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:
- Help increase their incomes
- Help make their incomes more stable (even if they don’t increase in total)
- 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.