Money Talks: Conversations with Poor Households in Bangladesh about Managing Money

Publication Date: 2002
Published by: IDPM - Institute for Development Policy and Management

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The total value of the "microfinance market" for poor people in Bangladesh probably exceeds $10 billion

This paper describes the money management behaviour of 42 low income Bangladeshi households, half of them rural and half of them living in urban slums

The research revealed that:

• the poor are active managers of their financial resources
• 33 varieties of financial instrument were used by sample households during the research year, including formal bank and insurance company services, semi-formal services offered by NGOs (the "microfinance"sector), and a range of local informal services and devices
• No householdused less than four different instruments in the year, and many households used a dozen or more
• Private interest-free borrowing was used by all but one of the 42 households, and a large number were also active lenders of money to their neighbours, family, friends and work associates
• Most households engaged in multiple use: on average each household initiated a new money management arrangement every two weeks
• Sums of money involved are large, both absolutely and relative to incomes and the average "turnover" per household was $839 in the year
• Households are passing money through financial instruments each year in sums equivalent to some two thirds of their total annual income
• The total value of the "microfinance market" for poor people in Bangladesh probably exceeds $10 billion

• Although MFIs were represented in 33 of the 42 households, their share of the total money management activities of the households is small
• MFIs had only a 15 per cent share of all transaction flows, and only a 10 per cent share of the total number of "lump sums" formed by the households
• There were five times as many loans made by just one informal device (interest-free lending) than there were MFI loans in the year
• MFIs were also responsible for surprisingly small shares of the year-end balances of financial assets and liabilities held by the households

• Both MFIs and poor households would benefit if MFIs achieved a better understanding of current and potential demand for financial services by the poor, and tailored products and delivery systems accordingly
• MFIs could build on their reputation for reliability and offer more flexible services
• Access to reliable financial services on a frequent and flexible basis would releive the poor of much anxiety, and provide new opportunities, in the management of their households and livelihoods