What We’re Reading: Portfolios of the Poor

Always eager to read and discuss the most interesting inspirations and challenges around microfinance, staff members at Opportunity-US held a book discussion last week on Portfolios of the Poor: How the World’s Poor Live on $2 a Day (Princeton University Press, 2009) by Collins, Morduch, Rutherford and Ruthven. The book is a detailed study of financial diaries collected every two weeks over the course of a year from 250 households in Bangladesh, India, and South Africa, with a focus on individuals living on less than $2 a day.

Portfolios of the Poor

The results are surprising: people in poverty have surprisingly sophisticated financial lives, saving and borrowing with an eye to the future and creating complex portfolios of an average of seven different formal or informal tools, including savings.

Ruth-Anne Renaud, our VP of Women’s Philanthropy, led the lunchtime talk with 16 colleagues in the office and on the phone. Questions she asked us to consider:

1. According to this book, the poor face a “triple-whammy” of problems that keep them in poverty: small incomes, irregular and unpredictable cash flows, and lack of access to reliable financial instruments to match their irregular cash flow patterns. How does microfinance help households cope with these challenges?
2. After reading this book, one reviewer said that people in poverty actually have more complicated financial strategies than the rich. Would you agree with this statement? How does microfinance help simplify the financial strategy of a person living in poverty?
3. Were you surprised at how much the poor were able  to save given their small incomes? How does this support Opportunity International’s strategy to provide access to savings?

A few of our group’s comments…

I found it very interesting that the poor even have portfolios. That was an eye-opener for me. I’m always struck by how financially similar our clients are to us. -Sarah

When they put away a small portion of their savings by lending to a neighbor or another informal method, they are taking an incredible leap of faith. It’s a testament to how strongly they want a way to save. – Shelley

Thembi is the owner of a financial portfolio featured in one of the book's case studies. She is pictured here walking through the streets of the South African township where she lives. (Photo from portfoliosofthepoor.com)

People living in poverty are finding ways to save no matter what, as with the “merry-go-rounds” (officially called ROSCAs). They exist in almost every community without formal banking. It’s a beautiful thing and a lot better than having no options to save. -Steve

Reading this book reminded me how much I love it that we offer loans and other products to meet these additional needs, like microinsurance. -Dana

As we’ve built up trust on both sides, it’s enabled a progressive evolution to provide more services to meet the needs of our clients. -Sarah

This is why microfinance works, because people in poverty already understand what we have to offer and understand how valuable these tools are. This is one of the best cases we have for an integrated approach to offering loans, savings, insurance and training to people in poverty. –Steve

As astounding as it is that two billion people in the world live on $2 a day, it’s even more amazing when you know that that number is just an average. For people living in chronic poverty, the challenge is not only their low but also their irregular daily incomes, as well as the near-constant financial risk they face. Reading Portfolios inspired me with the knowledge that Opportunity’s work is important because it gives people access to financial tools that help them plan for the future and contribute much-needed economic stability to their lives.

We encourage you to answer one of our discussion questions or share your reflections about this book in the comment field below. Have a suggestion for what we should read next? Share it with us!