Firstly, we focused on learning their savings behavior. Apart from savings with their SHG group, they did not have any other savings. These too were saved because it was compulsory for the SHG members to save Rs. 160 per month. Furthermore, we asked them about their existing loans obtained from various formal and informal financial sources. The following table shows the snapshot of the data collected on their credit behavior.
(names changed)
| | Radha | Sita | Meera | Shanthi | Sangeetha |
| Cumulative Savings through SHG | 19,000 | 19,000 | 19,000 | 19,000 | 19,000 |
| Savings past year | 1,920 | 1,920 | 1,920 | 1,920 | 1,920 |
| Any other form of savings | NONE | NONE | NONE | NONE | NONE |
| Loan at 10% flat | 40,000 (House renovation and education) | 10,000 (Social obligation- marriage) | 20,000 (Social obligation- marriage) | 8000 (From 4 sources for social obligation ) | 10,0000 (Health expenses) |
| Loan at 5% flat | | 3,000 (Social obligation -marriage) | 10,000 (Social obligations – child’s marriage) | | |
| Loan at 3% flat | 12,000 (Son’s education) | | | 30,000 (Leasing land) | 8,000 (House renovation) |
| Against jewelry from the banks | 30,000 (Son’s education) | | 15,000 (Social obligation- child’s marriage) | 12,000 (Education) | |
| SHG loans (18% reducing) | 27,000 (Son’s education) | 30,000 (Social obligation- Marriage) | 25,000 (Social Obligation – Child’s marriage) | 30,000 (Social obligation) | 30,000 (Social obligation- dowry) |
| Weekly payment loans | 7,000 (From 3 different sources for daily consumption) | 6,000 (From 2 different sources for daily consumption) | 6,000 (From 3 diff sources for daily consumption) | 6, 000 ( From 3 diff sources for daily consumption) | 6,000 ( From 3 diff sources for daily consumption) |
Against jewelry from moneylender | 15,000 (Son’s education) | | 20,000 (Social obligation- child’s marriage) | | 5,000 (Social obligation) |
TOTAL LOAN | Rs. 1,31,000 (More than 90% loan spent on son's education) | Rs. 49,000 (100% loan spent on social obligation) | Rs. 96,000 (100% loan spent on social obligation) | Rs. 86,000 (~52% loan spent on social obligation) | Rs. 69,000 ( ~ 59% spent on social obligation) |
Even though, data that we have collected is from a small group and does not offer much insights- it is clear from this exercise that these landless poor laborers who did not have any steady income generating jobs spent most of their loans to fulfill social obligations. As it was an unproductive loan, they could not repay and kept paying interests and further took loans from other sources to repay these loans among other reasons- pushing them towards excessive debt and poverty.
Those of us involved in development sector today should seriously work towards promoting financial awareness and spreading financial literacy to the poor and enable them to manage their finances effectively and efficiently. The poor need to understand their own finances and the consequences of poor money management which lead to disproportionate debt, excessive poverty and many times, even worse- suicide!
5 comments:
Very interesting blog on PRA, do you have an idea on how extended PRA among SHG and Indian MFIs in general is? do you know about other methods being used, or innovations to measure client's poverty and track loan usage?
Just wrote about scorecards today:
http://microfinance.cgap.org/2010/01/27/how-poor-are-your-clients/
Do the ultra poor need financial education or simply more education? Have you seen the evaluations signalling that financial literacy programs might be not be the most effective way to use resources? ideas, criticism?
Deepti, I am surprised by your conclusion. Your own analysis shows a mix of reasons for borrowing for these 8 people including education and consumption in many places. Why would we want to educate people to not consume? Have you read Portfolios of the Poor? The key message there is that people are very good money managers. People like us need to do our jobs well and provide better tools so that they can do an even better job.
The focus of literacy should not be on telling them what is the right and wrong way of spending their own money because our perceptions of finance are very different from theirs. The poor are pushed into a poverty trap not because they are not managing their finances well but because what they are doing is the best they can with the financial services that are being made available to them. The onus lies on us, as financial service providers to learn from what their behavior tells us and provide them with better opportunities to ‘leverage and smooth their low and uncertain income to fit expenditure’ as the book Portfolios of the Poor aptly advises.
I have read "portfolios of the poor" and it is interesting to understand how the poor manage their money. In this example, we are talking about eight poorest of the poor women who have managed their money to spend mainly for social obligations (except the one who spent on her son's education). However, the key question that I have is- does just "managing money" bring the poor out of the poverty? I guess not. As Bindu mentioned- we need to provide better financial tools. And financial awareness programmes are also important.
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