Writing Worth Reading
Writing Worth Reading
The Economics of Microfinance is written by economists, but in a way that non-economists can easily understand. It asks and answers questions about poor people and the way they handle money. For example, why would poor people need to save when they have so little money to start with? If you are at all interested in questions like this, Morduch and Armendáriz’s book is a very good place to start.
What got you interested in the poor and their money?
When I was still an architectural student, I took some time out working for an economic research organisation in Nicaragua, just after the 1972 earthquake that devastated the capital, Managua. I spent days in the shanty towns talking to poor people, and I became aware of something that I previously had no idea about at all – the ways in which they manage their money. I came across moneylenders and pawnbrokers and savings and loan clubs and many other curious and ingenious devices and was immediately fascinated. Collecting details about the way these things work became my hobby. When modern ‘microfinance’ was born (in the later 1970s) my hobby suddenly opened up into a major new area of economic development work.
What kind of opportunities might help the poor manage their money?
The incomes of many poor people are not just small but they are also irregular and unreliable. Living on one dollar a day doesn’t mean that exactly one dollar comes in each day: on the contrary, you may earn $10 one day and then nothing for the next week. In the meantime, you have to make sure there is food on the table every day, and that you can find money to have your daughter’s eye infection treated quickly, before it becomes a big problem that sends her blind. So you need to have money in reserve somewhere, and you need to be able to borrow money quickly.
Tell us about your first book, The Economics of Microfinance.
The Economics of Microfinance is the book that I would love to have had when I was in those shanty towns in Managua. It is written by economists, but in a way that non-economists can easily understand. It asks and answers questions about poor people and the way they handle money. For example, why would poor people need to save when they have so little money to start with? Why did banks ignore the poor for so long, and why was it left to other kinds of organisations to develop financial services for poor people? Why did most microfinance providers work almost exclusively with women to begin with? If you are at all interested in questions like this, Morduch and Armendáriz’s book is a very good place to start.
What is so special about microfinance as opposed to conventional financial strategies?
It is uniquely human-centred. Many economic development strategies, including very successful ones such as the rapid industrialisation that China and other tigers have used in recent decades, tend to treat human beings as just one of several inputs. Microfinance puts ordinary poor people at centre-stage. Those who offer microfinance services have come to realise that it is no good lecturing the poor. Decades of experience show that, on the whole, the borrowers and savers are best placed to decide what to do with the money, since only they have a comprehensive understanding of the circumstances of their household.
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Stuart Rutherford, author of The Poor and their Money, is interested in the way in which poor people manage their money. He has spent the last 30 years travelling the world, researching the different financial strategies of the less well-off in a variety of different cultures. This has led him to an interest in microfinance, the practice of issuing small loans in poor communities, with the aim of empowering individuals to invest as they choose. In the 1990s he set up SafeSave, his own microfinance co-operative in Dhaka, the capital of Bangladesh, and later in Hrishipara, a rural area. SafeSave is an alternative to the popular microfinance schemes, based on saving rather than loans (you can find out about SafeSave on his website).
