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Managing Vulnerability: Using Financial Diaries to Inform Innovative Products for the Poor
How do low-income households manage their vulnerability?
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This study presents findings from financial diaries of low-income people in Malawi and analyses ways in which they cope with vulnerability.
Financial diaries document all the economic transactions of households and individuals on a weekly basis. They provide insights into aspects that keep people locked in the vicious cycle of poverty. The 18-month study with Opportunity International Bank of Malawi (OIBM) compared OIBM clients against non-clients on key aspects of vulnerability. Findings include:
- 85% of households experienced at least one week out of 73 when they had no revenue;
- Zero-revenue week often coincided with an unanticipated event such as an illness or an accident that prevented them from working;
- Most households made one lump sum purchase every four weeks that was 1.5 times their weekly income;
- Use of formal financial services correlated with higher general household spending;
- Use of informal financial services was much more than that of formal financial services and formed part of a general pattern of financial dependence.
The study states that indigenous risk-pooling mechanisms in Malawian culture and informal savings practices meet the needs of low-income Malawians more than formal financial services do.
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