Posted by: Martin | May 29, 2010

Portfolios of the Poor

Looking around on the internet to figure out what I can expect from my tenants in Yopougon, I found that there is some recent academic research focused on understanding the economic lives of the poor. Notably, there is a book called Portfolios of the Poor (Princeton University Press, 2009) based on a study of 250 families in India, Bangladesh and South Africa.

The 250 families were interviewed bi-weekly over a one year period, enabling to record financial diaries showing down to the penny how they manage to make ends meet. The  study focuses on those living below two dollars a day (where the two dollars are inflation and purchase power parity adjusted):

Suppose that your household income indeed averaged two dollars or less a day per head. If you’re like others in that situation, then you’re almost surely casually or part-time or self-employed in the informal economy. One of the least remarked-on problems of living on two dollars a day is that you don’t literally get that amount each day. The two dollars a day is just an average over time. You make more on some days, less on others, and often get no income at all.

I expect my tenants in Yopougon to earn in the 50,000 to 100,000 F CFA range per month (ie 2.5 – 5 EUR per day) placing them a bit above the 2 dollar per day threshold.  Nevertheless the quote above will probably hold true as they are likely to work in the informal sector and have irregular incomes.

One of the main findings of the study is that the families do relatively complex money management:

The first finding was the most fundamental: no 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.

They don’t always succeed, but over time, even for the poorest households, a surprisingly large proportion of income gets managed in this way—diverted into savings or used to pay down loans. In the process, a host of different methods are pressed into use: storing savings at home, with others, and with banking institutions; joining savings clubs, savings-and-loan clubs, and insurance clubs; and borrowing from neighbors, relatives, employers, moneylenders, or financial institutions. At any one time, the average poor household has a fistful of financial relationships on the go.

In the first chapter of Portfolios of the Poor which is available for free online, a Bangladeshi couple is introduced:

In an average month they lived on the equivalent of $70, almost all of it earned by Hamid, whose income arrived in unpredictable daily amounts that varied according to whether he got work that day [he was the reserve driver of a motorized rickshaw] and, if he did get work, how much business he attracted, how many hours he was allowed to keep his vehicle, and how often it broke down. A fifth of the $70 was spent on rent (not always paid on time), and much of the rest went toward the most basic necessities of life—food and the means to prepare it. By the couple’s own reckoning, which our evidence agrees with, their income put them among the poor of Bangladesh, though not among the very poorest. By global standards they would fall into the bottom two-fifths of the world’s income distribution tables.
An unremarkable poor household: a partly educated couple trying to stay alive, bring up a child, run a one-room home, and keep Hamid’s health in shape—on an uncertain $0.78 per person per day. You wouldn’t expect them to have much of a financial life. Yet the diversity of instruments in their year-end household balance sheet (table 1.2) shows that Hamid and Khadeja, as part of their struggle to survive within their slim means, were active money managers.

Far from living hand-to-mouth, consuming every taka as soon as it arrived, Hamid and Khadeja had built up reserves in six different instruments, ranging from $2 kept at home for minor day-to-day shortfalls to $30 sent for safe-keeping to his parents, $40 lent out to a relative, and $76 in a life insurance savings policy. In addition, Hamid always made sure he had $2 in his pocket to deal with anything that might befall him on the road.

I know that one of the persons who have expressed interest in renting from me in Yopougon is a self employed taxi driver. I don’t know if he has a family, but his situation could very well be similar to that of Hamid above. Hamid pays a fifth of his income on rent, and with a rent of 15,000 CFA Francs, to get the same ratio the taxi driver would have need an income of 75,000 CFA which sounds reasonable.  (How much do taxi drivers in West Africa make actually?)

Portfolio of the Poor makes the case that poor households do require financial services, and not only microcredits, but also opportunities to save and other microfinance services. And that poor households are often under-served in this domain, having to, for instance pay a fee to save money (ie negative interest).

I’m not sure how well-served the poor of Abidjan are in terms of microfinance, but there seems to be many credit unions (mutuelles) where one can save, and after having saved for a while, thus having shown credit worthiness, can borrow.

I’m thinking that real estate should mix quite well with microfinance. Knowing which tenants always pay their rent on time could serve the same purpose as credit unions requesting their customers to save regularly before offering loans. Assuming I have 100 buildings such as the one in Yopougon, that would mean 600 studio apartments, and maybe 1,000 individual tenants. Offering microfinance services to these tenants, at maybe even zero profit, could be a win/win improving the lives of the tenants, and improving the value of the real estate.



  1. […] How much does a taxi driver in a West African capitals earn? (Portfolios of the Poor) I recall one taxi driver saying that he aimed for 10,000 CFA Francs (15 €) each day. When he […]

  2. […] into the economy on a micro-level which is hard to obtain in any other way – a bit like the Portfolios of the Poor […]

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