Mar 24, 2009

More Insight On the Financial Lives of the Poor

by Tim Ogden

Too often, microfinance programs are designed and evaluated with the implicit assumption that the poor have no alternatives. Reality, however, is quite different: almost everywhere in the world the poor have access to some financial services, if informal. So the problem is not a lack of access to financial services, but a lack of access to high-quality (from the client’s perspective), low cost financial services.

A recent column by Tim Harford in the Financial Times highlights the incredibly complex financial lives of the poor by quoting from a forthcoming book called Portfolios of the Poor: How the World’s Poor Live on $2 a Day. Quoting from the book, Harford shows how one family living on less than $2 a day uses more than 10 financial service “providers.“

Real world data (as opposed to supposition and anecdote) of the sort provided by Portfolios of the Poor is invaluable if we are to design and implement effective programs. And since we’re on the topic, let me also point to two of the most important papers for anyone interested helping the poor: The Economic Lives of the Poor and What is Middle Class About the Middle Classes Around the World, both by Esther Duflo and Abhijit Bannerjee of the Jameel Poverty Action Lab (who we interviewed recently).