Creating Better Portfolios: Core Financial Products for the Poor
This briefing note examines the financial traits of poor households in India, Bangladesh and South Africa as illustrated by the financial diaries in Portfolios of the Poor: How the World’s Poor live on $2 a Day.
The paper observes that poor households avoid leading hand-to-mouth lives by creating financial portfolios that leverage formal and informal networks to meet their immediate and long-term needs. Some traits and financial behaviours common to these households include:
- Poverty, resulting in small incomes, irregular cash flow and lack of access to financial tools;
- Need for flexible and convenient loans and savings products;
- Diversity of loan needs;
- Preference for interest-bearing loans over existing savings;
- Tradeoffs between flexibility of informal financial devices and reliability of formal institutions.
The note suggests that financial tools for the poor must consider the above traits and include innovative features such as flexible repayment schedules, smaller instalments, accessibility, penalty-free grace period in times of crisis, top-up facility for loans and commitment savings products that help poor households build and rebuild their savings.
