The great irony of being poor is that you are ‘too poor to save, but too poor not to save’.[1]
Access to funds for the use of life-cycle events, emergencies and investment opportunities are the main reasons individuals need access to large lump sums. But if one is not able to access or open an official savings account, then one must find other ways.
Common ways poorer individuals find access to lump sums are the same as everyone else in the world; selling assets they own, renting out owned assets, and finding ways to turn small routine savings into lump sums.
Most poor people want to save, can save and do save – yet if there is no opportunity to save, then loans are just another way of turning savings into lump sums.
The issue (and thus reason for microfinance) is to provide ‘basic personal financial intermediation’ – or quite simply, to create possibilities for the poor to convert their small daily/weekly savings into usefully large lump sums.
Of course we all need lump sums for various reasons – but if one has access to credit or has a decent savings account then it doesn’t require much thought or ingenuity for how to get a large amount when needed. Imagine, if you and your family had no savings and did not qualify for any sort of credit around you – what would you do? I dare say nothing quite as ingenious as many have done around the world unbeknownst to many.
Next post will begin discussing the three most common types of savings mechanisms: ‘saving up’, ‘saving down’ and ‘saving-through’.
[1] Rutherford, Arora, pg. 11
