2010 SEEP Annual Conference: Keynote Address Highlights Informal Savings As Part of a Complex Client Money Managing System

During the keynote presentation Daryl Collins, Jonathan Morduch and Stuart Rutherford, acclaimed authors of Portfolios of the Poor, discussed how money management is something that the poor take seriously by utilizing a complex system of borrowing and savings, particularly through the use of informal savings circles. The authors highlighted how South African Financial Diaries were used to track flows in and out of the household, penny by penny. Through mixed research methodology and systematic data collection, the authors captured the complexity of daily lives - which isn't always possible through large, one-time surveys or small-scale anthropological studies. Research and results from the South African Financial Diaries are available online.

Daryl Collins gave interesting examples of the patchwork of informal/formal money management instruments that are utilized by the poor: shop keeper credit, home savings, loans from neighbors, savings with a money guard, loans to others, and more. The “triple whammy” effect refers to the fact that the poor not only have to deal with low incomes, but also irregular expenditures and income and lack the appropriate financial tools to deal with the unexpected. For example, living on $2 a day is just an average; in reality the poor are living on either a lot less or more depending on the day. Many still manage to save a substantial amount of money, however these savings are often used up at one time because of end-of-year costs.

A take away from this session was the idea that the poor need working capital - smaller loans that have a shorter repayment period. There are many situations when someone requires just enough cash to start working and is often able earn enough money to pay off the loan within two months. Jonathan Morduch highlighted various savings and loan programs, notably SEED savings accounts, the Grameen pension scheme and P9 savings and credit. SEED savings accounts work by withholding access to funds until a certain capital level or amount of time has gone by. The Grameen pension scheme allows clients to invest in a savings account and receive 12% interest if they maintain money during the whole term (10 years) or 10% for investing for 5 years. In the P9 savings and credit product, participants get a loan and 1/3 of their money goes into savings (they can expect this each time they receive a loan top-up). An important point made was that money managing should not come down to credit versus savings, but rather they should be used together.

To close, the authors provided some last words of advice:

• People don't need to be taught to budget and save.
• There's a big difference between how people in developed countries save (allocating funds and having scheduled transactions once per month) versus how the poor save (making monetary decisions every day).
• There needs to be translation between informal and formal financial sectors - there is more information needed on how the informal sector uses financial terms.