From Ghanaians who pay others to take their cash away to Peruvians who invite friends round for chicken, a World Bank survey reveals unusual ways to save
Thursday 29 January 2015 11.04 GMT
It was a pretty dry question: “Imagine that you have an emergency and you need to pay £1,300. How possible is it that you could come up with £1,300 within the next month? Is it very possible, somewhat possible, not very possible, or not at all possible? Would you use a credit card, dip into your savings, or ask your employer, friends or family for help?”
For a year and a half, we’d been using our questionnaire to measure how people manage their money around the world: Bangladesh, the Dominican Republic, Ghana, India, Indonesia, Kenya, Paraguay, Peru, Philippines, Sri Lanka, and Tanzania. The answers were useful, and we were building up a fascinating global picture.
But none of us foresaw the answer we received in Peru. It turns out that, for many Peruvians, if they needed to raise money quickly, they will hold a pollada. Also known as a “chicken party”, a pollada is a fundraiser in which the person in need of emergency funds, usually for medical or educational purposes, buys a large quantity of chicken and beer and charges friends and neighbours to come over and eat – sparing him the embarrassment of needing to ask for money, but with the understanding that he would reciprocate when his friends and neighbours are in need. According to our Global Findex data, only 20% of adults in Peru have an account at a bank or other financial institutions, and the number falls to 9% among the poorest 40% of earners. These “chicken parties” not only attest to the resourcefulness of unbanked people around the world, but also draws attention to the importance of informal networks for those outside the formal financial system.
Interestingly, 2.5 billion people remain outside the formal financial system, yet we must recognise that these “unbanked” are not a homogeneous group and their financial needs and capabilities vary. As we heard in the field, and as shown in Portfolios of the Poor, poor people juggle complex financial transactions every day and use sophisticated techniques to manage their finances, whether they use the formal financial system or not.
Peru isn´t the only economy where we’ve found informal financial coping strategies. In Kenya, several questionnaire participants talked about savings groups, known locally as chamas. “It is like a merry-go-round,” said one of the participants. “You contribute money and then someone gets it each round. It guarantees me some money when I’m in need of cash.” And although almost 20% of adults in sub-Saharan Africa (and half of all savers) report using an informal savings group or someone outside their family, we also heard from users across the continent: “I belong to five chamas, because I know the first four might steal my money”. In sub-Saharan Africa, on average, the majority of adults that save informally are also unbanked and might have nowhere else to put their savings.
But I was surprised, and troubled, by the high number of women in Ghana who reported using a sou-sou – another informal savings arrangement, where someone comes to her home to collect her savings and charges her a day’s contribution when the money is returned at the end of the month — and also reported saving in a bank. Why would these women with saving accounts use an informal, riskier, more expensive mode of saving? Women in villages outside Accra explained to us that any money kept in the house would be “borrowed” by family members, and that the bank was too far away and the lines were too long for them to make daily deposits. In other words, informal modes of saving offer these women an immediate and safe place to keep their money outside the home.
Can formal, regulated financial institutions design affordable yet commercially viable products to address the needs of these women? Solutions are offered by new banking models, such as networks of agents who collect money on behalf of banks or mobile phones to access financial services. For instance, in Kenya, where more than 90% of adults report making payments using M-Pesa accounts on their mobile phones, many people we spoke to reported keeping balances on their phones as a form of savings. For example, we met a young man who described his profession as a “dreadlock designer”, who told us he saved up for the deposit on his first hair salon with M-Pesa mobile money payments because “cash burns my pocket”.
M-Pesa has responded to their customers’ growing balances with the introduction of M-Shwari, a partnership with the Commercial Bank of Africa, which encourages savings and loan transactions made through the M-Pesa mobile money platform. New technology, delivery channels, and financial innovation all offer the possibility of safer alternatives to saving under the mattress to unbanked people around the world.
Testing the Global Findex questionnaire with a pilot proved to be a valuable process as we learned that we needed to expand the original questions used in 2011 to include more nuanced questions on mobile technology being used to send and receive money to family living elsewhere, pay bills, and receive wages and government payments.
The 2014 Findex data will be released in April 2015. It follows the launch of our first round of data three years ago. Back then our database became the first public set of indicators that consistently measure people’s use of financial products around the world. Our questionnaire is distributed in 148 economies, and asks people questions on ownership and use of accounts, savings, credit and payments behavior. The Global Findex responses are measured at the household level, drawn from survey data covering more than 150,000 people representative of 97% of the world’s population.
Everyone in the world wants a safe place to keep their money: to save for their children’s education, to grow a business, for health and other emergencies, and for old age. We hope that this new round of expanded and updated Findex data helps policymakers and practitioners work together to develop strategies to provide the unbanked with a range of affordable, accessible and appropriate financial services.
Leora Klapper is a lead economist at the Development Research Group, World Bank
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