This note describes simultaneous borrowing and saving, and it provides evidence highlighting an explanation rooted in difficulties re-building savings. The explanation suggests why high interest rates on loans may even be a desirable attribute for some borrowers.

Microfinance banks use group-based lending contracts to strengthen borrowers' incentives for diligence, but the contracts are vulnerable to free-riding and collusion. We systematically unpack microfinance mechanisms through ten experimental games played in an experimental economics laboratory in urban Peru. Risk-taking broadly conforms to theoretical predictions, with dynamic incentives strongly reducing risk-taking even without group-based mechanisms. Group lending increases risk-taking, especially for risk-averse borrowers, but this is moderated when borrowers form their own groups. Group contracts benefit borrowers by creating implicit insurance against investment losses, but the costs are borne by other borrowers, especially the most risk averse. Access the Briefing Note here. 

The Grameen Bank of Bangladesh is the best-known and most widely imitated microfinance pioneer. But Grameen found itself in trouble in the late 1990s as the quality of its loan portfolio beagn to decline sharply, and a devastating flood further eroded loan repayments.  It responded by adopting a new model in 2001, dubbed Grameen II. Grameen II was designed to be more flexible than the original model:  aligning repayment schedules with household income flow, meeting the demand for secure and reliable savings products, and acknowledging the varied needs of clients. This brief documents Grameen II's innovations in product design.

This is the seventh note in the Portfolios of the Poor Briefing Notes series. You can link to the other notes below.

Briefing Note 1: The "Triple-Whammy" of Poverty
Briefing Note 2: Borrowing to Save
Briefing Note 3: How do the Poor Deal with Risk?
Briefing Note 4: Research Methodologies
Briefing Note 5: Creating Better Portfolios—Core Financial Products for the Poor
Briefing Note 6: Portfolios of Bangladesh’s Poor
Briefing Note 8: Understanding Price
Briefing Note 9: Three-Country Analysis

These Briefing Notes were created as part of a toolkit of instructional resources for FAI and MicroSave’s June 8-9 virtual conference Reimagining Microfinance Around the World: Implementing Lessons from Portfolios of the Poor. Co-authors Daryl Collins, Jonathan Morduch, Stuart Rutherford and Orlanda Ruthven, and MicroSave’s Graham A.N. Wright moderated the event and discussed with conference “attendees” how to turn lessons from the financial diaries into real, on-the-ground solutions for economic development. The collection of suggested readings and videos for the conference can be accessed on this page.

How do the world's poorest households manage their financial lives on $1 and $2 a day? The authors of Portfolios of the Poor tracked the earning, borrowing, saving, and saving practices of 250 households in Bangladesh, India, and South Africa. The resulting "financial diaries" reflect a mixed-research methodology that is systematic in data collection, and simultaneously captures the complexity of people's lives. This brief takes a closer look at the research samples from all three countries.

This is the ninth note in the Portfolios of the Poor Briefing Notes series. You can link to the other notes below.

Briefing Note 1: The "Triple-Whammy" of Poverty
Briefing Note 2: Borrowing to Save
Briefing Note 3: How do the Poor Deal with Risk?
Briefing Note 4: Research Methodologies
Briefing Note 5: Creating Better Portfolios—Core Financial Products for the Poor
Briefing Note 6: Portfolios of Bangladesh’s Poor
Briefing Note 7: Grameen II and Portfolios of the Poor
Briefing Note 8: Understanding Price

These Briefing Notes were created as part of a toolkit of instructional resources for FAI and MicroSave’s June 8-9 virtual conference Reimagining Microfinance Around the World: Implementing Lessons from Portfolios of the Poor. Co-authors Daryl Collins, Jonathan Morduch, Stuart Rutherford and Orlanda Ruthven, and MicroSave’s Graham A.N. Wright moderated the event and discussed with conference “attendees” how to turn lessons from the financial diaries into real, on-the-ground solutions for economic development. The collection of suggested readings and videos for the conference can be accessed on this page.

This Briefing Note highlights the “borrowing while saving" financial practice observed among diary households, and documented in the book Portfolios of the Poor: How the world’s poor live on $2 a day. It describes factors like simultaneous borrowing and saving, and discusses the difficulty of rebuiding savings as a possible explanation for this behavior. The note further discusses why poor households borrow when they can dis-save, and what lenders can do to provide financial instruments better matched to the irregular and unpredictable cash flow patterns of the poor.

This is the second note in the Portfolios of the Poor Briefing Notes series. You can link to the other notes below.

Briefing Note 1: The "Triple-Whammy" of Poverty
Briefing Note 3: How do the Poor Deal with Risk?
Briefing Note 4: Research Methodologies
Briefing Note 5: Creating Better Portfolios—Core Financial Products for the Poor
Briefing Note 6: Portfolios of Bangladesh’s Poor
Briefing Note 7: Grameen II and Portfolios of the Poor
Briefing Note 8: Understanding Price
Briefing Note 9: Three-Country Analysis

These Briefing Notes were created as part of a toolkit of instructional resources for FAI and MicroSave’s June 8-9 virtual conference Reimagining Microfinance Around the World: Implementing Lessons from Portfolios of the Poor. Co-authors Daryl Collins, Jonathan Morduch, Stuart Rutherford and Orlanda Ruthven, and MicroSave’s Graham A.N. Wright moderated the event and discussed with conference “attendees” how to turn lessons from the financial diaries into real, on-the-ground solutions for economic development. The collection of suggested readings and videos for the conference can be accessed on this page.

This Briefing Note offers insight into the ways poor households manage risks. Based on the financial diaries research in Portfolios of the Poor: How the World’s Poor Live on $2 a Day, this brief describes the formal and informal risk management tools used by poor households in Bangladesh, India, and South Africa, and examines how these tools can be improved to help the poor mitigate risk and plan for the future. The note also features new mechanisms for helping poor households deal with risk, including partial coverage, product design, and insurance.

This is the third note in the Portfolios of the Poor Briefing Notes series. You can link to the other notes below.

Briefing Note 1: The "Triple-Whammy" of Poverty
Briefing Note 2: Borrowing to Save
Briefing Note 4: Research Methodologies
Briefing Note 5: Creating Better Portfolios—Core Financial Products for the Poor
Briefing Note 6: Portfolios of Bangladesh’s Poor
Briefing Note 7: Grameen II and Portfolios of the Poor
Briefing Note 8: Understanding Price
Briefing Note 9: Three-Country Analysis

These Briefing Notes were created as part of a toolkit of instructional resources for FAI and MicroSave’s June 8-9 virtual conference Reimagining Microfinance Around the World: Implementing Lessons from Portfolios of the Poor. Co-authors Daryl Collins, Jonathan Morduch, Stuart Rutherford and Orlanda Ruthven, and MicroSave’s Graham A.N. Wright moderated the event and discussed with conference “attendees” how to turn lessons from the financial diaries into real, on-the-ground solutions for economic development. The collection of suggested readings and videos for the conference can be accessed on this page.

This Briefing Note explores the “triple-whammy” of poverty, and addresses how households manage and what can be done to help households cope with their most basic, daily challenges. It further explores this phenomenon through the experiences of three diary households.  This note highlights three distinct problems which poor households face: small incomes, irregular and unpredictable cash flows, and existing financial instruments are unreliable and not suited to erratic cash flow patterns.

This is the first note in the Portfolios of the Poor Briefing Notes series. You can link to the other notes below.

Briefing Note 2: Borrowing to Save
Briefing Note 3: How do the Poor Deal with Risk?
Briefing Note 4: Research Methodologies
Briefing Note 5: Creating Better Portfolios—Core Financial Products for the Poor
Briefing Note 6: Portfolios of Bangladesh’s Poor
Briefing Note 7: Grameen II and Portfolios of the Poor
Briefing Note 8: Understanding Price
Briefing Note 9: Three-Country Analysis

These Briefing Notes were created as part of a toolkit of instructional resources for FAI and MicroSave’s June 8-9 virtual conference Reimagining Microfinance Around the World: Implementing Lessons from Portfolios of the Poor. Co-authors Daryl Collins, Jonathan Morduch, Stuart Rutherford and Orlanda Ruthven, and MicroSave’s Graham A.N. Wright moderated the event and discussed with conference “attendees” how to turn lessons from the financial diaries into real, on-the-ground solutions for economic development. The collection of suggested readings and videos for the conference can be accessed on this page.

Randomized experiments are an increasingly popular way to evaluate the impacts of development interventions. They provide hope that we can overcome important biases common to nearly all statistical evaluations. When done well, randomized control trials (RCTs) can provide clear, transparent, and credible evidence in complicated contexts, but their design and implementation is subject to a number of challenges. This note reviews some of the technical issues surrounding RCTs, describes four examples from microfinance, and discusses their advantages and drawbacks relative to other evaluation approaches.

M‐PESA is a small‐value electronic payment and store of value system that is accessible from ordinary mobile phones. It has seen exceptional growth since its introduction by mobile phone operator   Safaricom in Kenya in March 2007: it has already been adopted by 9 million customers (corresponding to 40% of Kenya’s adult population) and processes more transactions domestically than Western Union does globally. M‐PESA’s market success can be interpreted as the interplay of three sets of factors: (i) pre‐existing country conditions that made Kenya a conducive environment for a successful  mobile money deployment; (ii) a clever service design that facilitated rapid adoption and early capturing of network effects; and (iii) a business execution strategy that helped M‐PESA rapidly reach a  critical mass of customers, thereby avoiding the adverse chicken‐and‐egg (two‐sided market) problems that afflict new payment systems.