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INTRODUCTION In 2014,

INTRODUCTION In 2014, Microfinance Opportunities was commissioned by Financial Sector Deepening Zambia (FSDZ) to conduct the Zambia Financial Diaries, a yearlong study to examine how low-income individuals in Zambia managed their cash flow and used financial tools—savings, transfers, loans, and insurance. A team of field workers interviewed 355 respondents on a weekly basis, collecting data on all goods or services that they bought, sold, or traded; the financial tools that they used; and whether any important events occurred in their lives that week. In addition, MFO used cross-sectional surveys and in-depth interviews to understand respondents’ attitudes toward asset building, risk management, and financial service providers. The analysis of these data sets suggests that respondents were savvy economic actors. They were constantly looking for opportunities to maximize profits—we see respondents who expanded their economic activities by doing things as varied as starting a secondhand clothes business to brewing beer with wild berries that they gathered. During interviews, respondents frequently discussed how they engaged in price discrimination of the goods that they bought or sold and how they attempted to fill gaps in the market for particular goods. While savvy, they were also extremely risk-averse and affected by trust issues within their financial networks. As a result, they acted in ways that minimized their exposure to any type of loss. Micro-retail business owners, for instance, minimized the amount of inventory they held by getting pre-orders from customers. In their role as consumers, the respondents operated on shorttime horizons, buying goods by the day to avoid waste or to avoid tying up small sums of cash that they may have needed for an unexpected event. Respondents also tried to avoid economic agreements that required individuals to meet commitments in the future. For instance, micro-retail business owners did not sell on store credit because of the difficulty of having their clients repay. Respondents often avoided chilimbas because they were concerned about their neighbor’s capacity to contribute to the group. Respondents’ concerns grew when they involved a financial service provider—they reported that these providers commonly engaged in theft by charging interest rates on loans or seizing a respondent’s meager possessions if they were late on a payment. In an environment in which they were trying to maximize profits but minimize risk, respondents became—through some combination of choice and circumstance—self-reliant, using their income and money saved at home to meet their weekly expenses, make lump sum purchases, manage risk, and accumulate assets. When income and savings were insufficient, they turned to goods they had stored, food they had farmed, or to friends and family members for help. Financial services from formal or informal providers rarely featured in the lives of our respondents. The remaining sections of this report explore these issues in-depth. Chapter 1 provides a description of the sample, including an overview of the sample demographics and respondents’ livelihoods. Chapter 2 examines respondents’ transactions, specifically looking at how they earned income, what they spent money on, and how they used financial tools. This chapter shows that, outside of Copperbelt Province, respondents’ use of formal and informal financial services was limited, occurring once every three months on average. Chapter 3 seeks to provide explanations for the limited use of formal and informal financial services, focusing on issues of future planning, risk management, and attitudes toward financial service providers. Chapters 4 and 5 describe respondents’ cash flow management patterns, examining ways in which they used their income, home savings, in-kind goods, and farmed produce to support their livelihoods, meet consumption needs, make lump sum purchases, and manage life cycle events and emergencies in the absence of the widespread use of formal and informal financial services. Chapter 6 concludes the report with recommendations for stakeholders. A technical annex that includes provincial and gender breakdowns of the data follows these chapters. Go To Menu 3

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