Above: Micro-credit under discussion at a village meeting in Bangladesh. Photo by Abhilash Medhi, 2009 AP Fellow. Location: Barisal, Bangladesh. Partner: BERDO

Portfolios of the Poor: How the World’s Poor Live on $2 a Day by Daryl Collins, Jonathan Morduch, Stuart Rutherford and Orlanda Ruthven (Princeton University Press)

So far, the economic life of the world’s poor has merely been quantified and aggregated. Some of the texture of everyday life in the world’s favellas has been documented, but what no one has done is to ask those people the pressing questions, “How do you do it? How do you manage on two dollars a day?” Two dollars a day is the UN’s current baseline definition of absolute poverty and over two and a half billion people in the global south are surviving on it.

Asking those questions is precisely what the authors of Portfolios of the Poor have done—and we are all in their debt, for the result is something astonishingly revealing. Over a six year period, they wrote year-long financial diaries with 300 poor households, both rural and urban, in Bangladesh, India and South Africa. The detailed records of their financial ins and outs were sufficiently robust for the researchers to construct balance sheets and cash flow statements for every family.

At first glance, the data revealed that two dollars a day doesn’t mean two dollars every day. It means, for most, many small irregular payments and sometimes long periods of very low or no income at all. Second, the data showed that all households have a financial turnover many times their actual income. Given that cash flow and household needs are perpetually out of synch with each other, the world’s poor spend huge amounts of time, energy and ingenuity managing the finances that they do have: saving, borrowing and repaying debt in cash and in kind. Moreover, they must do so without much formal mathematical education and at best a modicum of literacy.

What does this all signify? The financial tasks that face the world’s poor are three-fold. First comes short-term cash flow management; how to make sure that, come what may, there is food on the table every day. Second, there is the daily struggle of dealing with a highly risky economic environment in which job security does not exist and no public or formal protection against illness and disability is available. Third,…

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