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The best books on The Poor and Their Money

recommended by Stuart Rutherford

Modern microfinance was born in the late 1970s, and is now viewed as a key way of helping people in poor countries get out of poverty. Author and practitioner Stuart Rutherford recommends the best books to get a basic understanding of microfinance.

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What got you interested in the poor and their money?

When I was still an architectural student, I took some time out working for an economic research organisation in Nicaragua, just after the 1972 earthquake that devastated the capital, Managua. I spent days in the shanty towns talking to poor people, and I became aware of something that I previously had no idea about at all – the ways in which they manage their money. I came across moneylenders and pawnbrokers and savings and loan clubs and many other curious and ingenious devices and was immediately fascinated. Collecting details about the way these things work became my hobby. When modern ‘microfinance’ was born (in the later 1970s) my hobby suddenly opened up into a major new area of economic development work.

What kind of opportunities might help the poor manage their money?

The incomes of many poor people are not just small but they are also irregular and unreliable. Living on one dollar a day doesn’t mean that exactly one dollar comes in each day: on the contrary, you may earn $10 one day and then nothing for the next week. In the meantime, you have to make sure there is food on the table every day, and that you can find money to have your daughter’s eye infection treated quickly, before it becomes a big problem that sends her blind. So you need to have money in reserve somewhere, and you need to be able to borrow money quickly.

Tell us about your first book, The Economics of Microfinance.

The Economics of Microfinance is the book that I would love to have had when I was in those shanty towns in Managua. It is written by economists, but in a way that non-economists can easily understand. It asks and answers questions about poor people and the way they handle money. For example, why would poor people need to save when they have so little money to start with? Why did banks ignore the poor for so long, and why was it left to other kinds of organisations to develop financial services for poor people? Why did most microfinance providers work almost exclusively with women to begin with? If you are at all interested in questions like this, Morduch and Armendáriz’s book is a very good place to start.

What is so special about microfinance as opposed to conventional financial strategies?

It is uniquely human-centred. Many economic development strategies, including very successful ones such as the rapid industrialisation that China and other tigers have used in recent decades, tend to treat human beings as just one of several inputs. Microfinance puts ordinary poor people at centre-stage. Those who offer microfinance services have come to realise that it is no good lecturing the poor. Decades of experience show that, on the whole, the borrowers and savers are best placed to decide what to do with the money, since only they have a comprehensive understanding of the circumstances of their household.

Mainstreaming Microfinance looks at microfinance schemes in the context of Bolivia. Tell us about the book.

Most of my own work on microfinance has been in Asia, where modern microfinance was born in the late 1970s. But there was another centre of world microfinancial innovation – Bolivia. Elisabeth Rhyne is someone who knows Bolivia well, and Mainstreaming Microfinance does exactly what its subtitle claims – it tells you how lending to the poor began, grew and came of age in Bolivia. By the time you have finished reading it, not only do you feel that you have got to know the personalities involved in the microfinance movement in Bolivia, and have gained some insights into the lives of the microfinance clients, but you come away with a broad understanding of how microfinance influences and is influenced by broader economic and political changes in the country.

Can we learn anything from the book about the limits of microfinance?

Yes indeed. Mainstreaming Microfinance is remarkable in being as frank and as insightful about the mistakes and crises that microfinance has suffered as it is about microfinance’s undoubted successes. Full-blooded commercial competitiveness came to Bolivia’s microfinance much earlier than it did in Bangladesh, and the book’s description of ruthless competition and its consequences is gripping. Rhyne recognises that not all micro-lending is wholesome; some is destructive.

Your next book is Women at the Centre. What’s it about?

Women at the Centre is about Grameen Bank. Grameen is probably the world’s best-known microfinance bank, and its founder, Muhammad Yunus, is almost certainly the world’s best-known microfinance banker, especially after he and his bank jointly won the Nobel Peace Prize in 2006. Helen Todd is a journalist who decided to spend the best part of a year in the mid 1990s in a village in Bangladesh. By that time Grameen was already becoming famous around the world, and a dangerous bubble of unthinking adulation about it had begun to build up.

Todd didn’t set out to prick this bubble, but she wanted to find out what was really going on in the villages where, we had all been told, women were rapidly moving out of poverty within a few years of the arrival of a branch of the Grameen Bank in their neighbourhood. Women at the Centre tells the stories of the women who were her neighbours for a year, many of whom opened accounts at the bank, and some of whom didn’t. The book blew away the more unhealthy mythology that was growing up around Grameen and put in its place a much more grounded realistic and believable account of what really happens to poor women who take a small loan and try to do their best with it.

Is this what inspired you to carry out your own work in Bangladesh?

No, not really. By the time Todd was doing her work I had already been living in Bangladesh for a decade. But Todd’s book certainly did encourage me to start work on what I still regard as my best book,The Poor and Their Money, which was published in 2000. The Poor and Their Money is a review of the mechanisms that poor people use to manage their money which I had sought out and examined with my own eyes in dozens of countries on three continents.

In 1996 I began trying to practise what I was preaching by starting a microfinance organisation, SafeSave, in the Dhaka slums. Unlike Grameen, whose ambition is to help poor women escape poverty by starting and running small businesses, SafeSave’s ambitions are at once more modest but broader – SafeSave simply wants to be the partner of choice for poor men, women and children who want to manage their money better.

What’s the book A Fine Balance about?

A Fine Balance is a great romp of a novel, set in western India. In a way, it’s a precursor of Slumdog Millionaire, but much darker, and without the all-singing all-dancing ending. I’ve included it in my pick of five books because of the Dickensian richness with which Rohinton Mistry deals with the lives of poor people. It reminds us microfinanciers of an important truth: that microfinance has to find a way to adapt itself to the enormous complexity found in the lives of poor people, and not the other way around. Rigid microfinance that seeks to impose behaviour on borrowers and savers simply won’t work. It’s no good telling a woman that she must invest her loan in a business when the truth is that her husband has fallen desperately sick with jaundice and what she really needs to do with the money is to buy drugs and get in enough rice to feed her family until he’s back at work.

Tell us about your last book, Small, Short and Unsecured.

If any single book inspired my own writing it is this one. When I got back to London from my Managua work in 1974, I searched the libraries, with little success, for books on how poor people in developing countries manage their money. Then somebody told me about F J A (Fritz) Bouman. Of his several books, I like Short, Small and Unsecured best. It takes a small area of western India and looks closely at how the money goes round. It delves deliciously deeply into things like how the pawnbroking business works, and exactly how poor farmers get together to set up savings and loans clubs. The book was written in 1989 but the same lessons still apply: poor people’s need for financial tools is even more intense than that of richer people, since, by virtue of their small and unreliable incomes, they are more often driven to find ways of using past income (through savings) or future income (through loans) to finance current expenditure, whether it is on food and shelter, or health and welfare, or assets or businesses, or whatever.

August 27, 2009

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Stuart Rutherford

Stuart Rutherford

Stuart Rutherford has spent the last 30 years travelling the world, researching the different financial strategies of the less well-off in a variety of different cultures. In the 1990s he set up SafeSave, his own microfinance co-operative in Dhaka, the capital of Bangladesh, and later in Hrishipara, a rural area. 

Stuart Rutherford

Stuart Rutherford

Stuart Rutherford has spent the last 30 years travelling the world, researching the different financial strategies of the less well-off in a variety of different cultures. In the 1990s he set up SafeSave, his own microfinance co-operative in Dhaka, the capital of Bangladesh, and later in Hrishipara, a rural area.