PAYING interest on your savings will strike most people as odd. Yet some poor people in the developing world do just that. In West Africa, for example, some people pay roving susu collectors a fee amounting to a -40% annual interest rate for looking after their deposits….
And the authors of a new book* about the financial lives of people who earn less than $2 a day find that this sort of “pay-to-save” model is by no means unique to Africa. They encounter a similar phenomenon in India, where a female deposit collector called Jyothi looks after small savings for people in the slums of Vijayawada, at an effective yearly interest rate of -30%….
These features are what economists like to call “consumption smoothing”—spreading spending out in a way that ensures that what you eat one day is not determined by what you have earned that day or the day before. The subjects used a combination of loans and savings to ensure that their lives were not, literally, hostage to fortune. Hardly anyone lived utterly hand-to-mouth….
The unbanked do not have access to such luxuries as standing orders, which richer people use to overcome the temptation to spend whatever they earn. And they are forced to pay for things that are free for most—which enables women like Jyothi to earn a crust by offering a safe store for small savings. But with some ingenuity, they use unorthodox financial instruments to create a more stable life than their erratic incomes would otherwise allow.
I didn’t hear him myself, but via second-quotes I’ve heard that Andrew Rugasara, speaking at the Willow Creek Leadership Summit, said that we should think about poor people around world (particularly poor Africans) as entrepreneurial people – “Have you imagined living on one dollar a day? Could you do it?” This article (and book) shows how people actually do do it.
I have a bunch of similar stories from U.S. urban ministry contexts, but I’ll save those for another day.