About forty percent of the world's people live on incomes 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 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. 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."
The authors probe what this reveals about the nature of poverty, and also about the health and usefulness of these formal institutions. 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 — a pioneering microfinance institution that experienced tremendous growth during the course of the survey by offering savings and credit accounts to the poor — 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).