//The rich borrow and the poor repay

The rich borrow and the poor repay

Jacques ATTALIIn a study directed by the economist Jonathan Murdoch, to be published in April 2009, a very concrete, in-depth vision of the world’s poorest workers emerges. At a time when we are speaking of so many millions of dollars, and even thousands of millions, it is interesting to take an interest in the real life of real people. From 2000 to 2005, having analyzed more than 250 precarious households (who earn less than $2 a day, the threshold for poverty designated by the World Bank) in India to Bangladesh and in South Africa, these economists are describing for the first time the usage of the rare money that these people have.

The result is edifying: the very poor live in the monetary economy, with as much sophistication as the rich. Of the 6.5 billion inhabitants on the planet, at least 2.8 billion live in poverty (less than two dollars a day), of which 1.1 billion live in extreme poverty (less than a dollar a day). None of them are unemployed: all of the very poor work. Most are temporary workers, day-laborers, seasonal workers, in the city and in the country. The majority of them earning less than a dollar a day are located in southern Asia (39%), eastern Asia (33%) and in sub-Saharan Africa (17%). Women constitute the great majority of the most poor, especially in rural areas. The core of their income is dedicated to first-rate needs: food, transportation, health, lodging, and child education. But also sometimes the rental of a vehicle or a cell phone; and to that end – and this is the huge surprise of the study – they are saving: the very poor save the money they have in very sophisticated way.

They must transform their intermittent income into a continuous influx of resources in order to provide for their daily needs. For them, saving is a question of life or death. On paydays, they must anticipate the future periods of scarcity, inactivity, sickness, a death or a marriage or facing the risks: the monsoon in India, the spreading of AIDS in South Africa, infectious diseases in Bangladesh. They save in their homes, at their neighbor’s homes in order not to be tempted, in a savings society or in a microfinance institution, or when they have the rare occasion, in banking institutions. They may also sometimes get life or sickness insurance. And as it is difficult to find secure places for their savings, it is common, notably among women, to commute money into gold. Conversely, it is also common to lend to their family, their employer, a pawnbroker or to a financial institution in order to create a profitable activity or make their capital turn a profit. On average, a very poor household makes use of a dozen different financial instruments a year. And it is very common for them to take out credit for a purchase while already possessing the necessary savings.

An example? Hamid and Khadija, an urban Bengali couple with one child whom Jonathan Murdoch’s team followed for a year, earn about $70 a month (that is, less than $2 a person). Their financial holdings are $175 and divided up as follows: $76 allocated to life insurance, $17 to a microfinance institution, $8 to an informal account, $2 in their house, $40 in the form of loans given out to neighbors, a $30 deposit in the “village house” and $2 in cash. In parallel, their financial debt being $223: $153 borrowed from a microfinance institution, $14 from a private loan, $10 for the repayment of an advance, $20 from a savings investment, $16 of debt at a store and $10 towards a car rental for professional use.

The very poor save more, therefore, in proportion to the rich. And these three billion people, (who will be 5 billion when the world population soon reaches 9 billion), constitute an amazing potential, to the extent that the banks are interested in them. In India, the government recently mandated that banks reduce the administrative steps and eliminate the minimum sum of money to open an account. In South Africa, the creation of the “Mzansi account” allows access to savings at a very low cost. The financial crisis reinforces it: the world needs a transparent financial system, in the service of people and their projects. It is becoming very important to put rigorous regulation in place so that the subprime crisis does not become the standard on a worldwide scale.

Jacques Attali  [email protected]