Stuart Rutherford
The Poor and Their Money
(New Delhi: Oxford University Press, 2000, 121 pp.)

The United Nations General Assembly has designated the year 2005 as the International Year of Microfinance.  Microfinance is an effort to deliver flexible, high-quality financial services - basically loans but also advice - on a sustainable basis to the very poor as a way of 'jump starting' efforts out of poverty.  However, as with many UN-designated years, the year is half over before anyone knows that it has started unless non-governmental organizations have a real interest to promote the Year.  "Years" are then turned into "UN Decades" as a year is often too short a time to make lasting progress on such issues as equality between women and men or the welfare of the child.

2004 has been the "Year of Rice" but, alas, although I am on a number of UN-publications mailing lists, I have not been flooded with information as to the life and hopes of rice growers.  Perhaps we, in the TOS, can help to make microfinance better known and see what organizations in our community are active in this field.

For those who are already relatively aware of the role of microfinance - the Graneen Bank of Bangladesh founded by Muhammed Yunus being probably the best-known program - there is a World Bank website of the Consultative Group to Assist the Poorest (CGAP) www.cgap.org .  The site has good studies written in the style of bankers.  It is basically a site for organizations already involved.  While one can be critical of some of the loan policies of the World Bank, their research and publications are of high quality, and the CGAP papers have good bibliographies.

Some of the CGAP papers, such as the Focus Note "Raising the curtain on the microfinancial services era" are written by Stuart Rutherford whose book The Poor and Their Money is a very useful introduction to the financial flows among the poor especially in Bangladesh and  India's West Bengal state.  He also draws on research of West African experiences.

There is something misleading in the oft-quoted World Bank figures on the number of the world's population living on US$ 1. a day or US$2. a day.  It is not possible to live on such incomes so there are obviously non-cash resources available such as home-grown food, the exchange of services etc.  Yet the poor - those who, compared to their fellow citizens - do not have much money - do have need for lump sums arising from life-cycle events such as birth, education, marriage, and death and from emergency situations as illness, and from the discovery of opportunities to make investments in assets or businesses.

The poor are willing to save, holding back a few cents in cash from regular expenditures.  Yet as Rutherford points out "It is very hard to find a safe place to store cash.  Formal opportunities to do so - at banks and the like - are rarely accessible.  Cash kept at an insecure slum or village home can be stolen, lost, burnt, blown or washed away.  It can be captured by mothers-in-law with hard voices, visiting relatives with hard-luck stories, and alcoholic husbands with hard knuckles.  How do you keep even a few cents back when the children are hungry?"

Rutherford goes on to cite current practices. "These disadvantages force the poor to pay a high price - very much higher than you and I pay -to save cash.  This high price is expressed in two ways - high levels of risk and low, or even negative, interest rates.  All round the world the poor entrust their savings to people and institutions that are less than fully reliable. 'Money guards' like relatives, employers, and shopkeepers hold vast sums of the poor's cash - and sometimes cheat them.  Tens of thousands of informal savings clubs of all kinds spring up daily round the world, and too many of them are inefficiently or fraudulently run.  Yet poor people persevere with these high-risk methods, for lack of better alternatives.  Most vulnerable are the poorest -those most likely to be illiterate and powerless."

Thus, there is a need for better financial services for the poor.  As Rutherford notes "Creating better financial services for the poor starts with having a clear idea of just what constitutes good services.  The good services enable the poor to swap frequently saved small sums of varied value into a lump sum when required in a quick, affordable and transparent manner."

The transparent manner is crucial.  Individual moneylenders often do not make clear what interest payments mean, and in this way, people can fall into permanent servitude - an impossibility to repay the loan.  Illiterate people need to grasp how 'the system works'.

Non-governmental organizations need to be concerned with the financial conditions of the very poor in the geographic area where they work.  This does not mean that NGOs need to go into microcredit finance themselves.  It does mean that we must all be concerned with the 'invisible poor', their savings and their ability to meet life's emergencies.  All NGOs can help build a sense of confidence in their members so that they are better able to interact with banks, credit unions and other forms of financial services.  NGOs can help in training their members in financial questions and the management of funds.  Too many NGOs depend on the financial knowhow of a very small group of people.  It would be healthier for the NGO to have a larger number of its members interested in financial management, the collection of funds and the use of savings.

Thus 2005 as the Year of Micofinance is an opportunity to look both at the needs of our community and of the organizations of which we are a member.

René Wadlow