Finding the Right Portfolio

Today I am visiting both Namerey and Lengima, day 19 of 23!

Perhaps unsurprisingly, I really enjoy reading books about international development. When I last came back from extended time abroad, I got back on a Sunday afternoon. By Monday afternoon, I had purchased and started reading Poor Economics, a book by two MIT development economists. My roommate a few summers ago couldn’t fathom why I was spending my summer reading books like The End of Poverty (terrible) or White Man’s Burden (better, but not still not great), instead of reading books that were “actually interesting.” I’m sure I’ve only read a tip of the iceberg thus far, but I feel like I’ve read enough to have an opinion about books within the field. Thus far, I think the most informative book I’ve read is called Portfolios of the Poor, and I would highly recommend it.

However, since I’m banking on the fact that most of you won’t read it, here is what is especially interesting about it: the standard numbers thrown around about poverty tend to focus on income levels. The stat everyone hears is that this many people are living under $1 a day, or $2 a day. However, what’s equally significant is that most people at these income levels are either self-employed, or work in the informal sector. Accordingly, a second major obstacle they face is that their income on any given day is highly unpredictable. It isn’t $2 a day, it’s $1 one day, $5 the day after, $0 the day after that. As a result, it’s very difficult for these individuals to plan ahead of time. They don’t know when they will have money.

As a result, because of their low incomes, the poor are forced to engage in a huge number of financial transactions. They save some here, borrow some here to have money for the rest of the week during lean times, and are forced to use several other instruments to patch together usefully large sums of money.

While the common narrative about microfinance is about people using money to build businesses, this is only one of the money ways that these loans are used. Equally importantly, they provide borrowers with a reliable form of money, and a useful way of achieving large sums of money at once, for items such as school fees or medical expenses, which they can then pay back gradually over time.

I’m of course dramatically oversimplifying the narrative, and for people interested in international development, it’s well worth a read. However, if nothing else, when you hear about poverty in the future, don’t just think about low incomes. Equally significant is the unreliable nature of their income, the stress that causes, and the way it forces the poor to spend a good deal of time borrowing from moneylenders, hiding savings when they can, lending to neighbors in times of need, and doing whatever else is necessary to the patch together the sums they need, both on a day-to-day basis, and over the longer term.

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One Response to Finding the Right Portfolio

  1. Anna says:

    This blog post is almost EXACTLY what I wrote in the introduction to my thesis. I’ll definitely be adding this book to my reading lists! Keep up the posts 🙂

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