Geoff Tennant - Promoting access to mathematics for all
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31/1/16: book review, "Portfolios of the poor"

A visitor to work recently pointed me to the book:

Collins, D., Morduch, J., Rutherford, S. & Ruthven, O. (2009).  Portfolios of the poor: how the world's poor live on $2 a day.  Princeton: Princeton University Press.

The book looks to address the issue in the subtitle which, to the Western mind is almost unimaginable: how on earth does somebody live on $2 a day?  Or, for many of the world's poor, nearer $1 a day?  It was a really interesting book to read at this stage in my time in Africa, some issues I was familiar with, whilst others were new to me.

The book is based on research undertaken in India, Bangladesh and South Africa with a total of about 250 participants, getting them to complete with an interview a 'diary' going over a total of a year.  Of course, 250 people is not very many compared with the 2.6 billion people (2005 World Bank figure) living on $2 a day or less, and decisions on sample size are always going to debatable.  What the research team decided to do was keep the number of participants small in order to build up a relationship of trust and understanding - and they found that, in a number of cases, people corrected answers given earlier once they were confident that the researchers were not working on behalf of banks or Government agencies. 

One issue addressed head on early in the book is that the phrase, "live on $2 a day" implies a steady income when in fact, for many of the world's poor, this is simply not the case.  Subsidence farming would be a strong example of a line of work where income is erratic, also selling on the streets, which is seen a lot here in Dar es Salaam.  So not only is the income low it's also unreliable.  And then a third major related problem is that financial instruments - savings, loans, pension schemes, etc. - become disproportionately expensive to administer when the sums of money involved are low, meaning that often people turn to the informal sector - borrowing from friends, forming informal savings clubs - rather than to banks or microfinance organisations, the latter often working to sums of money and time scales that just don't work.

These and other matters give rise to behaviour which, at first sight, is counter-intuitive.  Why on earth would one be happy to pay to save?  Surely if you're saving money you expect to be paid interest?  Well, from the point of view of the person receiving the savings, the administration costs are high compared to the amount of money being saved, so in fact a service is being provided which needs to be paid for.  From the point of view of the saver, having a definite savings scheme to be part of, rather than simply keeping it oneself and then having the constant temptation on spending the money when something urgent comes up, is worth paying a fee for.

(Parenthetical thought: this question as to, 'Who pays whom?' came up in series 7 (2011) of "The Apprentice" when the participants were tasked with setting up a waste disposal company.  So, if you take away somebody's rubbish, who pays whom?  Does the client pay for a service being undertaken?  Or the contractor pay for the scrap value?  Or does neither pay, the value of the goods being payment in kind for the work done?  No, "One size fits all" answer to this question.)

Another tactic which at first seems counter-intuitive is groups of friends who pay into a central pot, with the friends taking it in turns to receive the money, so in effect again having a savings scheme.  But why involve other people, with the risk that when one's turn comes to receive the pot the other people won't pay?  Isn't it easier to keep the money oneself?  Again, saving a worthwhile amount of money is hard, with constant demands on a limited budget.  So, to be able to accumulate a relatively large sum, it makes sense to put the money out of bounds, and this is one way of doing it.  The researchers also found evidence of people borrowing money to save when the opportunity arose eg. to buy jewellery which could not easily be liquidated, for much the same reason.

The point about available financial instruments not being sensitive to the needs of the world's poorest came out frequently.  So, for example, it is common practice for insurance companies to share the risk with their clients, either by the client paying an excess on a claim, or by insuring only to a certain percentage.  One reason for doing this is to deter irresponsible behaviour, taking the attitude that it doesn't matter eg. if my house gets burgled, because insurance will sort me out. But this mechanism, for poor people, can render their policies useless when the time comes, if they can't find the money to pay their part.  Other issues include the timescales involved - often people want short loan or savings periods - and the need for regular sums to be paid of the same amount, which does not correspond to cash flow.

I had reason to read a colleague's PhD thesis a few years ago in which poverty was a major theme.  One of the points which came out there is that, when things go wrong - unexpected bereavement, family member becomes ill, home is burgled or burnt down - there is no plan B.  So, if the breadwinner becomes ill, the income ceases and they need the money for medical treatment, which can be an intolerable burden, causing problems for years to come.

The researchers were very struck by the resourcefulness shown by many of the people they interviewed, and the book, which is well written and easy to access - and quite short! -  comes across as highly respectful to the people who gave their time and answered really quite intrusive questions in order that the research could be completed.

So, all in all, a book well worth reading, to my mind it absolutely delivers on its title.  Although, given the title and subject matter, it seems slightly ironic that the cost of the book in paperback is UKP15.19.  So, people who are directly impacted by the issues discussed are unlikely ever to read it.  Can't see an easy solution here.

Meanwhile, pleased to say that the Logos Hope is here and attracting a great deal of attention.  Particularly delighted that the Education Minister and former colleague of mine (yes, really!) the Honourable Dr Joyce Ndalichako MP, opened the visit, expressing her hope that this would help develop a culture of reading here.  Will be going again shortly, so will take some pictures to share with you.

And finally, talking of pictures, I've recently acquired some software to add frames to photos, here's one I prepared earlier, taken in Zanzibar a couple of year ago now.  I think the caption works, interested to know what you think.

2 Comments to 31/1/16: book review, "Portfolios of the poor":

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Stephen on 02 February 2016 12:12
Very interesting read! Particularly like the 'who pays whom' conundrum and apprentice reference. Also interesting to hear about the savings groups. They are very big in Tanzania. I'm actually part of one and it really does help with saving!
Reply to comment
Geoff on 02 February 2016 23:23
Thank you, Stephen, glad you liked the blog. Pleased to hear you're a member of a saving club, does it do small loans as well? Another point which comes out in the book is that, in the long term, the difference between savings and a loan can become very small, in both cases depositing money regularly and taking out large sums occasionally, the difference being which happened first. The longer ago that happened, the more difficult it is to remember.

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