Mechanisms to Manage MoneyWe started off the discussion by noting that in all three countries where the research for the book was done, the households interviewed were using a mix of formal, semiformal and informal tools and both saving and borrowing so as to manage their cash flows – though there were regional differences in the amount of usage of each depending on specific characteristics of the market. Anup Singh then shared his experience from the Philippines of the poor using multiple mechanisms to manage their money and remarked that these tools are used by them for “ensuring continuity (of business and life) and for hedging risks.”

Larry Reed directed the discussion to the relative merits of formal, semi-formal and informal financial tools. The forum noted that though there were several shortcomings in informal tools, they had a lot of insights to offer the formal sector and that the formal sector could improve upon product offerings of the informal sector.

Peter van Djik queried whether borrowings and savings are considered indistinguishable by the clients. It was noted that though in many cases the end purpose of both are the same, the client propensity to use either differed based on a number of factors like regional differences etc., and that the clients did indeed perceive a difference between the two.

The discussion also explored urban-rural differences on the choice of mechanism and noted that though the choice of mechanism may differ based on urban-rural locations, the variety of devices used or the proportion of income rotated did not change significantly, perhaps primarily because the research was conducted in well monetized areas. There was also a specific query on the practice of using deposit collectors. It was noted that apart from safety of deposits, the utility of having cash on a particular date encouraged clients to use deposit collectors. Though the clients did find it sometimes a little stressful to deposit on regular basis, they generally welcomed the opportunity and the discipline it imposed on them to save.

Drivers of Financial BehaviorThe three key drivers for financial behavior were noted as the necessity to manage regular monetary requirements for basic day-to-day needs, coping with risk and the need to raise large lump sums for meeting lifecycle needs. Ursula Heimann of the Savings Bank Foundation for International Cooperation requested the forum’s opinion about the ability of the poor to save. It was noted in the discussion that all the households researched for Portfolios of the Poor did save in one way or another and were interested in and actively using savings services whenever they were available. William Grant of Advancing Human Prosperity also queried if there was a preference for credit driven or savings driven models. Though there were regional preferences (with South Asians borrowing more than the South Africans), most households really did not have much opportunity to exercise a preference and used whatever was available. Madhu also shared her experiences in North East India and Dhaka and stressed that the poor used whatever mechanisms were ideally placed to help them for the specific requirement by patching up several informal mechanisms and formal mechanisms where available.

Role of MFIs in Managing Poor People’s MoneyAsif wondered if Stuart Rutherford was being conservative on the extent of MFI intermediation in Bangladesh, given the recent media hype on multiple lending. The response was that though the access to MFI services is indeed high, they are often used in conjunction with informal means and the share of total intermediation done by MFIs may be still small compared with informal means. A reason was that MFI products were not always tailored closely enough to client requirements since they typically involved rigid terms and conditions and focused on utilization for microenterprise development.

Mukul explored the practice of compulsory savings as a mechanism to build savings habit and enquired about the utility of the same to the requirements of the poor. Compulsory savings did serve a purpose as to building a lump sum but an ideal full service savings provider would also have a flexible and accessible savings option. Peter van Djik offered a view point that compulsory savings do help in building thrift behavior, but at the same time a fully regulated environment is required to offer genuine savings products which meet client requirements.

Ursula stressed the need for financial capability building and asked which capabilities needed to be focused upon. With regard to financial education, in practice much education will be through ‘learning by doing’ though a formalized education through the school system and even strategically placed education for adults might result in a good pay off.

MethodologyFinancial Diaries methodology is an innovative approach to market research and thus there were some questions about the approach. It was stressed that the sample selection was done carefully and the research involved multiple visits spread out over a longer duration of time. In addition, the data obtained was also cross-verified from other sources and the researchers opted for a middle way with continued interactions and a reasonably large sample.