Managing Vulnerability: Using Financial Diaries to inform Innovative Products For the Poor
A Microfinance client once told us: "Life for the poor is one long risk." Daily incomes vary, and hard-won gains in income and assets can be quickly eroded by shocks such as illness or death of a loved one and a myriad of other problems. This vulnerability matters to the poor, because it exposes them to acute episodes of hardship, including hunger and pain, and it can result in the depletion of assets, from which they can find it hard to recover.
Understanding how low-income households manage their vulnerability remains a challenge for development experts. New research using data from "Financial Diaries" offers a window on this dimension of poverty. The Diaries document all the economic transactions of households and individuals on a weekly basis. They provide a detailed picture of the frequency and intensity of people's economic activities. Drilling down into the issue of vulnerability provides insights into what keeps people locked in the vicious cycle of poverty and suggests ways that they might use well-designed financial products to reduce their vulnerability. The findings below are drawn from an 18-month Financial Diaries study with Opportunity International Bank of Malawi (OIBM), in which OIBM clients were compared against non-clients, and provide a close look at some key aspects of vulnerability.
