Portfolios of the Poor: Highlights
By Bryan Caplan
How markets free individuals from degrading family ties.
Approaching several people for loans before getting one is not merely an inconvenient outcome of the financial shallowness of the informal sector, but a source of stress and shame.
For migrants who have left poor families in the village to make good in the city, this embarrassment is acute. Somnath from Delhi… avoided recourse to relatives at all costs, because he was ashamed and anxious that, if he couldn’t repay on time, he would strain the relationship. Similar feelings were voiced by as many as half the Delhi respondents…
How multinationals are doing good while doing well.
Seeing the poor could not afford many of their existing products, multinationals like Proctor and Gamble and Unilever found a solution by selling single-serve packets of shampoo to poor households in India. The single-serve packages, costing a few cents each, turned out to be a popular option for people lacking the daily cash flow to easily purchase large bottles of shampoo, regular-sized tins of tea, 200-count bottles of aspirin, and the like.
Why Americans who “can’t save” are big babies.
Nomsa [a 77-year-old South African raising four grandchildren] may seem extraordinary, saving a third of her monthly budget, but her saving patterns are not much different from most of her neighbors.
Why the poor pay more.
Finance for the poor means dealing with a lot of small loans and, when savings services are on offer, many small deposits. For providers, small-sized transactions mean limited scale economies and thus high costs per transaction. Out of necessity, “pro-poor” microfinance institutions tend to charge the highest rates of all; microfinance banks serving better-off consumers tend to charge the least. Even if Compartamos [a Mexican bank for the poor] had earned no profit and paid no taxes, their interest rates would have still had to be 60 percent per year to cover costs of their strategy for small-scale lending in Mexican villages and towns.
The drudgery of the micro-credit co-op.
…most consumers… continue to transact largely in the informal sector, and it is not hard to see why. The interface with the microfinance institutions remains the weekly village meeting, a breakthrough of the 1970s that is now looking somewhat stale: meetings consume too much precious time, there is no privacy, individual needs go unrecognized, the male workers tend to patronize the women members, and more and more members skip the meeting if they can, preferring just to show up and pay their dues as quickly as possible.