Money Managers: The Poor and Their Savings

This paper discusses the ways in which the poor manage their money. The paper observes that poor households often have to use creative money management mechanisms (including de-stocking business and diverting loans) to respond to risks. Some of these mechanisms have direct impact on the loans that MFIs may have advanced to support their business. The challenge for MFIs is to develop appropriate, secure, quality financial services for the poor.

Further, the paper describes that good financial services for the poor are a matter of saving:

• In as many different ways as possible - saving up, saving down, and saving through;
• Over as many different periods as possible - from very short term for quick needs, to very long term;
• In ways that are convenient, quick, appropriate, flexible, and affordable.

Finally, the paper suggests steps for MFIs to design better financial services products for the poor:

• Accept the right kind of pay-ins:
  • Allow variable sums at desired frequencies.
• Allow clients to take out the right kind of lump sums:
  • Provide a savings bank service (saving-up);
  • Provide an advance-against-future-savings service (saving-down, or loans);
  • Allow short-term, mid-term and long-term swaps (saving up, down and/or through);
  • Place no restrictions on how the lump sum is used.
• Make it convenient to pay-in and take-out:
  • Allow transactions locally;
  • Recognize that clients prefer an individual service;
  • Make the services open to all poor people.