Living on $2 a Day

Not too long ago a friend asked me what I think is the biggest misconception about Africa. My answer: that the poor in Africa don't (or can't) save money. This is totally false: the poor are incredible savers--they have to be. The idea that the poor can't save may be relatively commonplace because it reinforces our stereotype of them as helpless, also a misbegotten notion.

I've repeatedly seen evidence of how financially disciplined the poor are. In South Africa, Rwanda, and Tanzania I've met people who struggle each day to feed their families, pay school fees, and buy stock for their business. And yet, these same people find a way to put a rand or a few Rwandan francs aside each day or each week. This small savings provides a much-needed cushion in case of emergencies. It might also be used to pay the big-ticket items that families confront on a regular basis: school fees being among the most pressing.

I've just started a new book called Portfolios of the Poor: How the World's Poor Live on $2 a Day that provides a window onto the financial world of the poor. The book draws on data collected as part of the Financial Diaries project. Here's one insight: the poor manage a complex set of financial relationships BUT the array of financial products to which they have access is less-than ideal. For example, too few of the poor have access to micro-insurance. And, in part, because bank fees in the developing world can be high the poor are often unbanked. When fees, or minimum required account balances fall, the poor will turn to banks as a reasonable option.

A challenge for policy makers and a key opportunity for social entrepreneurs is to understand what kinds of financial services the poor want and are willing to pay for. Portfolios of the Poor certainly helps with this. Better understanding should make for better policy and, hopefully, a host of improved financial services for the world's poor.

- Karol