Bankable Frontier Weblog

From SA Diaries website.

This blog has on several occasions highlighted relevant findings from large household surveys of financial service usage in countries such as South Africa, Mexico and Brazil. These surveys give a useful overall picture, but are necessarily limited in their depth by the time and cost to interview large numbers of people.

That is why another methodology can add enormous perspective: the so-called ‘Financial Diaries of the Poor’ approach. The findings of the South African Diaries were launched on 24 May 2005 and covered in various local papers. The Financial Diaries approach involves taking a smaller sample of households—in South Africa, it was 166 in three locations, urban, peri-urban and rural—and monitoring their financial instrument usage over a long period of time: in South Africa, this was by means of bi-monthly interviews with the households for over a year. These interviews create a financial diary for each household. Together, the Diaries yield a very large quantity of data (daily frequency data over 13 months from 166 household units). More importantly, they create a rich picture of the financial instrument usage of low income households across seasonal cash flow cycles as well as income shocks, such as family health emergencies or deaths.

The SA Diaries build on and extend a methodology which has now been used among the poor in Bangladesh and India (rural and urban). Stuart Rutherford was the early pioneer of the approach, grounded in his close-up observations of how poor households in Bangladesh used financial services. His justly renowned book, The Poor and their Money, challenged the conventional wisdom that the poor cannot save, arguing that poor people cannot afford not to save; and that they use a variety of formal and informal instruments to do this.

This core insight was confirmed in the South African survey, which is available via the SA Diaries website. As the website states, “Poverty is about lack of money. Sometimes it is not only about income and spending; it is also about the financial tools available to households to manage the money they have.” The SA Diaries found that these households on average used 17 different financial instruments, formal and informal, over the course of the year—four savings, two insurance and 11 credit instruments. Another finding was the surprising pervasiveness of bank accounts among these poorer households—two-thirds with at least one savings account of some sort, some with more than one, although most were used for transactional purposes.  Similarly, two thirds belonged to at least one informal rotating savings association (known locally as stokvels) or burial society (in which savings of members are accumulated and paid out to cover funeral-related expenses). The high degree of complementarity in usage of formal and informal financial instruments in middle income societies like South Africa is striking.

Although almost all households reported paying off debt monthly, around a quarter of households were considered highly indebted with instalment to income ratios of 20% or more. Most debt reported was instalment sale or store credit, although credit from local grocery stores featured in the rural sample.

The SA Diaries contain many further insights—indeed, beyond financial instrument usage alone, they tell the story of the lives of these poor households during 2003/4 as they faced risks and had to manage them. The most frequent risk event with cash flow consequences was out-of-household death of family, resulting in an average need to contribute $130 towards funeral expenses.

Of course, without the framework created by national level surveys, it is hard to weigh the overall scale and significance of the stories told by the Diaries. However, I, for one, hope that Diaries-type methodology will be used in more countries as a way of enriching our knowledge of financial instrument usage by poor and near-poor households.