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The poor and their money: what have we learned?

The poor and their money: what have we learned?

Marr, Ana ORCID: 0000-0002-8764-5682 (1999) The poor and their money: what have we learned? ODI Poverty Briefing, 4. ISSN 1465-2617

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Money markets ought to allocate finance where it is most needed, and thus contribute to greater productivity, employment and the reduction of poverty. Yet in practice they have not performed this function at all well. Vast segments of the population are still unserved, inappropriate financial services are offered and inflexible contracts are extended. Poor farmers and small businesses are generally excluded from conventional financial institutions like the big commercial banks, and have to resort to informal ways of saving, insuring and borrowing, such as paying shopkeepers to keep their savings safely, or borrowing from moneylenders at very high interest rates. What then are the obstacles to better access by the poor to finance in these markets and how can governments and aid agencies intervene to improve matters?

New approaches have tended to concentrate on the problem of collecting information about the degree of risk involved in lending to poor people. Informal arrangements devised by the poor themselves give a crucial clue: if a group of people who know each other fairly well start contributing to a pool of money which will be lent to each one of them in turn, they will naturally want to keep themselves well informed about each other’s capacity and/or willingness to pay the money back. By extension, the conventional banks could adopt this group-lending technique to improve information about poor borrowers, thus reducing their own costs. This apparently market-based solution implies that those organisations already working with credit groups, notably NGOs, could eventually become financially sustainable themselves. But the new approaches face fresh challenges.

Item Type: Article
Uncontrolled Keywords: microfinance, poverty, economic development
Subjects: H Social Sciences > HG Finance
H Social Sciences > HT Communities. Classes. Races
Faculty / School / Research Centre / Research Group: Faculty of Engineering & Science > Natural Resources Institute
Faculty of Engineering & Science > Natural Resources Institute > Food & Markets Department
Faculty of Business > Department of International Business & Economics
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Last Modified: 22 Oct 2020 17:09

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