Financial Relationships Of The Poor In Developing Countries
To begin with, a daily income of two dollars or less a day has become a yardstick for measuring poverty in this globalized economy. Poverty, foreign aid, debt forgiveness and globalization are measures that can be put in place to help reduce poverty. One cannot save and pay debts with a dollar or two because what one earns goes directly to the purchase of food; hence, it is hard to make a budget.
Apart from food, there is also the need to purchase basic things like clothing, shoes, pay rent, cater for emergencies, pay hospital bills, school fees, just to mention a few. Those who earn this little income normally do not have jobs or they do menial jobs. Unfortunately, there has been a minimal intervention from the government; the source of intervention for most people is the family and community. This creates a situation called social insurance where people in the community take care of each other and depend on each other for survival. So, when you earn money, you end up helping individuals in the community.
Furthermore, a research was conducted in rural (agricultural areas) and urban areas to ascertain how families survive on their income. One common observation was that every family saved some of their income and borrowed when necessary. They did this by keeping their savings at home, with neighbors, with friends, at the banks, joining saving clubs or insurance clubs and borrowing from friends, family relations, neighbors and financial institutions. This is the financial relationship the poor in developing countries have. People saved, borrowed, lent and repaid money. Saving and managing money is the basis of every household. If poor households had access to better saving resources or “financial tools”, they will be better off. Again, there has been a shift in the use of banks to micro financial institutions which provides loans to poor people and entrepreneurs. Again, financial intermediation is a situation where people exchange their goods and service. Individuals intermediate by saving money for future use or borrowing to repay later. There is the need for people, especially poor people to intermediate.
Financial intermediation in India and Bangladesh takes the form of borrowing foodstuff and repaying what one borrows with work. Financial intermediation comes in handy when individuals and their families can use saved up money when they either do not earn income or there is a dip in their income. Therefore, it is imperative for individuals to keep good their relationships with their family, neighbors, and money lenders. Financial intermediation helps individuals acquire capital to establish their business. Saving money at home, money lenders, friends and saving clubs cannot be reliable because monies can be stolen or might not be readily available. As a result, micro financial institutions have been seen as the best option for individuals. These micro financial institutions offer some of reliability when it comes to the provision of loans and capital.
To conclude, it is normally hard to survive on a dollar or two dollars a day in a world where money is needed for everything; hence, there is the need for poor families to save money and budget their income in order to prevent overspending.
