Executive Summary - Institute for Money, Technology and Financial ...

Savings, Loans, and InsuranceResearch into the financial behavior of the poor hasshown that, despite lacking access to formal financialinstitutions, the poor are extremely resourceful.Findings from this study confirm these observations.The financial diaries of the rural and urban womenin Tamil Nadu resonate with Banerjee and Duflo’s(2011) description of the poor as “barefoot hedgefundmanagers.” Rural and urban women in TamilNadu save into and borrow from a wide range offinancial institutions, including private (e.g. banks),public (e.g. post office), non-profit (e.g. MFIs), andinformal (e.g. chit funds) venues (Fig. 3).This multiplicity bears testimony to the poor’s effortsat diversifying their portfolios of savings, loans, andinsurance. That said, while this research found thatdiversification of financial tools is ubiquitous acrossthe board, it also identified key differences amongrural and urban women.Thus, while both urban and rural woman saveequally with the MFI (100% rural, 100% urban), asignificantly lower percentage of rural women savein banks (10%) or post offices (12%).(rural) Case StudySavitha, SV ChataramMNREGA wages 210son working as porter 660compulsory deposit with the MFI 21.6CM’s Health Insurance Scheme 0medical expenses for husband’s treatment 6000SHG loan for starting a petty shop 90SHG loan for goat rearing 180@ 3%/month rate from moneylender 3189high indebtedness, low or zero savingsuncertain futureMFIsavingsinsurancebanks1 2(in USD / annual)income87021.60financialemergency6000loans3459financialstatusFig 3. Saving AvenuespostofficerecurringdepositchitfundsRuralUrbangold/silverTo avoid the amount of paperwork and high feesimposed by banks, a large number of both rural andurban women turn to informal means of saving suchas participating in local chit funds (30% rural, 45%urban) or investing in gold and silver (45% rural, 60%urban). These investments serve as a hedge againstfinancial crisis and emergencies.Despite the diverse portfolios of savings, loans,and insurance products, the financial diaries ofpoor women in Tamil Nadu women reveal thatfinancial misfortune due to medical or other forms ofemergencies present one of the greatest challengesto financial inclusion initiatives (case studies 1 &2). Such misfortunes should, therefore, be a primetarget in future designs for financial products servingthe urban and rural poor in India and beyond.730147.613.54550270Case Study (urban)Suvarna, Sriperambudur730 flower business84 recurring deposit42 post office savings21.6 compulsory deposit with the MFI13.5 insurance premium4550 medical expenses for mother falling ill90 loan from SHG for expanding flower shop180 loan from SHG for opening fruit shophigh indebtedness, rapid erosion of savingsuncertain futureRead the full report of the study here