Portfolios of the Poor, Part 2

In my last blog, I talked about the effect of emergencies on the already precarious financial situations of the poor.  In their book “Portfolios of the Poor”, the authors make an intriguing claim:

From a cash flow perspective, which is the primary concern of the poor, savings and credit look very much alike.  In both of these instruments, you pay a certain amount per month.  And in both of them you get a lump sum payment.  The only difference is whether the lump sum comes at the beginning or the end of the payment schedule.

Seen from this perspective, it becomes clear why the poor are often willing to pay (yes pay!) to save rather than expect or demand interest.  (For more details, read the book)

So why am I talking about this on a blog dedicated to social enterprises?

Firstly, it is useful to understand the financial realities of the people we are trying to benefit and influence.  Any economic intervention we plan should be informed by these realities.

Changing our financial perspective from ‘building wealth’ (something that most of us relate to) to cash flow management, changes how we think about the poor and their financial needs.

We are working with a population that has small irregular incomes.  If our objective is to “help”, the help should fall in one of the following categories:

  1. Help increase their incomes
  2. Help make their incomes more stable (even if they don’t increase in total)
  3. Provide financial instruments that help them a) manage their cash flow better, b) save for the long-term, and c) handle emergencies

The last category is the focus of the book.  The first two are the focus of this blog.

Proponents of social enterprises stress how starting micro-enterprises can increase incomes of the poor.

But, continuing my previous line of thinking, I wonder if introducing yet another unstable and irregular source of income (as micro enterprises typically are) is the best approach.

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3 Responses to Portfolios of the Poor, Part 2

  1. Ludwig says:

    These blog posts and this line of thinking is engrossing, to say the least. Somewhat tangentially (and this may perhaps be best answered offline), how has this thought process changed the way CREAM goes about its activities?

    At the Timbaktu sessions, I had the distinct feeling that we were talking to the attendees as though they were going to set up a “standard model” business (if you know what I mean), and as that was happening, it started to seem to me that “rural entrepreneurship” is not the best thing to be evangelizing; improving incomes and/or reducing the fluctuation in income is probably a whole lot more important.

    I feel the need for conversation! 🙂

  2. karpagam says:

    bannari amman apparels can claim to be doing items 1 & 2 quite effectively to few of the women of zamin endathur and other villages around where we live, by hauling them 2 hours to and fro daily for a job at their factory. we have seen other such initiatives at work that now collectively are luring labour away from agriculture. we have also heard that reliance is buying up huge agricultural lands and ’employing’ farmers on their own land for a steady salary. fun times ahead! 🙂

  3. Pingback: Portfolios of the Poor, Part 1 | Stirring the Pyramid

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