I’ve just about finished two weeks at the Centre for Microfinance. I’m splitting my time between three projects that are going on here. One is looking at whether giving farmers information about crop futures prices (via a billboard in the village or via a text message to their mobiles) will have any impact on their planting decisions, or whether spot prices at local markets will have an impact on where they take their crops to sell. The second project is looking at how different methods for teaching financial literacy affect the take up of the material (which is hopefully manifested in future financial decisions). The last project is trying to create a viable rainfall insurance contract that farmers want.
Each project offers a different side of microfinance. The financial literacy project obviously tackles a core issue for the poor that keeps them under-banked and outside of the traditional financial sector and MFIs, and leaves them vulnerable to predatory alternatives. The weather insurance project deals with risk management at the policy level and consumption smoothing at the member level. And finally, the project on price information looks at technologies that can improve the playing field for the poor by giving them the information they need to make more strategic decisions.
So far, the most interesting days have been the two afternoons that I was able to spend with some MFI clients outside the slums of Vasna and the Old City. We organized two informal focus groups with members of Saath, a local MFI with a strong emphasis on savings and asset building. Our goal was to better understand the members’ baseline financial literacy so that we could design a curriculum appropriate for them. The first group we met with consisted of mainly housewives while the second group was made up of rickshaw drivers and owners of small- or micro- businesses such as kite vending, scrap metal and egg wholesaler.
Most of the focus group attendees are illiterate, but extremely saavy. Alex Counts (the founder of the Grameen Foundation) talks about this survivorship bias that leads the poor to defy stereotypes and misconceptions about their capabilities. Those that are somehow surviving poverty must be smart, resourceful and brave – traits that seem to aptly characterize the people I met.
Despite their minimal schooling (especially among the women), they showed a higher-than-expected baseline financial literacy. One reason for this might be the length of their experience with Saath, as they certainly seem to have Saath’s emphasis on savings engrained in them. When asked what they would do with a small windfall of cash (eg. a small inheritance or an especially good day at work), most said they would save it to protect against a bad day’s earnings in the future. I was especially impressed by one lady, Vastuben, who said she would not only save the money, but use her additional savings to obtain a bigger loan through Saath. On one hand, it seemed risky for her to essentially double-down on her savings. On the other, it reminded me of a PowerPoint slide that Vikram Akula (founder of SKS Microfinance) showed. In his presentation, he showed that the poor were often able to get ROIs between 30% and 230%. Of course plenty of microbusinesses fail, but his point was that microbusinesses tend to produce better margins than traditional businesses because they can keep their costs down through the use of family labor, low infrastructure costs and no taxes or legal costs. So, assuming his assertion is true, that could make Vastuben a pretty astute money manager.
very interesting
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