Money Talks: Conversations with Poor Households in Bangladesh about Managing Money

This paper describes the money management behavior of 42 low income Bangladeshi households, half of them rural and half of them living in urban slums. The research revealed that:

• The poor are active managers of their financial resources;
• 33 varieties of financial instrument were used by sample households during the research year, including formal bank and insurance company services, semi-formal services offered by NGOs (the "microfinance" sector), and a range of local informal services and devices;
• No household used less than four different instruments in the year, and many households used a dozen or more;
• Private interest-free borrowing was used by all but one of the 42 households, and a large number were also active lenders of money to their neighbors, family, friends and work associates;
• Most households engaged in multiple use: on average each household initiated a new money management arrangement every two weeks;
• Sums of money involved are large, both absolutely and relative to incomes. The average "turnover" per household was US $839 in the year;
• Households are passing money through financial instruments each year in sums equivalent to some two thirds of their total annual income;
• The total value of the "microfinance market" for poor people in Bangladesh probably exceeds US $10 billion.

The paper also examines the role of MFIs in helping the poor manage their resources and notes that:

• Although MFIs were represented in 33 of the 42 households, their share of the total money management activities of the households is small;
• MFIs had only a 15% share of all transaction flows, and only a 10% share of the total number of "lump sums" formed by the households;
• There were five times as many loans made by just one informal device (interest-free lending) than there were MFI loans in the year;
• MFIs were also responsible for surprisingly small shares of the year-end balances of financial assets and liabilities held by the households.

The paper concludes that:

• Both MFIs and poor households would benefit if MFIs achieved a better understanding of current and potential demand for financial services by the poor, and tailored products and delivery systems accordingly;
• MFIs could build on their reputation for reliability and offer more flexible services;
• Access to reliable financial services on a frequent and flexible basis would releive the poor of much anxiety, and provide new opportunities, in the management of their households and livelihoods.