Boda-boda

A boda-boda ride with Dennis Ewalu


From The Guardian, here's a brief video showing the day in the life of a bicycle taxi driver in Uganda.

I've long wanted to follow a motorcycle or bicycle taxi to see what kind of money they make, what a day looks like. This is also a great example of someone who might want to join a savings and credit association. Small, somewhat irregular income ... could use some lump sums of capital, not really in the market for a microcredit loan.

Here's the summary:

Started with a loan from his brother to buy a bicycle frame only, worked hard for the rest.
Rides 45 minutes one-way, 3 days a week, to get to Soroti Town for the better business.
Best day yields about 10,000 Ugandan Shillings ($4.64 USD) from 10-12 customers.
Supports himself, a wife, his mother, and 6 children.
Pays for primary school, uniforms, books ... and he also saves.
One day hopes to buy a house with corrugated roofing and also some oxen.

Savings of the poor: Boston Globe article

From the Boston Globe:
Q and A with Daryl Collins Financial secrets of the world's poorest people.

A new book, "Portfolios of the Poor: How the World's Poor Live on $2 A Day" takes a detailed look at the daily income and expenses of 285 families in South Africa, India, and Bangladesh, studying how they pay doctors when their children get sick, put food on the table when they're out of work, and pull together money for weddings, funerals, and holidays.

The Economist article in the preceding post cites this same book, a book I am eager to see.

Savings of the poor: Economist article

Even those with very little money have a sophisticated approach to finance

PAYING interest on your savings will strike most people as odd. Yet some poor people in the developing world do just that. In West Africa, for example, some people pay roving susu collectors a fee amounting to a -40% annual interest rate for looking after their deposits.

From The Economist print edition, May 14th 2009

(You may be asking why I would provide a hyperlink to the print edition … and that's a good question. As a disclaimer, the article is from the print edition, but the hyperlink will not deliver you that print edition, merely an electronic reproduction from that print edition. Too much explanation?)

New friends, new house

15 gathered together every week for 2 years. On Fridays, they rotated to each member's home to work on that farm. Sharing work on farms is a very common trend added onto these savings groups. And we know the efficiency of having more hands to share the work, not to mention the encouragement. After they work on that member's farm, each free laborer then pays the recipient of the labor with their weekly savings. Wow. We all work on your farm this Friday, and then we pay you our savings for the week.

They save a total of 1,100 RWF ($2.00 USD) per week, 1,000 rotates to the host farmer, and 100 goes into the accumulating fund. They make loans at 10%, and right now the group has a total of 40,000 RWF ($72.73 USD) on account and 24,000 ($43.64) out on loan. Marita uses her rotating lump sum to buy paraffin and soap, Susanne was able to purchase a phone. Francis took a 5,000 loan plus his own 2,000 and purchased a goat for 7,000 RWF ($12.73 USD). Ngendahayo has bigger plans.

Ngendahayo is quite a young man who seemingly spends much time on the farm by himself. Before this savings group, he was isolated. Isolation is a common theme for many in poverty, but here is this young man, hard working, plenty of promise, and his future is soil and toil. His future is poor and alone. Recently, his future changed. Ngendahayo has joined a savings group where he thrives, and he says that he now feels free to meet others. In fact, he is just energized about life. With a supportive social network and 16,500 ($30.00) on loan for materials and nails, he is now building a house … and plans to marry soon.

Ability to buy small things

When we gather stories about SCA group members benefiting from saving together, we always like to hear that they saved $0.10 per week and then started their own barber shop franchise. I was recently very pleased to learn that is exactly what one group has done, in effect. They have saved and bought hair clippers and then saved and bought more hair clippers and they are growing their business of cutting hair as a geographically dispersed group serving different areas.

Ok. But what about the lady who wants to buy soap. That's good, too.

A widow in Byumba says that she was "poor behind the others." She had no soap. But also, she had nothing to eat so she couldn't even think about soap, but she wanted that. Joining the savings group, she has now managed her finances so that her purchases work better for her; she can purchase using lump sums and she can also see her savings grow over time and with interest on others' repaid loans. She says she has something to eat now, and she can buy soap easily. She can buy soap easily. That means something. That changes your days, makes you happier.

When Danielle and I were in graduate school, both fulltime students, we were newly married with no money so we decided no purchases. We ate cabbage and rice and beans, drank water, studied on the weekend, and didn't spend money. We would have to have a discussion before going to the dollar store. Now, it wasn't so bad, we had budget to buy cokes when guests came, we rented movies sometimes; we weren't poor. But, we had decided not to spend extra-budgetary money without serious need.

One day, I had an opportunity for extra-budgetary income. I was asked to speak at a weekend college retreat that would pay some small amount. I told Danielle, "I am going to buy you shoes." She said, "No, husband, don't do that." I said, "No, I don't care, it's my money, it's extra money, I'm going to buy you shoes." Well, all of our money is really our money, but it won the argument. She had not had new shoes in a long time and the ones she loved were ripping at the seams. When I told her I would buy her new shoes, my dear wife cried.

Another widow in Byumba said that because of her savings group, she was able to buy shoes. My eyes watered up a little. That means something, to be able to buy shoes.

What can savings group members buy?

Many savings group members don't save much. Many don't have much. Marie-Jeanne was asking a group, "If you have 100 RWF, what can that buy in the market? 1/2 kg of salt is 150 RWF. If you eat a cup of sorghum porridge, that's 250 RWF, you do that twice per day and that's 500 RWF. So you can save if you just miss one cup of porridge each week."

What then? What can you buy when you save that you cannot otherwise?

First, there are two types of purchases, those made from ROSCA funds and those from ASCA funds. Most groups contribute either monthly or weekly into one of each kind of fund.

–

ROSCA is the rotating savings and credit association, so if my group of 10 each saves 100 per week, one week we meet I will receive the whole 1,000.

ROSCA spending is typically:

• school fees, books, and supplies
  
• agricultural purchases like seeds or manure
  
• small animals like hens, rabbits, and goats
  
• household items like soap or salt
  
• clothing, shoes
  
• medical insurance
  

A few people report that their ROSCA amounts helped them clear debts, like one family owed 10,000 RWF for their daughter's wedding and their ROSCA cleared the whole debt in one day. The groups tend to allocate the ROSCA distribution according to the timing of members' needs, but each member definitely gets a turn before the next rotation.

–

ASCA is the accumulating savings and credit association, so one meeting my group may put 500 into ROSCA, and may also put 100 into ASCA. The 100 accumulates until it is large enough to loan out at some group determined interest rate.

Some ASCA purchases have included:

• larger farm investments for seeds, labor, or land
  
• bicycles
  
• phones
  
• home rental and home building
  

Obviously there are varying amounts of what people can save, but there are also different degrees to which the savings and loans enable purchases that otherwise wouldn't have happened. Susanne was very proud to purchase and own a phone; that was a big purchase for her that may create new opportunities for her. In Shyogwe, we heard of a more elaborate use of an ASCA. One group member used a loan to purchase 216,000 RWF worth of musical instruments to donate to the church and for the use of the group. That's about $393 USD. A purchase like that means they already had some money and some purchasing confidence, but then again, they may have never felt capable of mobilizing that much money at one time and paying for it slowly.

Spreading out payments on what would otherwise be inaccessible purchases, that's what savings and credit can do for individuals.

Brotherly love

Brotherly love, like the city of Philadelphia, can sometimes be an enigma. Brothers fight. Philadelphians can be rude.

Living in the same Rwandan village there were two brothers, neighbors, who would not talk to each other. Their families would not talk to each other, and their children were not allowed to play with each other. I don't know how the feud started, and there's a good chance that they don't know either, but these things have a tendency to die hard.

Somehow the two brothers ended up in the same savings group. Probably because there was just one savings group, and both valued membership enough to somehow tolerate the other. This savings group, like many others, rotates locations in each member's home. How did the brothers not see this coming?

The first time the rotation lands on one of the brothers, the other brother had to choose.

Surprised, at the end of the meeting the other brother returned home safely and nothing had happened. He shared his brother's home for the first time, and both faced another day.

The next tense meeting, the brothers switched roles. Now the first brother entered his brother's house and again nothing bad happened.

Actually, on this second occasion, something did happen. At the beginning of these meetings someone usually prays. At this meeting, someone read John 3:16 and began to discuss love. That was enough for the brothers to begin crying and ask forgiveness.

Reconciled brothers. I think something meaningful happens when you put faith, community, and what you do with your money in the same gathering. These are important matters.

Supporting the church

HOPE's savings program in Rwanda is partnered through the local church. Church leadership has decided that poverty is not a good condition for the human soul, and so their churches are involved in various development endeavors to strengthen the local community, Christians and non-Christians.

Hopefully, our savings programs also support the church and its ministry. Well, we see that happening in hundreds of ways through the stories of these savings groups, but here is one story that does more than support its local church.

In Shyogwe diocese, a group of about 11 households have been meeting together and saving together. They were trained by a pastor who was trained by HOPE. The pastor set up the group, taught them the foundations and principles, help them set guidelines, monitored their progress. The group traveled long distances to attend church and they consistently met and saved.

Over time, the group decided they would not travel long distances to come to church anymore.

Instead, they took a portion of their savings and rented a house for 5 months. Everyday … full time. They plan to buy the house. The house is where they meet, where they save, where they discuss common concerns. The house is also where they gather on Sundays. They have asked the parish priest to provide a catechist who will lead their "home" church. Not only has this group of households decided that they no longer accept poverty, but they have also decided that they will be responsible for shaping their own community - even starting their own local church. That's one way to support the local church.

(As a side note, successful savings groups in the area are drawing many Christians and non-Christians who want to join these church-based cell groups that are "doing savings.")

How do you define poverty?

How you define poverty makes a big difference in how you respond to poverty. Do you think poverty is …

• Lack of money?
  
• Lack of education?
  
• Lack of health?
  
• Lack of voice?
  
• Lack of security?
  

Is lack of money a lack of cash flow (income) or cash stocks (savings)? Is lack of education a lack of trade skills (sewing) or human capital (ingenuity)? Is lack of health disease or malnutrition? The point that follows from these questions is that there are many pieces in the poverty puzzle.

If we have an idea that we need to do something about poverty, then we also probably have an idea what we mean by "poverty." If it's just a lack of money, well, let's send money. The last 50 years of sending money, however, has proven poverty more complex. Bill Easterly, a critic of foreign aid (Amartya Sen critiques his criticism here), describes in The Elusive Quest for Growth some economic growth panaceas that have failed chronically poor countries over the last 50 years:

Capital accumulation: there is insufficient savings and investment, but if foreign aid supplies investment for machinery and factories, then what about human capital plus the incentives to make capital productive?

Education: schooling is just part of human capital (think information networks for entrepreneurs), and does more education funds mean better education or increased national income? Sometimes it means educated people leave the country or learn to redistribute existing wealth instead of stimulate the economy.

Loans conditional upon policy reforms: how do you measure true reform instead of encouraging shifty adjustments, and does this still reward neediness instead of growth?

Debt forgiveness: perhaps poor countries want to grow but we've saddled them with too much debt … let's wipe the slate clean, right? Data from 41 high-debt countries from 1989-1997 shows that these nations were forgiven $33 billion in debt, yet in the years thereafter these same countries incurred $41 billion dollars of new debt.

Bono and the ONE Campaign have argued for debt forgiveness (somewhat as a Judeo-Christian "jubilee" concept) and have taken a lot of flak for such a bad idea, but they have worked with Jeffrey Sachs, noted economist and UN advisor, and have coupled their strategy with policy reform conditions for better future results. Philanthropists and scholars are working toward better responses - especially after years of seeing Africa grow poorer - but the lesson learned is that poverty requires nuanced strategy, holistic approach, noting that we treat poverty by how we perceive the poverty problem.

As Chalmers describes it, poverty is a mix of material poverty, isolation, physical weakness, powerlessness, and vulnerability. HOPE International applies Chalmers materials in our Savings and Credit Associations (SCAs) because our view of poverty is spiritual, physical, and social; poverty is a condition of the whole person and all of her relationships.

Read here how a Rwandan HOPE staffer describes the purpose of our savings groups.

SCAs are empowering at a micro level, they do not encourage dependency, and their results are more than just savings. SCAs are supporting renewed communities that believe in their ability to end their own poverty; progress that may well lead to a more sustainable development for economic growth.

For more reading:

Stuart Rutherford, The Poor and Their Money (FREE DOWNLOAD)

Connecting the coffee mugs

The families were like a bunch of coffee mugs with no spoons or mobile phones or napkins.

That is to say, we need to connect the coffee mugs.

There was a church program to increase food security in the village. There were no regular meetings, but every so often a grant would provide cows or goats or pigs that would be distributed to the community according to need. Most vulnerable families received first.

Once livestock was given, instruction provided, the families returned home. However, families were still isolated. They did not come together, and even if they were Christians, they did not pray together. The families considered themselves very different and for various reasons did not feel comfortable praying with those other people.

After everything, the families still had a poverty mindset. There was no money to care for the cows if they got sick, and there was little incentive to do so because they might just get more animals through the next grant.

A few years later, our savings program was integrated into the food security program. This is how things changed:

People met together. They heard that they could save money together, let it grow, and have access to larger lump sums of money. Perceptions changed. Before if someone was given a cow, he then had more disposable income for drinking or smoking. Now, the more he saves the more he has. The money has purpose and the community begins to take account of their assets. Not only do people meet together, they rotate meeting in each family's home. After they meet and save money, they fix one family's roof and next week work another family's field. Now, the communities cherish praying together because they truly share concerns, and they also share enthusiasm.

No more isolation. Community reconciliation. Praying together, working together. Perceptions of poverty change when people are empowered. That's what we try to do with our savings training. We don't just train in counting money, that's why other groups in the region that do similar self-help models are asking our "champions" to help their groups, too.

Our champions are bringing the coffee mugs into the village and connecting them with straws and pens and napkins. That changes the poverty mindset.

Beggar’s savings

Sylvain used to beg. He lives in a remote area in northern Rwanda, almost to the Ugandan border. There is a church in the area, not a building, but a church. It sits on a hill overlooking the market, and there the community members gather to pool their savings and generally support each other.

Group members enjoy sharing how the savings program has helped them and changed their lives. Sylvain stands up. Sylvain was known to be a beggar, yet still he was invited to bring 100 RWF (18 cents USD) per week to join the local savings group.

This group uses a rotating savings and credit association (ROSCA), so when each of 16 people put in 100 RWF, they distribute 1000 to one person one week and then rotate to another person the next week. Each week, someone gets a lump sum that is larger than what they would normally have on hand to spend. This is very useful, even though still very small. After the 1000 is given, there is still another 600 each week that goes into a general savings pool of which everyone in the group owns an equal share (like an accumulating savings and credit association, ASCA). When that pool of savings is big enough, they may lend it to some better use with a nice return, or they may start a joint venture together and purchase livestock or seeds.

For Sylvain, he has changed. The savings itself is useful, but he has also changed in how the community sees him. He has changed in how he sees himself. Sylvain has a purpose for his time and money, and more importantly, because this savings group shares his concerns and works together to lift everyone up, Sylvain no longer feels isolated.

Isolation is a significant part of being poor, especially for a beggar. But Sylvain is no longer isolated, and in fact, he is no longer a beggar. Lately he has been working in agriculture and some carpentry. And he is still saving and thinking about the future.

Time to make baskets

Her husband left her with two children. It happens sometimes. They are very poor and he is not happy; the husband can always go off and start fresh with another woman. He can make a new try at life.

Meanwhile, the poor family is now poorer. The abandoned woman still must feed her children, and she is committed to providing their school fees so they can have a decent try of their own one day. To take care of everything, the woman must work very hard. When you work so hard to get by, it's even harder to look ahead and insure against harder times, which will come. In spite of the difficulties, this woman joined a savings group and contributed her 18 cents USD per week.

This particular group is partnered with other programs that help them get medical insurance and some agricultural assistance. The woman now has a burden lifted, if but slightly. When the burden is lifted, she is able to take more time away from barely getting by and to spend time on higher and better uses: making baskets. Through the savings group, the money for schooling is there when she needs it. Imagine the stress relieved …

People are designed to be productive and enjoy life. Both are difficult when you struggle to get by. Struggle leaves little room for the joy of creating something beautiful and valuable, something you can sell in the market instead of just toiling in the dirt. Lighter burden, more joy, kids in school; now you are able to make baskets. And smile more.

Young man’s hope

When you work for an organization called HOPE International, you hope that when you ask someone about our impact, they say that we bring hope.

I'll be bringing lots of stories from the field over the next few weeks because we are traveling and speaking with group members. Many of the group members we meet will be women, but recently we met a young man who stood up and wanted to share.

He is young; he is energetic and handsome. He is also sitting around with mamas with babies, some widows, and others. He can make money because he is a young man. But he is still quite poor, relatively, and lives in a remote, poor area, so the question is: what is the point of making money? He will not go to the University of Florida, won't become an entrepreneur. He won't open a franchise coffee shop.

The young man stands up and says that his savings group has taught him hope. You don't save if you don't have hope for the future. You don't have hope for the future if someone doesn't believe in you, support you, and share stories of transformation.

In my thinking, it was not possible for me to have a cow. In future, I hope to buy [another] free range cow.
(He now already has one cow.)

The truth is, that village won't see a new Starbucks franchise in my lifetime (maybe I'm wrong), but the young man can become an entrepreneur. He has time, and now he has hope.

Choices for/against prostitution

Nicholas Kristof had a couple of articles that got me thinking about a paper I wrote on illicit labor market efficiency back in economics grad school. He wrote one article on sweatshops and one on prostitution. Would you believe he was for sweatshops? (Not that I necessarily endorse this view, Private Sector Development Blog gives another view.) Where do you think he stood on prostitution?

Well, ease your mind, I think Mr Kristof and I are both against prostitution, so you can keep reading.

Why is he for sweatshops? Sweatshops offend our charitable Western sensibilities … no one should work in such conditions. Mr Kristof, however, asks his readers to consider the alternatives: no job or worse conditions. On a macro scale, how can a poor nation become an industrialized trading partner if it doesn't climb up through the mire and muck of difficult working conditions and low wage employees? We did it once long ago. People choose to work at sweatshops because it's their best choice given their circumstances.

Economically, the choices people make are often assumed to be the most efficient choices for them – rational choices. People know what makes them better off. Sometimes we would prefer better for people who work in sweatshops, but there may not be better alternatives. Refusing to trade with countries that "exploit" labor means that those people who were getting exploited are now out of a job.

Pro-sweatshops, anti-prostitution.

So, why not prostitution? Even worse, travel to Poipet, Cambodia, or Mombasa, Kenya, among others, and you will find a high premium on child prostitution. Economists may argue, though, that measures to prevent prostitution, even for children, will just leave those poor people with even less choice and much worse conditions … starvation, violence, death.

My question, and my economics paper from before, is about the efficiency of slavery, prostitution, and other forms of illicit labor. Don't people make rational choices to maximize their own welfare, and if we mess with that, then do we mess them up? Is prostitution an efficient labor market outcome?

Some economic papers concerning such illicit labor markets suggest that the main objection to jobs like prostitution is moral repugnance. We don't like the thought of it. We would hope for something better. Economically, they claim, illicit job choices are efficient, prostitution is efficient; prostitution is the best (sic) choice for some young women and young boys.

Ok, here's the quick of it: endogenous choices. The decisions that, say, prostitutes make are based on a predetermined game … where they lose. The idea is that, yes, if people choose a job then it must be their best alternative. If you ban prostitution, it doesn't help prostitutes, they'll just starve now. But here's the thing, what if prostitution is their best choice because someone has restricted their choices? – and therein lies the problem.

Forgive me here, but I'm reading a book on game theory, so let's construct a game:

First, let's simplify. All women in Mombasa can choose between two jobs, basket weaving and prostituting. All employers in Mombasa can choose to be good (respect their workers and pay fair wages) or choose to be bad (take advantage of their workers for higher profit). The chart above shows the payouts to employers in the upper right of each square, and the payout for women is in the lower left square. A payout of 4 is great; a payout of 1 is pretty poor.

Scenario A) Let's say that all employers in Mombasa are good (left column). Now the only choice is what work women prefer if employers are good. Women will prefer a payout of 4 instead of 3, so if all employers are good, women prefer basket weaving. Even if prostituting involves making more money, the payout for women may include more than just money, payout can be dignity plus income. Basket weaving wins out.

Scenario B) If every single employer in Mombasa is bad (right column), then women will prefer to prostitute because their payout is 2 instead of 1 for basket weaving. This may be the case because bad employers take advantage of all of their workers, but prostitutes can bring in more than weavers so there's a bigger take for the women to prostitute.

So the choice of basket weaving or prostituting, for the women, depends on whether all employers are good or all employers are bad. In a perfect world, however, the best a woman can do is 4, so any woman would ideally want to weave baskets for good employers.

What about the choices for employers?

Scenario C) Let's say that all women weave baskets (top row). Now the employers must decide: should I be good or should I be bad? If all women weave baskets, being good gets an employer 2 and being bad gets 3, so the employer will prefer to take advantage of her employees and be bad. Scenario D) What if all women are prostitutes (bottom row)? Well, the employer still gets a better payout for being bad, 4 to 3.

Note here that employers will choose to be bad, take advantage of employees, and receive a bigger payout regardless of whether women weave or prostitute. In game theory, this is called a dominant strategy: when one player has a choice that is always better than any other choice that player could make regardless of the other players' choices. Dominant strategy does not mean best overall outcome, just that one player has a choice better than all of that player's other choices no matter what others do.

If employers have a dominant strategy to be bad, they're going to be bad. If employers are always bad, we know that it is better for women to choose prostitution, as in Scenario B above.

Just because women choose prostitution, it doesn't mean that prostitution is an efficient economic outcome (much less an efficient human outcome).

The best choice for a woman in our model above is by far to weave baskets. Prostitution is simply the best choice given that the game is rigged against them.

The model above is very simplified, so what are some ways that the game is rigged against women or children or the poor and vulnerable? … Education, social stigmas, discrimination, AIDS, slavery, corruption, sexism, drugs, vicious circles of poverty.

Prostitution is bad, and repugnant. Do we fight to ban prostitution at the expense of the very poor? Mr Kristof wants to see brothels become unprofitable through systemic changes. Where illicit labor markets prevail, the economic, social, and justice systems are broken; so how can we see prostitution become a bad choice and how can we restore women's best choices?

Further Reading

Kristof, Nicholas. 2009, January 10. "Striking the Brothels' Bottom Line." New York Times, Op-Ed.

Kristof, Nicholas. 2009, January 14. "Where Sweatshops Are a Dream." New York Times, Op-Ed.

Dixit, Avinash K. and Barry J. Nalebuff. Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life. London: Norton, 1993.

Imperfect Outcomes for Illicit International Labor Markets: short bibliography.

Genicot, Garance. 2002. “Bonded Labor and Serfdom: A Paradox of Voluntary Choice.” Journal of Development Economics 67(1): 101-127. [More on endogenous choices.]

Bob Lupton Reading List

Bob Lupton is an Atlantan, introduced to me by Angie Allen. When I was at CCF we worked with his organization, FCS Urban Ministries. Bob also happens to be a great writer of gritty substance when it comes to the mission of the church. Theirs is the Kingdom is one of my earliest reads on theology, a collection of stories that leave you to resolve within yourself. Here is Lupton's list:

Compassion, Justice and the Christian Life: Rethinking Ministry to the Poor (2007)

Renewing the City: Reflections on Community Development and Urban Renewal (2005)

Return Flight: Community Development through Reneighboring Our Cities (1997)

Theirs is the Kingdom: Celebrating the Gospel in Urban America (1989)

A friend once taught me that the goal of ministry is to comfort the uncomfortable, but also to discomfort the comfortable. A 2008 Lupton article is particularly discomforting for the international missionary, his comments are bold, and you'll not want to read it unless willing to be humble and challenged. As a disclaimer, the intensity of Lupton's argument does not reflect the cooperative attitude and optimistic spirit of my organization or me personally, but his admonitions serve as a warning of the unintended consequences of benevolent intentions.

Saving-in-kind

How do the poor save? I've written before about how can the poor save. They want to, they can, they do. But for this edition of "how" do they save, let's talk about saving-in-kind.

1968, 1 oz. of Hershey's chocolate costs $0.05

2008, 1 oz. of Hershey's chocolate costs $0.59

40 years, over 5 times the price, simple inflation.

Germany once had inflation so bad that bar patrons would order two beers at a time so that the second beer would not cost twice as much as the first, even though it would be a little warmer.

If you are super poor in a country that has super inflation (I think that's a technical term), then how in the world can you save anything for a bad day? This is hypothetical, of course, not happening here and now, but you could kind of imagine that happening right? Oh, by the way, Zimbabwe's inflation is somewhere in the range of 231,000,000% right now.

What would you do if inflation were to happen in America (again, hypothetical)? Put money in gold or silver? How about cows? Cows actually make a good form of savings, especially if you like milk. Inflation can come and go, but a cow is still worth a cow. Maybe you can't afford a cow … that's a problem. Or maybe you have a cow and you need $5 to go to the dentist; do you just sell a whole $60 cow?

Q: Can you sell 1/12 of a cow?

A: Only if you're ready to eat the other 11/12 of it.

Me, I prefer goats. Danielle prefers goats, too, but mostly as friends. Goat milk or cheese is tastier to me, and you can diversify your investment with 4 goats instead of 1 cow. Then it's easier to cash in just one goat. Pigs will do in a pinch, but they're not kosher.

If you really like easily accessible assets, go rabbits. Quick breeders, easy to cash, tasty to eat, ... but I hear they can catch and spread disease quickly, too. But hey, when one cow gets a disease and one cow is what you got, what are you going to do?

Money don’t last forever

I've heard before that the world's poor has trouble saving. Well, there're lots of reasons for that. But sometimes money just doesn't last. Sometimes moth and rust destroy, thieves break in and steal. Sometimes money withers away.

Here, below, is cent francs. 100 RWF. It's worth about 18 cents USD. They also have 100 RWF in coin version, and this we prefer. We spend these bills as fast as we get them because they feel like they are about to disintegrate in our pockets. Danielle wants me to say something about the velocity of money, MV = PQ, quantity theory of money, but basically small bills get worn out.

Poverty triangle

Most of the world is not rich. You may have heard this before. Most of the world, however, is also not destitute. There are people in the world who rely on bilateral transfers: donated food, water, clothing, and more. Think natural disasters, refugee camps, post-conflict zones, droughts and famine. We are philanthropically called to answer those needs.

How can we best answer the needs of the economically active poor? This is most of the world.

Microfinance institutions (MFIs) provide services and products that target specific groups of economically active poor clients, just as commercial banks segment the services and products they provide. In the illustration above, the small tip of the triangle is the world's rich (probably you) and the bottom base is the destitute poor. In between these grayed out zones are three very broad segments of economically active poor.

The upper segment of poor clients (purple) generally demands small- and medium-sized enterprise (SME) loans. These SME loans range from $5,000 to $50,000 – think dentist's office in Romania. Have you heard that in America, it is harder to get a loan these days? In Romania, it can be very hard to get a loan, especially something bigger than $500.

The middle segment of poor clients (blue) typically demands small business loans in the range of $50 to $5,000. This range is where most MFIs do their business, including HOPE International. Do you know what the minimum loan size is for Citigroup in Congo? I'll check, but I think it's about $1m. That small "m" stands for million. It's hard to jump from poor to million dollar business renovations overnight.

The lower segment of poor clients (light blue) is not ready to take out a $50 loan, or maybe they are too remote to access an MFI. This group may not have any experience handling money or making business decisions; may want to work, may not have the opportunities. Here is an opportunity for a savings and credit association (SCA). A group of widows in Rwanda start saving about $0.10 a week, six years later these women are leveraging their savings to buy a couple of used cars to resell for profit. Instead of being a microfinance "provider", the SCA organization becomes a microfinance "promoter." That's what I do. We empower the poor to use their own savings – along with our education, materials, support – and build financial independence from where they are. That's good outreach. That's bootstraps economics … and the thing is, that's what works, too. They own their own successes, keep their capital in their communities, build social networks and self-confidence, and one day they'll be taking out the business loan from some MFI and they'll be hiring employees from the community.

We're eventually trying to make that little gray triangle on top get bigger.

[The triangle concept and stories are borrowed from Jesse Casler, but the Rwanda story is local, that's from Marie Jeanne.]

How can the poor save?

I have heard the question a few times: How can the poor save?

A new microfinance institution was set to open in Lilongwe, Malawi. A huge crowd lined up for the doors to open; at the front of the line, a blind man. The blind man was a beggar, and his son led him by the hand to this new bank. Though everyone was pushing to be first through the doors, no one pushed the blind beggar out of the way. When the doors opened he was first to deposit is 20 cents. Every Friday, his son leads him to the bank, places his hand on the fingerprint reader, and the blind beggar deposits his money.

A quiet gentleman overheard this story at the Mercy House dining room, and he softly noted, "That man knows what it's like to have nothing at all."