Portfolios of the Poor: How the World’s Poor Live on $2 a Day examines the basic question of how the world’s poorest households survive on such modest incomes. The authors report on yearlong "financial diaries" of villagers and slum dwellers in Bangladesh, India, and South Africa--tracking penny by penny how households manage their money. This note explores the core financial instruments utilized by diarist households, and draws lessons from these practices to devise better borrowing and saving instruments for the poor.

This is the fifth 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 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 Framing Note is the third in a series exploring various dilemmas which policymakers face across several topics of great importance to financial inclusion. In the field of prudential regulation, as in the other areas of financial regulation discussed in the other Framing Notes in this series, policymakers therefore face another manifestation of the regulator’s dilemma: how to safeguard the health of the financial system, while encouraging access to financial services. The latter objective may require that there be a diversity of financial institutions with different risk and cost profiles but it is not easy to supervise numerous diverse entities. The dilemma is especially acute since small savers who have access only to informal often less stable alternatives, may be at greater risk of loss.

Microcredit markets in many regions are becoming more competitive. This is generally a good thing for borrowers.

These two commonly heard statements raise a number of questions for policy makers: How to measure the intensity of competition over time? And is competition among lenders always a good thing for borrowers? Or do credit markets, and microcredit markets in particular, have any special features which may change or modify the conventional view of competition? If so, what tools do regulators have to promote competition? The FAI Focus Note “Competition Policy in Microcredit Markets” provides some initial answers to these questions for policy makers who wish an introduction to the issue. To do this, the Focus Note combines general competition theory and policy with evidence from credit markets and microcredit in particular. Since competition involves winners and losers, the regulator’s dilemma here is identifying and making the tradeoffs necessary to find a level of competition appropriate to the stage of market development and in line with national objectives.

The first global estimate of its kind reveals that 2.5 billion adults do not use formal services to save or borrow.  Who are these ‘unbanked’ populations? Where do they live? How do they survive? And what lessons do these estimates hold for policymakers working to improve levels of financial inclusion for poor populations?

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This Framing Note is also available in Spanish and in French.

The authors describe important trade-offs that microfinance practitioners, donors, and regulators navigate. Drawing evidence from large, global surveys of microfinance institutions, they find a basic tension between meeting social goals and maximizing financial performance.  Potential trade-offs therefore arise when selecting contracting mechanisms, level of commercialization, rigor of regulation, and the extent of competition. Meaningful interventions in microfinance will require making deliberate choices – and thus embracing and weighing tradeoffs carefully.

This note reviews innovations in the provision of credit.

This note reviews ideas and evidence about expanding access to saving products.

Foreword to The Pledge: ASA, Peasant Politics, and Microfinance in the Development of Bangladesh, by Stuart Rutherford

The “m-Finance” appeal rests on two possibilities: (1) mobile phones will allow banks to conduct business more cost-effectively, and by cutting costs, the technology will make it feasible to reach a broader population; and (2) mobile phones and related technologies will alter the nature of banking relationships themselves, and doing so will mean going back to the basics and rethinking assumptions about the financial demands of poor households. Economists Kappor, Morduch, and Ravi explore the mobile technology revolution and discuss its application for improving banking services for the poor.