The Poor and their Money
and Tackling the ‘Savings Conundrum’
Stuart Rutherford
London, June 21st 2011
When your income is less than
a dollar or two a day…
 most of it is spent on food and fuel
But that income is likely to be
irregular and unreliable as
well as small
 and that presents complex money
management problems
Three big money management problems:
 managing money day-to-day:
making sure that basic needs are met
every day and not just when income is
earned
 dealing with emergencies:
finding enough cash quickly to overcomes
setbacks
 building large lump sums:
getting enough money at one time to deal
with big expenditures on birth, marriage,
homemaking, education, festivals…
When these problems arise:
 too often they are simply not
solved:
families go hungry, simple eye
infections aren’t treated, good
marriage prospects are lost
 sometimes assets are sold off:
often at a low price – and at some time
those assets must be replaced!
This drives poor people to
intermediate:
(to dip into past or into future income
through savings or through borrowing)
poor people are surprisingly active money managers
and this is because they are poor (rather than in
spite of being poor)
arguably, poor people need financial services more
intensively than the non-poor
Looking for tools to manage money through saving and borrowing is a
major preoccupation of the poor
There are many devices for turning small savings into
usefully large lump sums – the main money-management task
of the poor
Most of it is done in the informal sector
rent arrears
Microfinance
loan
Interest free
loan from
neighbor
Microfinance
savings
account
Shopkeeper credit
Life
insurance
Remittance
to home
village
Home
saving
s
Savings held
for neighbors
Rent
arrears
Cash in hand
Wage
advance
Loans to others
Saving with a
moneyguard
A Dhaka family featured in the book Portfolios of the Poor
Informal finance has very clear strengths and weaknesses
Very strong in being:
But weak in being:
Accessible – close at
hand and available any
time
Often unreliable – sums
are lost or delayed
Sometimes flexible –
accommodating the
uncertain cashflows of
poor people…
Short-term – cannot
easily allow big sums to
be saved or borrowed
over long terms
…and sometimes
disciplined – with
devices to encourage
regular payments
Fragmented – doesn’t
offer a one-stop-shop
SafeSave: founded in
Dhaka Bangladesh, 1996
the world’s first MFI designed to offer poor clients
basic money-management services
(as opposed to, say, microenterprise loans)
SafeSave tries to provide the strengths of informal
finance while redressing its weaknesses
SafeSave
SafeSave (www.safesave.org)
 savings and loans for general moneymanagement (not just for microenterprise
investment)
 no groups, no joint liability, no meetings: staff
go door-to-door visiting each client daily, 6 days
a week
 now has about 16,000 clients as is profitable
 save and withdraw what you like when you like, in a passbook
savings product
 save for the long term in a commitment saving product
 borrow for up to four years, repaying as and when you can
(no fixed term and no fixed repayment schedule)
Better tools for everyday needs…
…and emergencies
Rokeya, young
mother
Village lads in Dhaka
driving rickshaws
Saves everyday at
SafeSave, from her
husband’s income
Save daily at
SafeSave, and once a
month, withdraw &
take the money back
to the village
Borrowed and
withdrew savings
from SafeSave when
government
bulldozers knocked
down their slum
Borrow sometimes,
for clothes
Had been saving and
repaying daily
Withdrew a large
sum recently for
the delivery of her
new baby
Amin’s family
Being poor doesn’t mean being without personal preferences
Selim, tea-stall
Saves and borrows
at SafeSave
Jobeda, shop
Hanif, shoe repairs
Saves but doesn’t
borrow at SafeSave
Borrows but rarely
saves at SafeSave
Pays in when he
has a good day
Saves 10c almost
every day
Repays at least
something every day
Uses loans to
maintain his 5person family
Withdraws to pay
school costs and
other household
expenses
Uses his loans to pay
off more expensive
debt
SafeSave is now trying to
tackle the ‘savings conundrum’
 many clients tell us that they’d like to form more of the lump
sums they need through savings, and fewer through loans
 So why don’t they do so?
 Because of the ‘liquidity trap’: they save, but don’t have
enough savings when the next spending crisis comes along. So
they borrow. Now they have to repay that loan as well as deal
with everyday spending. So saving gets even harder….
 SafeSave’s current pilot product (“P9”) tackles this by
providing the liquidity needed to save through interest-free
loans. It is proving surprisingly popular, but this is still early
days.
please check it out at sites.google.com/site/trackingP9
Follow up at:
www.safesave.org for SafeSave
www.portfoliosofthepoor.com for financial
diaries
www.thepoorandtheirmoney.com for the
basic ideas
www.sites.google.com/site/trackingP9 for
the pilot savings scheme