Poor have rejected the concept. They base all their calculations simply on the prevailing exchange rates between local currencies and the U. S. dollar. To which I say, amen.
The four co-authors of this book are an intriguing bunch. Two are men and two women. (Daryl Collins, the lead author, is female.) All four are products of elite universities: Oxford, Cambridge, Harvard, and the London School of Economics, though only one, Jonathan Morduch, is currently an academic. Morduch teaches development economics at NYU’s Wagner School of Public Policy in New York; he is an expert in microfinance. Daryl Collins, Stuart Rutherford, and Orlanda Ruthven are all development practitioners with practical field experience — Collins with a Boston-based global consultancy, Rutherford with a microfinance institution he founded in Bangladesh, and Ruthven with DFID, the UK equivalent of USAID.
(From www.malwarwickonbooks.com)
September 17, 2012
A more important study than it is an interesting book, Portfolios of the Poor presents the results of several years' worth of "financial diaries" kept by extremely poor people in India, Bangladesh, and South Africa. The diaries-- detailed interviews conducted with a household regularly over the course of a year-- illustrate how families manage their income and expenses over time. The main "conclusion" of the diaries is that the poorer you are, the more financial management you must engage in. The diarists juggle multiple loans at a time from family, neighborhood lenders, and banks or microfinance institutions, all the while employing different methods to save for various lifecycle expenses (weddings, education, etc. )and emergencies, using different self-managed savings clubs, making regular deposits with local moneykeepers, and purchasing assets like animals or jewelery that can be sold when necessary.
Many of the insights in this book are shockingly mundane if you have ever struggled to make ends meet with low, unpredictable income (this review captures the 'insights'). So in some ways, this book is a commentary on the rich class of people from Europe and the US who become the "development professionals," the people who design interventions and services for the poorest of the poor, while having no concept at all about the relationship between those struggles and that of the underclass in their own home nations. (Remember I said this was an "important" study concluding that "poor people manage their money"-- a seemingly obvious point that is considered significant in the world of microfinance professionals who really thought they were bringing a new idea (managing finances) to the lowest-income classes). This is what charity without solidarity looks like.
I don't really recommend reading this book. It was written by microfinance practitioners as an intervention in their industry. Therefore, expect a lot on pricing interest rates on loans and detailed analysis and recommendations for all the different kinds of microfinance models. It gets technical, though I like the authors' style and found it quite enjoyable. Instead, check out Roodman's summary of Portfolios in Chapter 2 (available online) of his fantastic, nuanced critique, Due Diligence: An Impertinent Inquiry into Microfinance.
Many of the insights in this book are shockingly mundane if you have ever struggled to make ends meet with low, unpredictable income (this review captures the 'insights'). So in some ways, this book is a commentary on the rich class of people from Europe and the US who become the "development professionals," the people who design interventions and services for the poorest of the poor, while having no concept at all about the relationship between those struggles and that of the underclass in their own home nations. (Remember I said this was an "important" study concluding that "poor people manage their money"-- a seemingly obvious point that is considered significant in the world of microfinance professionals who really thought they were bringing a new idea (managing finances) to the lowest-income classes). This is what charity without solidarity looks like.
I don't really recommend reading this book. It was written by microfinance practitioners as an intervention in their industry. Therefore, expect a lot on pricing interest rates on loans and detailed analysis and recommendations for all the different kinds of microfinance models. It gets technical, though I like the authors' style and found it quite enjoyable. Instead, check out Roodman's summary of Portfolios in Chapter 2 (available online) of his fantastic, nuanced critique, Due Diligence: An Impertinent Inquiry into Microfinance.
January 12, 2023
If you grew up in a middle-class US household like I did, staying alive on $2 a day doesn’t just sound difficult, it sounds impossible. It sounds like trying to paint a house using half a bottle of nail polish and a toothbrush. Yet around 8% [1] of people do live on such an income. The authors of this book wanted to get a concrete picture of how those people manage to make it work. To do so, they used a “financial diaries” methodology, where researchers performed regular interviews with a set of poor households every two weeks for a year (or every month for three years, in one study) to track all their financial activity.
Four studies are covered: one from India (2000-2001), one from South Africa (2004-2005), and two from Bangladesh (1999-2000 and 2002-2005, the latter focused primarily on customers of microfinance organizations).
The title reflects one of the key findings: poor people have complex financial portfolios, composed of numerous loan, savings, and - in some cases - insurance vehicles. These vehicles are primarily “informal”, i.e., they’re arrangements among poor households, rather than services provided by organizations like banks.
Loans: Households made frequent use of interest-free loans from family or other community members, but often had to borrow from more expensive sources too. Shop credit (e.g. the grocer allowing them to pay later) was one popular form of loan. Loans from moneylenders were common as well. The book notes that although moneylenders’ rates may seem extortionate when expressed as an APR, this can be misleading; these loans generally don’t have compounding interest, may be for very short durations (“a poor person may sensibly pay 50 cents to borrow $10 for a day or so to tide her over a problem, even if the annualized rate calculates to more than 500 percent” [2]), and often have no penalty for drastically late payments. The authors suggest thinking of the loans as having fees rather than interest. Still, microlending institutions were increasingly drawing customers away from moneylenders.
Savings: “Savings clubs” of various kinds were widely used. One form is a “saving-up club”, which goes along the lines of: every member contributes a fixed amount each month for a year, then the total is distributed across all members at the end of the year. Another is a “rotating savings and credit association” (“RoSCA”), where “the members save the same amount as each other every period—a month, say—and the total amount saved each period is given in whole to one of the members” [3] (they take turns, or use a lottery, or use a bidding system [4]). There are also “ASCAs”, where members’ contributions are loaned out for profit. People also just ask other people to hold onto money for them, called “moneyguarding”. And there are “savings collectors” who help people save by visiting them daily and taking their contributions, paying back the full sum - minus a fee - once a target amount has been reached.
Insurance: Insurance policies only played a large role in the South African households, and only insurance for a specific event: funerals. The cultural expectations around funerals involve paying for transportation and food for hundreds of attendees; “[t]he South African financial diaries suggest that households need to spend about seven months’ income on a single funeral.” [5] People may use a combination of “burial societies”, savings, and insurance plans sold by funeral parlors to help pay for this.
The book stresses how the decisions and concerns of the poor are shaped by the irregularity of their incomes; someone living on an average of $2 a day is typically making much more on some days and much less on others. The savings instruments described above often have zero or negative interest rates, but they help make cashflow more predictable. Irregular income is also a reason the poor take - and presumably is a reason they’re able to successfully repay - high-interest loans.
The authors think their research reveals ways that financial services could be better shaped for the needs of poor households:
…they need, above all, reliable access to three key services: day-to-day money management, building long-term savings, and general-purpose loans. [6]
One notable recommendation is that loans to the poor should not be conditional on being used for business:
One element of inflexibility in Microfinance is the insistence by some lenders that all loans be invested in businesses. … The diaries show, however, that poor households need to borrow for a wide range of needs, not just business, and that they are prepared to find ways of repaying loans from ordinary household cash flow. [7]
The book shares many details from the lives of the study participants; I really appreciate the window it provides into a world that’s so far outside my experience. There have been at least a few more studies using the diaries method, for example: on farmers in Mozambique, Tanzania, and Pakistan in 2014-2015; on garment workers in Bangladesh in recent years; on residents of Democratic Republic of the Congo in 2019-2020 affected by a specific charitable intervention; and on "Americans earning low-to-moderate incomes” in 2011-2013.
[1]: I’m looking at this Our World in Data graph based on World Bank data about people living on $2.15 per day or less, “measured in 2017 international-$”. It’s kind of an awe-inspiring graph because of how drastically it has declined in my own adult lifetime; the figure was about 18% when the book was published in 2009.
[2]: p. 137. However, the duration may often still be longer than is desirable, and borrowers generally don’t get a break when they pay off the loan early; p. 138 says:
In all three areas of the South African sample, the monthly IRR is above the average stated interest rate of 30 percent per month. So the flatness of the fee structure works against these borrowers rather than for them. In one of the urban areas outside of Johannesburg, the monthly IRR is considerably above the nominal rate. This is because many of these respondents borrowed for only a few days or a week from a moneylender but paid interest for the full month.
[3]: p. 116
[4]: From p. 121 on “auction” RoSCAs:
…those members still eligible for a prize bid for it, with the prize going to whoever puts in the biggest bid. The bid money is then distributed among the members equally, so that those willing to refrain from bidding until the later rounds, when bids are smaller (since there are few bidders left), get a bigger than average prize for a smaller than average bid, as well as enjoying “interest” income from their share of the distributed bid money paid by others. Auction RoSCAs, therefore, cleverly attract savers (who bid later and are well rewarded for it) and borrowers (who bid early and pay heavily for it), and the current price of money is determined at each auction, driven by demand for it at that moment among that group of people.
[5]: p. 76
[6]: p. 184
[7]: p. 63
(crosspost)
January 3, 2014
This is a really helpful, data-based book that focuses on how the poor use money and survive on less than $2 a day. One key takeaway is that the poor are not poor because of weak money management skills; their ability to manage multiple sources of money is incredible and puts many Westerners to shame. They are poor, rather, because of their chance societal positioning which is reinforced by lack of access to regular and consistent cash flows and reliable sources of money.
I'll post a fuller review later.
I'll post a fuller review later.
Read
June 5, 2017Long story short, poor people don't spend their money hand to mouth...
They have many financial tools that help them get through hard times and unexpected events.
These mostly informal tools need to be reinforced by more formal, durable and organized tools.
The book is a result of great research work and is worth a read.
They have many financial tools that help them get through hard times and unexpected events.
These mostly informal tools need to be reinforced by more formal, durable and organized tools.
The book is a result of great research work and is worth a read.
July 24, 2024
Important and great work - good info on financial habits of the poor. Overall, I think that the data from works like these can be used to make serious change in the world, and as someone interested in economics and economic development, I found this super intruiging and am excited to be working in this industry.
June 13, 2013
This is a must read for anyone interested in the lives of the materially poor,especially for those interested in alleviating poverty through financial mechanisms. In particular, chapter 5 on the price of money was especially enlightening and chapter 3 on dealing with risk was also extremely helpful,giving a small glimpse of the now emerging industry of microinsurance. The strength of this book, however, is the approach the authors used in gathering the information. Rather than one-time surveys,the households interviewed in this book were visited about twice a month by the interviewers over a period of a year to gain a more complete view of all the financial inflows and outflows of the households. It is a diary, or cash flows analysis of materially poor households rather than a snapshot or balance sheet. These diaries have overturned many assumptions prevalent in modern day microfinance practice.
One important thing the authors remind us of, when thinking about those living on$2 or less per day, is that this amount does not mean that families consistently earn $2 a day every day. Rather, it is an average of an ever fluctuating and uncertain income. The two overarching findings from studies cited by the authors themselves, are one:"money management is, for the poor, a fundamental and well-understood part of everyday life," and two: "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" (p.3-4). Aside from these general findings, the following are the most helpful nuggets of information and themes I gathered from the book. I've included a lot of quotes because the authors already said it so well. . .
Triple Whammy. The authors of the book describe the financial situation of the materially poor as a "Triple Whammy," which consists of not only low incomes, but also irregularity and unpredictability, and a lack of financial tools. In other words, not only do the poor face the challenges of low income that is inherently unpredictable, but the current financial tools available to the poor don't do a good job of solving the first two problems.
Demand for Microcredit. While microcredit isn't the only need of the poor, it is important. The demand for microcredit, however, "extends well beyond the need for just microenterprise credit." In the study conducted by Rutherford and the other authors of the book, those interviewed sought loans for a "multitude of uses besides investment: to cope with emergencies, acquire household assets, pay schooling and health fees, and in general, to better manage complicated lives" (p.25). Examples from the financial diaries include:
-one couple borrowed from a local NGO to stock up on rice, purchase a piece of furniture, and finally, to loan out $20 to another rickshaw driver at 17.5%interest (p.47-48).
-loans used for short-term consumption needs and partly saved back to ensure the first weeks of loan repayment will be covered (p.58).
-one woman took out a loan with interest and invested in a gold necklace, which could be a store of value for her and her family for a long time to come(p.104).
To put it simply: "poor households need to borrow for a wide range of needs, not just business, and that they are prepared to find ways of repaying loans from ordinary household cash flow. For the diary households, today's reality is that so-called business loans are already being used for many non-business purposes. ... Embracing the notion that households seek loans for general purposes will open up possibilities for innovation and expansion of microfinance providers" (p.63).
Role of Microfinance Provision. Of the most important roles microfinance providers played in the lives of the poor, being a source of reliable financial tools was perhaps the highest on the list. "Irrespective of how micro credit loans were used, borrowers appreciated the fact that, relative to almost all their other financial partners, microfinance providers were reliable" (p.27). This idea is also supported by a recent article released by CGAP entitled "Does Microcredit Really Help Poor People" in which they say that the main benefits of MFI's to their clients is that of reliable service that continues on and on without use of subsidies. Key elements of reliability include rule-bound agreements, clear expectations on both sides of transactions, and professional relationships(p.57).
Informal Loans. It was surprising to me that "after home savings, interest-free borrowing was by far the most frequently used financial instrument in all three countries"(49).
Annual Cash Flows. The number of financial transactions and amount of money flowing in and out of poor households was very surprising tome and often exceeded the household's net worth. Contrary to what may be assumed, "lower incomes require more rather than less active financial management" (p.33), and it is "because of, not in spite of, their low and uncertain incomes that poor people are extremely active in financial intermediation, through whatever means are available to them (176).
Importance of Insurance. "Not having insurance imposes a double burden on families. First, major health-related emergencies create an urgent need for cash. Second, emergencies simultaneously diminish the ability to repay loans" (p.88). The next best option? Loans and savings, and emergency loans.See good discussion p. 93-94.
Price of Money.Interest rates are possibly better viewed as fees for a service rather than a rate (p.135). Prices adjust to many factors: personal relationships, prior obligations, relative status of partners, and the loan's value, maturity,purpose, source, and likelihood of default.
Summary:"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" (p.26). Three big opportunities include: 1) helping poor households manage money on a day-to-day basis (which includes small-scale savings with easy access and loans of modest values), 2) helping poor households build savings over the long term, 3) helping poor households borrow for all uses (178).
I think one thing that this book has done is to help those of us who are materially wealthy to see the materially poor in a new light. Why do we think that the poor don't need or deserve the same type of financial services that we demand and use every day? If we have 3 checking accounts, two car payments, 5credit cards, life and health insurance, etc., and we use all these mechanisms to manage our money, how much more so do the materially poor need good and reliable financial products? To me, this just reveals further our God-complex and the brokenness in our own hearts - that would expect the best for ourselves and tend to overlook the needs of those less fortunate than ourselves and see them as unimportant. I think for those in the financial industry this book provides a good wake-up call about new opportunities in microfinance and the important role the finance industry has in creating innovative financial products for the materially the poor.
One important thing the authors remind us of, when thinking about those living on$2 or less per day, is that this amount does not mean that families consistently earn $2 a day every day. Rather, it is an average of an ever fluctuating and uncertain income. The two overarching findings from studies cited by the authors themselves, are one:"money management is, for the poor, a fundamental and well-understood part of everyday life," and two: "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" (p.3-4). Aside from these general findings, the following are the most helpful nuggets of information and themes I gathered from the book. I've included a lot of quotes because the authors already said it so well. . .
Triple Whammy. The authors of the book describe the financial situation of the materially poor as a "Triple Whammy," which consists of not only low incomes, but also irregularity and unpredictability, and a lack of financial tools. In other words, not only do the poor face the challenges of low income that is inherently unpredictable, but the current financial tools available to the poor don't do a good job of solving the first two problems.
Demand for Microcredit. While microcredit isn't the only need of the poor, it is important. The demand for microcredit, however, "extends well beyond the need for just microenterprise credit." In the study conducted by Rutherford and the other authors of the book, those interviewed sought loans for a "multitude of uses besides investment: to cope with emergencies, acquire household assets, pay schooling and health fees, and in general, to better manage complicated lives" (p.25). Examples from the financial diaries include:
-one couple borrowed from a local NGO to stock up on rice, purchase a piece of furniture, and finally, to loan out $20 to another rickshaw driver at 17.5%interest (p.47-48).
-loans used for short-term consumption needs and partly saved back to ensure the first weeks of loan repayment will be covered (p.58).
-one woman took out a loan with interest and invested in a gold necklace, which could be a store of value for her and her family for a long time to come(p.104).
To put it simply: "poor households need to borrow for a wide range of needs, not just business, and that they are prepared to find ways of repaying loans from ordinary household cash flow. For the diary households, today's reality is that so-called business loans are already being used for many non-business purposes. ... Embracing the notion that households seek loans for general purposes will open up possibilities for innovation and expansion of microfinance providers" (p.63).
Role of Microfinance Provision. Of the most important roles microfinance providers played in the lives of the poor, being a source of reliable financial tools was perhaps the highest on the list. "Irrespective of how micro credit loans were used, borrowers appreciated the fact that, relative to almost all their other financial partners, microfinance providers were reliable" (p.27). This idea is also supported by a recent article released by CGAP entitled "Does Microcredit Really Help Poor People" in which they say that the main benefits of MFI's to their clients is that of reliable service that continues on and on without use of subsidies. Key elements of reliability include rule-bound agreements, clear expectations on both sides of transactions, and professional relationships(p.57).
Informal Loans. It was surprising to me that "after home savings, interest-free borrowing was by far the most frequently used financial instrument in all three countries"(49).
Annual Cash Flows. The number of financial transactions and amount of money flowing in and out of poor households was very surprising tome and often exceeded the household's net worth. Contrary to what may be assumed, "lower incomes require more rather than less active financial management" (p.33), and it is "because of, not in spite of, their low and uncertain incomes that poor people are extremely active in financial intermediation, through whatever means are available to them (176).
Importance of Insurance. "Not having insurance imposes a double burden on families. First, major health-related emergencies create an urgent need for cash. Second, emergencies simultaneously diminish the ability to repay loans" (p.88). The next best option? Loans and savings, and emergency loans.See good discussion p. 93-94.
Price of Money.Interest rates are possibly better viewed as fees for a service rather than a rate (p.135). Prices adjust to many factors: personal relationships, prior obligations, relative status of partners, and the loan's value, maturity,purpose, source, and likelihood of default.
Summary:"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" (p.26). Three big opportunities include: 1) helping poor households manage money on a day-to-day basis (which includes small-scale savings with easy access and loans of modest values), 2) helping poor households build savings over the long term, 3) helping poor households borrow for all uses (178).
I think one thing that this book has done is to help those of us who are materially wealthy to see the materially poor in a new light. Why do we think that the poor don't need or deserve the same type of financial services that we demand and use every day? If we have 3 checking accounts, two car payments, 5credit cards, life and health insurance, etc., and we use all these mechanisms to manage our money, how much more so do the materially poor need good and reliable financial products? To me, this just reveals further our God-complex and the brokenness in our own hearts - that would expect the best for ourselves and tend to overlook the needs of those less fortunate than ourselves and see them as unimportant. I think for those in the financial industry this book provides a good wake-up call about new opportunities in microfinance and the important role the finance industry has in creating innovative financial products for the materially the poor.
January 3, 2011
Some very good ideas, but fairly dry presentation. Portfolios of the Poor describes the findings of four researchers who studied how extremely poor households in India, Bangladesh, and South Africa manage their household finances. Their approach was to select 20-30 case study households per region and study their finances from a longitudinal perspective by tracking their cash flows and household balance sheets over a long period of time. If I were to reduce their findings to a single bullet point, it would be that the world's poor could greatly benefit from institutional financial services offering flexible payments and cash flows to meet their variable and uncertain needs.
I respect researchers who get knee-deep into field research, focusing on obtaining data first and worrying about theories later, and these authors certainly have done that. The book gets into the actual decision-making and thought processes of the poor, how they choose from whom to borrow and with whom to deposit savings, what kind of features in investment instruments they value, etc. which I found very interesting. As a matter of fact, one of my favorite parts of the book was actually the second appendix, where several sample households were described in detail and their year over year balance sheets presented in tables, much like a corporation's regulatory filings.
The authors draw attention to the fact that the very poor often earn unsteady income that arrives in lumps of uncertain size, and that the size of their household cash flows often greatly dwarfs their balance sheets. A lot of their suggestions as to how to improve microfinancial services refer to one of these two facts. Because the poor do need to transact frequently but do not have the luxury of saved assets on which to draw down to smooth expenditure over time, it is important for microfinancial services to provide this for them in the context of loans and savings - the findings imply that the poor would rather pay high interest rates but have flexible and reliable cash flows than pay low or zero rates but get trapped into cash flow structures that they cannot change or negotiate.
So some really good color on our world's impoverished, and some similarly good ideas about how to help them through financial services, but unfortunately the book is written in a painfully boring and bland manner. Imagine a high school science student, churning out a lab report, introduction, data, discussion, data, discussion, conclusion, print it, staple it, hand it in. I couldn't help but get that feeling when reading, even though it seems from their hard work that the authors are much more enthusiastic than that about this subject. Maybe they should have hired a fifth person to focus solely on the writing and presentation. I recommend this book, but keep in mind that it's not going to do you any favors if you're not already interested in the subject.
I respect researchers who get knee-deep into field research, focusing on obtaining data first and worrying about theories later, and these authors certainly have done that. The book gets into the actual decision-making and thought processes of the poor, how they choose from whom to borrow and with whom to deposit savings, what kind of features in investment instruments they value, etc. which I found very interesting. As a matter of fact, one of my favorite parts of the book was actually the second appendix, where several sample households were described in detail and their year over year balance sheets presented in tables, much like a corporation's regulatory filings.
The authors draw attention to the fact that the very poor often earn unsteady income that arrives in lumps of uncertain size, and that the size of their household cash flows often greatly dwarfs their balance sheets. A lot of their suggestions as to how to improve microfinancial services refer to one of these two facts. Because the poor do need to transact frequently but do not have the luxury of saved assets on which to draw down to smooth expenditure over time, it is important for microfinancial services to provide this for them in the context of loans and savings - the findings imply that the poor would rather pay high interest rates but have flexible and reliable cash flows than pay low or zero rates but get trapped into cash flow structures that they cannot change or negotiate.
So some really good color on our world's impoverished, and some similarly good ideas about how to help them through financial services, but unfortunately the book is written in a painfully boring and bland manner. Imagine a high school science student, churning out a lab report, introduction, data, discussion, data, discussion, conclusion, print it, staple it, hand it in. I couldn't help but get that feeling when reading, even though it seems from their hard work that the authors are much more enthusiastic than that about this subject. Maybe they should have hired a fifth person to focus solely on the writing and presentation. I recommend this book, but keep in mind that it's not going to do you any favors if you're not already interested in the subject.
April 5, 2019
A must read to give you perspective on the ultra poor.
1 in 25 families in the US live on $2 a day since most financial assistance is income based via tax breaks and incentives.
So if you get no income, all you get are food stamps. The poor trade the food stamps at a ratio of $2 food to $1 actual cash to get electricity and heat for their house, and the children starve for the rest of the month. They give their plasma as much as possible, or sell their bodies at a really young age. They try to get jobs, but not much opportunity for past drug addicts, or if they don't have a car or means to get a job. Or they get a job cleaning foreclosed houses, with chemicals that get them sick, and there's no safety net when they get sick and can't go to work.
1 in 25 families in the US live on $2 a day since most financial assistance is income based via tax breaks and incentives.
So if you get no income, all you get are food stamps. The poor trade the food stamps at a ratio of $2 food to $1 actual cash to get electricity and heat for their house, and the children starve for the rest of the month. They give their plasma as much as possible, or sell their bodies at a really young age. They try to get jobs, but not much opportunity for past drug addicts, or if they don't have a car or means to get a job. Or they get a job cleaning foreclosed houses, with chemicals that get them sick, and there's no safety net when they get sick and can't go to work.
August 16, 2021
This book was an eye-opener for me. The authors cover the financial lives of people who live under $2/day across three countries to help us understand them better. They use a good mix of quantitative and qualitative data to paint a vivid picture of their lives.
This book answered many questions that I had: How do poor people afford big events (such as weddings)? How do they save money to buy assets (upward mobility, perhaps)? Who did they borrow from? How can we bring them into the formal sector? etc etc
The book covered all of these, plus much more - questions that I didn't even know that I had to ask.
There are certain aspects that I found to be missing, such as addressing the role gender or social class played in the financial lives of poor people. They were certainly acknowledged, but I didn't see them being reflected in the financial diaries or in any of the conclusions the author made. As much as I understand that it would greatly widen the scope of the book, I'm also curious to see if certain conclusions would have been different, if those issues were taken into consideration.
Nonetheless, it was a fantastic read and I am certain that I would be recommending it to everyone I know!
This book answered many questions that I had: How do poor people afford big events (such as weddings)? How do they save money to buy assets (upward mobility, perhaps)? Who did they borrow from? How can we bring them into the formal sector? etc etc
The book covered all of these, plus much more - questions that I didn't even know that I had to ask.
There are certain aspects that I found to be missing, such as addressing the role gender or social class played in the financial lives of poor people. They were certainly acknowledged, but I didn't see them being reflected in the financial diaries or in any of the conclusions the author made. As much as I understand that it would greatly widen the scope of the book, I'm also curious to see if certain conclusions would have been different, if those issues were taken into consideration.
Nonetheless, it was a fantastic read and I am certain that I would be recommending it to everyone I know!
September 5, 2015
Fascinating absorbing stories of survival, along with a scientific data set.
I'm furious that even these most poor people are regularly cheated and stolen from. Reliable financial and insurance products would provide real value here. Facebook/whatsapp could really help.
I'm furious that even these most poor people are regularly cheated and stolen from. Reliable financial and insurance products would provide real value here. Facebook/whatsapp could really help.
October 20, 2015
This book doesn't really tell a captivating story but is an eye opener at so many levels and it makes no claim to solve the challenges of development. Instead it provides helpful advice and observations.
Would I recommend it?
It is well worth the time and effort.
Would I recommend it?
It is well worth the time and effort.
December 27, 2021
"One of the biggest challenges of living on two dollars a day is that it doesn't always come." (page 181)
"Convenience, flexibility, and reliability are at the heart of building workable financial tools for the poor, and are key to understanding the economic lives of poor households more broadly. Just as we found no households truly living hand to mouth–even among the very poor–we found no households so absolutely limited in their resources that price was the overriding determinant of financial choices." (page 153)
Portfolios of the Poor is a 2009 book referenced in Scarcity. While Scarcity positions itself as explaining why poor people make bad financial decisions, Portfolios explores without judgment how people who are poor manage their money: Portfolios doesn't necessarily think a high-interest loan is "bad" if it helps someone solve a pressing problem.
The source data are financial diaries, collected in a kind of ethnographic process in Bangladesh, India, and South Africa. They follow around 250 families for a year or more each, collecting detailed information that frequently surfaces as personal anecdotes.
You can get a quick summary by reading Chapter Seven, where they present their recommendations (based on observations) in just eleven pages, with this structure:
* Opportunities: Cash-flow management, building savings, loans for all uses
* Principles: Reliability, convenience, flexibility, structure
"Convenience, flexibility, and reliability are at the heart of building workable financial tools for the poor, and are key to understanding the economic lives of poor households more broadly. Just as we found no households truly living hand to mouth–even among the very poor–we found no households so absolutely limited in their resources that price was the overriding determinant of financial choices." (page 153)
Portfolios of the Poor is a 2009 book referenced in Scarcity. While Scarcity positions itself as explaining why poor people make bad financial decisions, Portfolios explores without judgment how people who are poor manage their money: Portfolios doesn't necessarily think a high-interest loan is "bad" if it helps someone solve a pressing problem.
The source data are financial diaries, collected in a kind of ethnographic process in Bangladesh, India, and South Africa. They follow around 250 families for a year or more each, collecting detailed information that frequently surfaces as personal anecdotes.
You can get a quick summary by reading Chapter Seven, where they present their recommendations (based on observations) in just eleven pages, with this structure:
* Opportunities: Cash-flow management, building savings, loans for all uses
* Principles: Reliability, convenience, flexibility, structure
July 31, 2025
The books looks at how poor people manage their financial portfolios with the main intend to smooth their income either in short or longer periods. It covers different types of saving and borrowing institutions available (both conventional and unconventional such as borrowing from relatives) and discuss the “ideal” financial institutions that poor people might benefit from. The book is based on hundreds of financial diaries from poor households from three countries, even though some examples are given from other countries as well.
Even though I enjoyed the reading, the book does not address the bigger question of “whether financial institutions help poor to overcome the poverty or simply helps them to stay poor by accepting unavoidable?”. I wish authors provide a clarity on this and other related topics rather than keeping so narrow focus (for example, it is not clear from the book what percentage of people in each studied country is poor and how easy is a transition out of poverty).
Even though I enjoyed the reading, the book does not address the bigger question of “whether financial institutions help poor to overcome the poverty or simply helps them to stay poor by accepting unavoidable?”. I wish authors provide a clarity on this and other related topics rather than keeping so narrow focus (for example, it is not clear from the book what percentage of people in each studied country is poor and how easy is a transition out of poverty).
January 11, 2023
Sickness in the family, funeral or other incident might disrupt the cash flow and stall everything in the poor's family.
Poor people live day by day, using what they have, often borrowing some money from whomever they think might have surplus, often with a rather high interest rate. When microfinance was not available, the poor innovate by joining saving club, which also exists in Indonesia, which we call "arisan".
Will Rotating Savings and Credit Association (ROSCA) and Accumulating Savings and Credit Associations (ACSA) vanish from the earth after the advancement of banking and financial technology? What will happen if the poor have access to cryptocurrency?
There is a bank who take poor people as main client, which I think might not give loan based on collateral such as land certificate or vehicle certificate. But how this bank mitigate the risk of bad credit?
Poor people live day by day, using what they have, often borrowing some money from whomever they think might have surplus, often with a rather high interest rate. When microfinance was not available, the poor innovate by joining saving club, which also exists in Indonesia, which we call "arisan".
Will Rotating Savings and Credit Association (ROSCA) and Accumulating Savings and Credit Associations (ACSA) vanish from the earth after the advancement of banking and financial technology? What will happen if the poor have access to cryptocurrency?
There is a bank who take poor people as main client, which I think might not give loan based on collateral such as land certificate or vehicle certificate. But how this bank mitigate the risk of bad credit?
May 7, 2017
It is difficult to imagine how a major chunk of the population lives on less than 2 dollars a day. The author has exhaustively covered the financial diaries of such populations inhabiting the rural and urban areas of Bangladesh, India and South Africa. The authors make a convincing case - Micro finance definitely plays a crucial role in financing their basic survival, but there is a long way to go before poverty alleviation can become a ground reality.
April 26, 2020
Through financial diaries, constituting in-depth interviews on financial transactions every two weeks for a year, the authors offer an insightful look into the complex financial lives of the poor. In particular, this book reframed my understanding of saving and borrowing for those with small incomes. Additionally, it outlined new ways to conceptualize interest rates and fixed fees for small loans. A rewarding, detailed look into the lives of generous interviewees.
June 25, 2018
Though it does not offer a gripping read on each portfolio, it illustrates a statistical model of the earnings vs spending patterns, and how people around the world manage to live with unstable income. It shares details on the practices followed by people, local groups, private firms and local banks to help the poor manage their money.
October 29, 2018
Definitely an eye-opener. If you want to know how 99% of the world actually lives and what can you do about it, you better read this book. Do you still have doubts about income inequality, universal basic income and the effect that the ever widening gap between rich and poor have on the world? Read this one. I honestly believe every person on the planet should read this book at least once.
January 11, 2023
This book felt spread very thin. It also seemed to me that it couldn’t make up its mind between wanting to tell the overarching story or talking about specific cases. For me it ended up reading muddled as a result.
The topic was interesting but would have been much better at half or less the length.
The topic was interesting but would have been much better at half or less the length.
January 16, 2018
This book uses diaries to trace a steady picture of how some of the poorest people in the world finance their lives. The complexity and means show how many tools are currently used, and how many more are needed to better serve this population.
January 24, 2019
This work could have been condensed to a ten page article for the New York Times and had a far better impact. Minutely describing every single way in which ASCAS and ROSCAS can exist is thorough, but the writing of all these possibilities was tedious in its detail.
July 14, 2019
An eye opener. All we need is a basic understanding of human needs. I'd encourage all to read this book.
The amount of efforts eg. Data collections - painstakingly spent time with the focus groups asking probing and personal questions are not an easy feat.
The amount of efforts eg. Data collections - painstakingly spent time with the focus groups asking probing and personal questions are not an easy feat.
January 6, 2021
The findings are very interesting. I think for a lot of people it may completely change the way they think about the poor.
The book is a bit difficult to read, though. It’s actually a study with related findings more than anything else.
The book is a bit difficult to read, though. It’s actually a study with related findings more than anything else.
March 28, 2024
A must-read for finance professionals and people living in Africa and the Indian subcontinent. The authors throw their well-illuminated research lights on people, whose lives oscillate between cash and credit. Read the complete review here https://wp.me/p6rxcY-nl
September 9, 2025
4⭐ I had to read this book for my social development studies class. However I thought it was very interesting. Especially living live as a middle class white citizen it's important to read stories like this. I think it contributes perfectly to raise more awareness on Global Poverty.
October 19, 2018
Libro interesante que muestra un estudio profundo de cómo manejan los pobres sus finanzas. El estudio fue hecho en Bangladés, India y Sudáfrica.
May 4, 2019
This is great insight on how the poor manages their little to non-existent money.
August 4, 2019
Helped me to build an insight on a reality that I only knew because of stories from relatives.
Displaying 1 - 30 of 95 reviews