Stuart Rutherford

1. IDPM Manchester & SafeSave Bangladesh www.safesave.org Stuart Rutherford in praise of General Purpose Microfinancefor the poor

2. If you’re very poor… • your income is small, and probably irregular and unreliable as well • you often need to spend money at times when you have little of it to hand • At such times you can: • go without • sell hard-to-replace assets or: • draw on past income or future income through savings or loans • …that’s what financial services are for Arguably, the very poor need financial services even more intensely than the non-poor

3. Financial diaries • fortnightly interviews with selected poor households for at least a year, to collect data and commentary on their transactions, especially their financial transactions • diaries completed for 300 households in Bangladesh, India and South Africa: work in Malawi is about to begin

4. Financial diaries: some key findings • poor households – even the poorest - are usually active money managers, running portfolios of transactions and relationships • most of their transactions take place in the informal market (even where, as in Bangladesh, MFIs are common) • they seek to save as well as to borrow, although opportunities to save are few: moneyguards are used for modest sums, and clubs like ASCAs and ROSCAs are used to build larger sums • loans are the workhorses of poor-owned portfolios: loans usually have to do the work that specialist instruments do in rich portfolios: insurance, building assets for old age, dealing with emergencies and large anticipated expenditures (loans for microenterprises are important for a minority of households)

5. Some comments from diarists • India: I hate having to borrow and I hate having to lend to others. But what can you do? You can’t run life without borrowing. It’s not possible for people like us. • Bangladesh: How do we keep track of all these transactions? That’s easy. This stuff burns itself into your memory. It keeps you awake at night. • South Africa: I would do anything to avoid failing to pay into my three stokvels* each week. I would die of shame. I might as well die – how would I survive without them? * A stokvel is a kind of ASCA, used to build lump sums for consumption use and to set aside cash for funerals

6. Lipi: found that the open passbook savings account allowed her to manage day-to-day spending • Lipi saved a little every week into her Grameen passbook savings • and withdrew regularly to meet a wide range of everyday needs: • food shortfalls; school fees; short-term loans to others; making her own Grameen loan repayments and GPS deposits; helping to buy gold earrings; buying bamboo to make mats for sale; doctor’s fees for her son • the service has helped her build up over $100 in a the GPS long-term savings account

7. Mahenoor: used her Grameen loans to stabilise her household rather than start or run a business • We watched as Mahenoor took 6 loans or loan ‘top-ups’ from Grameen • she spent the first on food-stocks;the next paid for her father-in-law’s funeral;with the third they paid off an expensive older loan;next they bought food-stocks again;the fifth was used to buy medicine for her husband;the last paid a year’s school fees for the two boys

8. References • for the research into the financial behaviour of poor people see www.financialdiaries.com • for Grameen II: see their website www.grameen-info.org/ and look for the MicroSave series of ‘Grameen II Briefing Notes’ also available on the MicroSave website www.microsave.org