The Poor and Their Money: An Essay About Financial Services for Poor People

This paper describes how poor people in developing countries manage their money. It illustrates the variety of moneylenders and deposit collectors who serve the poor, including the new breed of microfinance institutions (MFIs) - semi-formal or formal banks that specialize in working with poor clients.

The essay argues that poor people can save and want to save, and when they do not save it is because of lack of opportunity rather than lack of capacity. It also shows how interest rates have been used to manage the risks faced by savings club members.

The essay concludes that financial services for the poor help them swap their savings for lump sums of cash. Good financial services for the poor are those that satisfy their needs, such as:

• Products that suit their capacity to save and their needs for lump sums
• Product delivery systems that are:
  • Local, frequent and quick,
  • Not burdened with paperwork and other transaction costs,
  • Transparent in a way that is easy for illiterate people to grasp.
• Institutions adapted to delivering cost-effective products;
• A healthy environment for financial services:
  • Stable macroeconomic and financial management by government;
  • Enabling legislation governing promoters and providers of financial services for the poor.