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Wednesday Nov 06, 2024
Tuesday, 17 May 2011 00:00 - - {{hitsCtrl.values.hits}}
A cynic once said that money management or managing your resources efficiently is never an issue when you are rich or even when you are financially comfortable, when you have a surplus of resources, but the challenge is managing your meagre resources when you are running a deficit most of the time.
Not having money is bad enough. But not being able to manage, to make ends meet, with whatever meagre resources you have, is infinitely worse. This is the reality of being poor.
What number-crunching accountants glibly refer to as a ‘cash flow problem,’ not having adequate funds to meet an immediate term requirement, in addition to not having money in the medium and long term, is the real crisis of being poor. Money is required at the right time, in the right amount. At a time of an illness of a child or a death of an elder, you need expendable cash, immediately.
Over time the poor have developed a number of options for coping with such a crisis. Borrowing from ‘friends, family and fools’ is one way the poor cope with a financial crisis. That is by getting indebted to close associates, relatives and goodhearted people known to them. The usurious village money lender is another. Money lenders are regulated by the Money Lending Ordinance No. 02 of 1918.
The pawnbroker is another recourse the poor resort to. Pawning something fungible and valuable for cash and redeeming it later. This is very popular in Sri Lanka just now and most financial institutions across the board have a lucrative pawn broking business. Even some microfinance institutions have begun pawn broking. This is regulated by the Pawnbrokers Ordinance No. 13 of 1942.
It is said to be the most popular method of raising finance for agricultural cultivation activities, because it is quick and certain. It is also said that when there is a crop failure, farmer suicides result because the farmers cannot redeem the family jewellery which has been pawned to raise funds for the agricultural enterprise.
Rotating Savings and Credit Associations or RoSCAs known as cheetus in Sri Lanka is another instrument. A group of people agree to contribute a fixed amount monthly to one of them, designated as ‘manager’ and one of the members gets the monthly total in rotation until the full cycle is complete.
In Sri Lanka there is a Cheetu Ordinance No. 61 of 1935 which regulates the instrument. The cheetu is based on trust and a breakdown often takes places when the ‘manager’ vanishes with the collection or members after getting their turn early on take the total collected and thereafter default in their subscription. Variants of the RoSCA are found in operation today in Asia, Africa and Latin America.
Since death is inevitable, together with change and taxes (!), the poor have developed a very effective instrument to deal with sudden economic shock of a death in the family.
Culturally there are many related expenses, traditional religious activities, etc. in connection to a funeral in a traditional village which often pauperises the deceased’s family. So the poor have come together and formed Death Aid Societies (Marana Adhara Samithi) or funeral societies to deal with the costs as well as the trauma.
Members subscribe regularly, elect office bearers, have annual and regular meetings, table accounts and audit them, etc. and form as association which assists a member’s family which has suffered bereavement.
Banners, white flags, loudspeakers and amplifiers, chairs, equipment needed for religious functions, almsgiving, etc., long term agreements between funeral undertakers and the association, are all matters which these Death Aid Societies have provided for. I have heard of one which even has a converted a three wheeler to serve as a funeral car, a hearse; it is hired out or transport purposes at other times. Some Death Aid Societies have also turned themselves into efficient microfinance institutions by initiating and sustaining the provision of micro loans to their members.
Self Help Groups (SHG) and savings clubs, mainly of women, who bear the brunt of sourcing funds for immediate family and domestic requirements, are another instrument the poor have developed to meet this crisis.
In Sri Lanka the Women’s Development Federation (WDF) of Hambantota and its microfinance arm, the Janashakthi Banku Sangamaya, which is now entering its third decade of existence, is a highly successful example; so also is the Kantha Ithurum Parishramaya of Wilpotha. But there are a thousand others, some which have developed into dynamic microfinance institutions.
In India the Reserve Bank has compelled commercial banks to refinance SHG microfinance operations as a priority sector. In Sri Lanka, Rural Development Societies, a highly successful post-independence self-help intervention, farmers clubs (Govi Samithiya), the community centre (Praja Mandala) movement, women’s societies (Kantha Samithi) and youth club (Yauvana Samaja) movement were all built on this self-help spirit, deeply ingrained in our society.
Cooperatives – the cooperative rural banks which lend money to members – were another response. But the 1958 amendments to the Cooperative Law in Sri Lanka which took away the cooperatives from the people and brought the cooperative movement under the control of bureaucrats and politicians destroyed the credibility of the movement. The Thrift and Credit Cooperative Societies (TCCS) have been able to protect their autonomy to a great extent. The Janasaviya programme and Janasaviya Trust Fund (JTF), a social investment fund, gave a massive impetus to these poor people’s movements. The JTF, now going under the name National Development Trust Fund (NDTF), today supposed to be amalgamated with the Sri Lanka Savings Bank, still exists. The Samurdhi programme replaced the Janasaviya programme and also set up its own Samurdhi Banku Sangamaya, a microfinance institution.
All the examples – except Janasaviya and Samurdhi, which were State programmes, were coping mechanisms by poor people to respond to poverty by developing instruments to deal with their problem – are in the domain of what can be described as civil society responses.
The attitude of the State has been at best one of benign neglect. The only exception was the JTF’s support given to these self organisations for rural works, social mobilisation, nutrition and microfinance. Of course there has been legislation to regulate money lending, pawn broking, cheetus and cooperatives, but the regulation has often been by default, politicised, corrupt, incompetent and inefficient. At this time new legislation is also being contemplated to regulate microfinance.
These civil society responses of the poor, their coping mechanisms developed for dealing with the cash flow problems related to being poor, were built and based on the two pillars of trust and sound money management. Of course these initiatives have not been 100% successful, there have been failures. But the fact that pawn broking has been recognised by law since 1942, cheetu since 1935, the first Thrift and Credit Cooperative was formed in Menikhinna near Kandy in 1905, Money lending since 1918, Death Aid Societies and Self Help Groups going back to the mists of time shows a capacity and resilience which must be respected. It is a tribute to our social indicators, the community self help spirit and the independence of our people.
For evidence of the reality of these coping mechanisms, if any poor person is asked to keep a financial diary, reading it one will understand the complex portfolio of loans from ‘fools, friends and relatives,’ access to pawn brokers, money lenders, RoSCAs, savings and credit groups, government handouts, micro loans and Death Aid Societies the poor resort and juggle around to meet their economic obligations. Analysis will show that it requires an astounding level of ‘financial savvy’ and ‘money sense,’ which is difficult to imagine.
It is surprising indeed that this self help sprit and financial resilience survived the nanny governments this country has had since pre-independence, when politicians used taxpayers’ money and borrowed money to provide free education, free health, subsidised transport, free rice ration and permanent and pensionable government employment to break the independent spirit of the people and make them subservient to the political activist. True, most of these initiatives resulted in our high social indicators, but most of them have passed their ‘sell by’ date long ago.
In this context it is most amusing to listen to politicians, bureaucrats, aid workers, donor agencies and employees of international financial institutions, etc. saying that there is a need to teach the poor in Sri Lanka ‘financial literacy’ and money management!
These are all people with permanent or contractual jobs with attractive terminal benefits and/or pension rights, who have a regular income, insurance schemes to protect them from financial crisis, etc., in other words those who live at a very high level of financial comfort zone, secured and protected from sudden financial shocks.
Most of them will not know what a personal financial shock is from the perspective of a poor family, even if it hits them frontally, in the face, in broad daylight! They have no idea how a poor family with no certain income but only certain financial obligations compounded by sudden financial shocks copes with their situation. Rather than spending money on teaching ‘financial literacy,’ it would be better to provide resources to strengthen the capacity and outreach of the institutions and the mechanisms the poor have developed within themselves and rely on to cope with their unstable financial situation.
It is essential that an effort is made to comprehend and develop a sustainable business strategy to alleviate and eradicate persistence poverty by developing and supporting the variety of financial institutions which have evolved due to the needs of the poor themselves.
It is now universally recognised that for improving the lives of the poor, it is imperative to develop their financial institutions which are supported by them and responsive to their needs, which they have sustained over the years; such an institutional approach is far superior to a top down or bureaucratic effort.
The poor know how to manage money very well, they survive by managing the little they have with a surprising amount of ‘financial savvy’ – the problem is that they do not have enough money to meet their basic needs.
(The writer is a lawyer, who has over 30 years experience as a CEO in both government and private sectors. He retired from the office of Secretary, Ministry of Finance and currently is the Managing Director of the Sri Lanka Business Development Centre.)
