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Portfolios of the Poor: How the World's Poor Live on $2 a Day [Hardcover]

Daryl Collins , Jonathan Morduch , Stuart Rutherford , Orlanda Ruthven
4.7 out of 5 stars  See all reviews (3 customer reviews)

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Book Description

10 May 2009

Nearly forty percent of humanity lives on an average of two dollars a day or less. If you've never had to survive on an income so small, it is hard to imagine. How would you put food on the table, afford a home, and educate your children? How would you handle emergencies and old age? Every day, more than a billion people around the world must answer these questions. Portfolios of the Poor is the first book to systematically explain how the poor find solutions to their everyday financial problems.

The authors conducted year-long interviews with impoverished villagers and slum dwellers in Bangladesh, India, and South Africa--records that track penny by penny how specific households manage their money. The stories of these families are often surprising and inspiring. Most poor households do not live hand to mouth, spending what they earn in a desperate bid to keep afloat. Instead, they employ financial tools, many linked to informal networks and family ties. They push money into savings for reserves, squeeze money out of creditors whenever possible, run sophisticated savings clubs, and use microfinancing wherever available. Their experiences reveal new methods to fight poverty and ways to envision the next generation of banks for the "bottom billion."

Indispensable for those in development studies, economics, and microfinance, Portfolios of the Poor will appeal to anyone interested in knowing more about poverty and what can be done about it.



Product details

  • Hardcover: 296 pages
  • Publisher: Princeton University Press (10 May 2009)
  • Language: English
  • ISBN-10: 0691141487
  • ISBN-13: 978-0691141480
  • Product Dimensions: 23.6 x 15.7 x 2.8 cm
  • Average Customer Review: 4.7 out of 5 stars  See all reviews (3 customer reviews)
  • Amazon Bestsellers Rank: 211,184 in Books (See Top 100 in Books)
  • See Complete Table of Contents

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Review

"A fascinating discussion of the finances of the world's poor."--Nicholas Kristof, NYTimes.com

"Ten years ago, the authors of this unusual study began collecting detailed yearlong 'financial diaries' from households in Bangladesh, India, and South Africa. . . . The diarists did things that might seem irrational--borrowing in order to save; paying interest on savings--but that made sense given their unpredictable incomes and limited options. While the authors do offer prescriptions for how to expand those options, it's their scrupulous attention to actual behavior that makes this book invaluable."--New Yorker

"The book's methodology and conclusions are fascinating."--Publishers Weekly

"The authors of Portfolios of the Poor found that a 'triple whammy' characterizes the financial lives of the poor. Incomes are not only low; they are also irregular and unpredictable. . . . The authors' account suggests much that can be done to ease the financial conditions of poor people."--Anirudh Krishna, Science

"A refreshingly distinct path. Portfolios of the Poor . . . avoid[s] the big picture and zoom[s] in on the basics of daily poverty, exploring how poor families manage their money. . . . The diaries reveal a 'real, ongoing, and substantial demand' for better financial services, which poor families need to provide better health care and schooling for their children. . . . Rather than waiting for the world to debate and accept their ideas, these authors have taken them up on their own. In the war against global poverty, that feels like one small battle won."--Carlos Lozada, Washington Post

"The research provides evidence of the sophistication with which poor people think about their finances."--The Economist

"I recommend this book to anyone who has interest in improving the lives of the poor."--Melinda Gates, Co-chair, the Bill and Melinda Gates Foundation, The Huffington Post

"This is a very interesting book, which examines the quite sophisticated financial system developed by poor households to adjust their spending relative to their income."--Choice

"A masterly assessment of the financial needs of people on very low incomes . . . stuffed full of interesting and surprising insights, and should be read by anyone concerned with economic development and poverty reduction. I can't praise it highly enough. This is a model of the careful collection of evidence with important practical consequences."--Diane Coyle, The Enlightened Economist

"This book is a major contribution to the understanding of the situation of the poor in developing countries and should be a 'must reading' for both academics and policymakers concerned with ways of improving developmental policies."--Werner Baer, Enterprise and Society

"A good overview of how the world's poor intersect with financial institutions at the micro level."--Tyler Cowen, Marginal Revolution

"[A] fascinating and humanizing insight into the economic lives of the global poor, and a valuable resource for attempting to improve those lives."--Ethics & International Affairs

"The book is written in a non-technical style accessible to the lay reader. . . . [I]t makes a compelling case about the desperation of poverty, as well as the ingenuity of the people who live under conditions of poverty."--Sajeda Amin, Population and Development Review

"Portfolios of the Poor should be read by anyone interested in microfinance, but also who interested in poverty more generally and in how the poor manage their day-to-day lives."--Isabelle Guérin, Enterprise, Development and Microfinance

"[T]his is a great book. It remains an excellent survey of the poors' realities, certainly a 'must-have' for all researchers interested in the financial practices of the poor and microfinance."--Marek Hudon, Development and Change

"[T]he book is enlightening, methodologically credible and accessible; it is recommended."--Roger MacGinty, Round Table

"[W]e learn much about how the poor manage whatever little money they have. On that ground alone I highly recommend the book."--Rolf A.E. Muller, Quarterly Journal of International Agriculture

"As Collins, Morduch, Rutherford, and Ruthven summarize their argument, 'Not having enough money is bad enough. Not being able to manage whatever money you have is worse.' Their book is a detailed effort to understand how poor people manage--and, frequently, mismanage--the meager resources at their disposal. They draw on more than 250 financial diaries collected in Bangladesh, India, and South Africa that tracked how money was earned and spent, along with interviews with the diarists. The result is a unique window onto what poverty means for these households."--Timothy Besley, Foreign Affairs

"The authors of Portfolios of the Poor . . . make a convincing case both for the importance of finance in the lives of the extremely poor and for there being room to improve the provision of financial services to them."--Danny Reviews

"One of my favourite books. It gathers new evidence about the financial services people on very low incomes need--and the answers are sometimes surprising. Should be read by anyone with views on microcredit and/or payday loans."--Enlightened Economist

From the Inside Flap

"A must-read book for social entrepreneurs combating global poverty. . . . Skip the latest road-to-riches screed about serving the bottom of the pyramid and throw out your white papers from the World Bank. . . . Portfolios of the Poor is your new bible."--Jonathan C. Lewis, I on Poverty

"Too often, conversations about the needs of the world's poor are based on assumptions and clichés. This important, carefully researched, and compelling book presents the facts about the poor and their relationship to finance."--Tim Harford, author of The Undercover Economist and The Logic of Life

"This is an important, boots-on-the-ground look at how microfinance functions in the developing world. The descriptions of how poor households manage their limited resources are exciting, raw, and novel, and I found myself unable to put the book down."--Edward Miguel, University of California, Berkeley and coauthor of Economic Gangsters


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Customer Reviews

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Most Helpful Customer Reviews
3 of 3 people found the following review helpful
5.0 out of 5 stars Fantastic insight based on solid research 3 Jan 2011
By Yuki
Format:Paperback
I have read all three of Dr Yunus' book and I think this book is even better due to three main reasons.

Firstly, it's far more objective and based on a large-scale longitudinal study, rather than anecdotal tales that tend to be typical of microfinance books - and I've read quite a few of them as it was the basis of my masters thesis. Second, it really focuses on the missing three-quarter of microfinance, the savings and remittances that are (in many cases) far more crucial than microcredit. Lastly, it's more critical of the industry and explores the complexity of microfinance - rather than the inspirational yet overly simplified scenarios that Dr Yunus tends to convey.

Overall, I found this book to be extremely informative and would recommend it to anyone who is looking for a deeper understanding of microfinance beyond credit.
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6 of 7 people found the following review helpful
5.0 out of 5 stars Must read 23 July 2009
Format:Hardcover|Verified Purchase
For anyone working in the microfinance industry, making donations to microfinance and similar organizations, or simply interested in poverty alleviation, this is a must read. A seminal work that sweeps away long-held (and incorrect) generalizations and replaces them with facts: how do the world's poor REALLY manage to get by on their small and irregular incomes?

Here, you meet real people in real-world situations, using real tools available to the poor in developing countries for managing their money. The results can be truly surprising (people regularly taking money OUT of their bank accounts and investing in informal and sometimes risky savings clubs, people PAYING interest for the privilege of being able to save, etc.), but they become understandable when you see the full picture of the financial needs of the poor and what's available to them to manage their money.

Reading this, you can't help but realize that microcredit is but a minor contribution to unmet market needs. The poor need so much more -- savings accounts, insurance, long-term loans, revolving credit. And those preaching that microcredit should be made available only to microentrepreneurs should think again. This study makes it clear that financial services are needed across the board - to business owners and regular folk.
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4.0 out of 5 stars Excellent detailed study 5 Feb 2013
Format:Hardcover|Verified Purchase
This book is full of insights about the economy of poor family in different cultural contexts. A must if you are working with microfinances, third world, and development related projects.
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Amazon.com: 4.4 out of 5 stars  16 reviews
39 of 39 people found the following review helpful
5.0 out of 5 stars Brilliant approach to analyzing seemingly-impenetrable issues 20 Jun 2009
By R.T. in DC - Published on Amazon.com
Format:Hardcover
I opened "Portfolios of the Poor" feeling dubious: multiple-authored works usually feel like the proverbial camel stitched together by a committee. And what's this about the world's poorest--who we all KNOW don't have anything resembling financial savvy--having "portfolios?" Within a few pages I was completely hooked, and since finishing this masterful work I can't stop pondering--and talking with friends & colleagues about--its many powerful insights.

Rather than the usual 30,000-foot opining about The Poor, the authors spent more than a year actually living in, and closely observing residents of, some of the earth's most wretched slums. Their experiences, as reported honestly and respectfully here, will profoundly affect your views of poverty--and of what we can do to help. I won't scoop the authors' ably-told tales, nor their eminently sensible recommendations. This is the first book I've read in a long, long time that has fundamentally changed my thinking on questions of international development. Read it!
18 of 20 people found the following review helpful
5.0 out of 5 stars Thoughtful, provocative, and insightful. A must read! 16 Aug 2009
By Jeremy Stone - Published on Amazon.com
Format:Hardcover
Having worked in economic development for some time now, I have grown accustomed to studies concerning the use of capital by the global poor being stated in simply academic terms. Portfolios of the Poor though, brings the human element back into economics and gives a more intuitive understanding of the financial challenges that people face in their daily lives. Funerals, weddings, failed health, loss of employment, religious celebrations, purchase of a new home... all of these require significant investments and require diverse access to capital. This book not only describes how people react to those challenges, but also how they prepare for them beforehand with multilayered portfolios of equity and debt. Whether it be personal assets, rotating savings groups, or relationships with informal lenders, people all over the world use thoughtful and complex approaches to accessing capital when formal financial services are inaccessible. The authors' use of financial diaries prepared by struggling families in Asia and Africa proves that millions of individuals are prepared for the risks and rewards of financial services if they were only tailored to their needs. There is so much more that financial institutions can do, and this study is a significant building block in understanding how to develop financial products for even the poorest of the poor. Thanks for such a great book, and I hope to see more work like this.

One last comment - I don't think there's a single equation in the whole book! Finally, economics without algebra... it's like heaven.
9 of 9 people found the following review helpful
4.0 out of 5 stars Important questions answered about a troubling subject 4 May 2010
By Deb Nam-Krane - Published on Amazon.com
Format:Hardcover
I have to disagree with a previous reviewer: this is a very easy to read book. I was going to say a high school student could read this, but really, with just a few exceptions, a middle school student could follow this, and that's a compliment.

I imagine the first thoughts people in the "First World" have when they hear how many people survive on $2 (or less) per day is how overwhelmingly impossible and desolate that must be. If they get past that, one of the next thoughts might be, "who's paying them that every day?" It's easy to puzzle out that the very poor do not, most likely, get that money on a regular basis, and then the question of how they survive becomes even more unfathomable.

This work goes a long way toward answering that question. After following over 200 families in Bangladesh, India and South Africa, the researchers made a number of surprising conclusions. First, contrary to what we might assume, the very poor do not live hand-to-mouth, immediately consuming all of their very small resources as soon as they arrive. They are able to pay for participation in festivals, weddings, funerals, emergencies and education, just to name a few. Second, and most importantly, the poor are able to do this through a variety of financial instruments- formal, semiformal and informal- that show a level of sophistication that most wouldn't expect.

However, as one can easily imagine, both the small total amount of income and the irregularity with which it arrives creates stressful situations when those sums have to be raised. In many cases, they are raised, but most have to make more use of loans than savings. While many of those loans are even interest-free, the financial and social anxiety they create have costs of their own, which many are eager to avoid.

The authors frequently refer to the "Triple Whammy" that affects their subjects: not only are their incomes small and infrequent, but the majority of the very poor lack access to reliable, flexible financial tools that allow them to save their small funds over a long-period of time. They also lack access to reliable loans. While some might argue against the credit-worthiness of such individuals, the argument that these financial diaries make is that the majority of them have already demonstrated a capacity to make small, frequent payments; they are worthy lending risks, but flexible arrangements must be allowed.

This is not to say that there are no tools. There are an impressive variety of savings clubs, savings schemes and credit instruments. But many are fraught with risk; for example, the treasurer of one savings club in South Africa was murdered while she was transporting half of the funds to the bank.

The authors spent some time debunking some myths about money lenders, particularly the high interest rates. In essence, their argument is that the high rates quoted at the beginning of the transaction is intended to be both a deterrent and insurance, as many such loans are difficult to fully recover. However, the authors quoted a few anecdotes where the interest was renegotiated or forgiven once at least a partial payment record had been established.

It was clear to both the authors and the readers that health costs, whether in the form of a sudden event or a long-expected death, was a huge strain on their subjects, both in terms of lost income potential and the cost of treatment. Clearly, this issue needs to be addressed.

Microfinancing as pioneered by the Grameen Bank was discussed through much of the book, even getting its own chapter toward the end. Access to a better, more reliable saving and lending instrument did not always improve the financial position of their subjects, particularly in Bangladesh. The relative inflexibility of the loan payments and loan objectives (funding a microenterprise) made it less than ideal for most of them. However, the revised "Grameen II" objectives added not only more flexibility but also a mandated savings account. Those who enrolled in the program began enjoying more financial flexibility. However, Microfinance is still not a perfect solution, as it is still linked to business and not households. The authors were optimistic that this would change.

I found this book to be informative about a subject that has been, frankly, bothering me for some time. However, I was surprised that it wasn't until the end of the book that we got any information about the authors. Now knowing that one of the authors founded a microfinance organization of his own, I am even more skeptical about the frequent mention of that category of business in this work. Stating that upfront would have made the work more transparent.

Still, this is a groundbreaking work, and the methodology used can easily be replicated to further the work in this important subject.
3 of 3 people found the following review helpful
4.0 out of 5 stars Understanding the daily reality of global poverty 16 July 2012
By Mal Warwick - Published on Amazon.com
Format:Kindle Edition|Verified Purchase
This book makes a major contribution to our understanding of global poverty.

Portfolios of the Poor reports the findings of a series of detailed, year-long studies of the day-to-day financial practices of some 250 families in India, Bangladesh, and South Africa, including both city-dwellers and villagers. The authors conducted monthly, face-to-face interviews with each family, focusing on money management and recording every penny spent, earned, or borrowed in ¡°diaries¡± that formed the principal source for their observations. In the process, they made discoveries that will surely be surprising to some readers:
¡öThe poor rarely live from hand to mouth. ¡°[N]o matter where we looked, we found that most of the households, even those living on less than one dollar a day per person, rarely consume every penny of income as soon as it is earned. They seek, instead, to ¡®manage¡¯ their money by saving when they can and borrowing when they need to.¡±
¡öLack of money is just one of the financial characteristics of poverty. It¡¯s equally important that poor people¡¯s income is both unpredictable and irregular. Crops come in two or three times a year, yielding whatever the weather may permit and the market may bear; between-times a family may have no cash income at all. A son might get a job for a day but not again for a week or a month. Illness or injury may interrupt a family¡¯s income. And so forth.
¡öRather than helpless victims of their poverty, the authors found, the poor are remarkably sophisticated about the financial circumstances of their lives. ¡°We came to see that money management is, for the poor, a fundamental and well-understood part of everyday life.¡±
¡öMicrolending is just one of the financial services needed by the poor to lift themselves out of poverty. ¡°[W]e saw that at almost every turn poor households are frustrated by the poor quality ¡ª above all the low reliability ¡ª of the instruments that they use to manage their meager incomes. This made us realize that if poor households enjoyed assured access to a handful of better financial tools, their chances of improving their lives would surely be much higher.¡±
¡öMost observers regard money-lenders as simply a scourge of the poor, as they are so very often. However, given the dearth of mainstream money-management alternatives, there are many circumstances in which it¡¯s logical for poor people to turn to money-lenders for short-term cash loans. ¡°One of the lessons from the diaries is that interest paid on very short-duration loans is more sensibly understood as a fee than as annualized interest.¡±

Scholars, activists, and policymakers alike have quarreled over the question of global poverty and what to do about it for more than half a century. More often than not, the disputes they air in official policy debates, in the news media, and in scholarly journals are grounded in statistics developed by the United Nations and the World Bank ¡ª figures that usually represent worldwide averages. Therein lies much of the trouble.

The most widely accepted benchmark for world poverty today is $2 a day per person, as determined by the World Bank. However, you have to dig deeply before you can understand what the World Bank and the United Nations actually mean by ¡°$2 a day.¡± They¡¯re not referring to those two one-dollar bills you may have crumpled up in your pocket or purse. To correct for economic differences from one country to another, they use the concept of Purchasing Power Parity (PPP).

In theory, PPP takes into consideration the sharp differences in how much $2 will buy in any given country as compared to the global norm. But in practice the experts have widely differing views on what method should be used to calculate PPP and, in effect, what is the global norm. As if that isn¡¯t bad enough, the most commonly used techniques to calculate PPP are based on each country¡¯s economy-wide standard of living. In other words, the definition of poverty might depend in part on the price of big-screen TV sets and BMWs or their equivalent. In hopes of correcting that problem, scholars have been writing papers for several years about ¡°poverty-based PPP,¡± excluding anything but goods and services commonly demanded by people living at subsistence level, but none of the approaches they¡¯ve proposed has yet been officially adopted.

The whole question of PPP, then, is so confusing ¡ª and so confused ¡ª that the authors of Portfolios of the Poor have rejected the concept. They base all their calculations simply on the prevailing exchange rates between local currencies and the U. S. dollar. To which I say, amen.

The four co-authors of this book are an intriguing bunch. Two are men and two women. (Daryl Collins, the lead author, is female.) All four are products of elite universities: Oxford, Cambridge, Harvard, and the London School of Economics, though only one, Jonathan Morduch, is currently an academic. Morduch teaches development economics at NYU¡¯s Wagner School of Public Policy in New York; he is an expert in microfinance. Daryl Collins, Stuart Rutherford, and Orlanda Ruthven are all development practitioners with practical field experience ¡ª Collins with a Boston-based global consultancy, Rutherford with a microfinance institution he founded in Bangladesh, and Ruthven with DFID, the UK equivalent of USAID.

[...]
2 of 2 people found the following review helpful
4.0 out of 5 stars Academic Look at Microfinance 12 Sep 2010
By Robin - Published on Amazon.com
Format:Hardcover|Verified Purchase
This book doesn't really tell a captivating story, but for someone with an academic interest in microfinance it offers a lot of good insights on how microfinance plays out in different communities. It is helpful to understand how the needs of different cultural groups affect the kinds of financing that are most helpful. I also appreciated the point that people don't absolutely need outsiders to provide financing, and that they will organically come up with their own solutions for their biggest problems. It teaches that outside development workers can learn a lot about what a community needs if they get to know what is already happening in that community before setting up their MFI using products that were developed in entirely different locales.
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