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What it argues
Portfolios of the Poor is one of the most methodologically unusual books in development economics. Rather than modeling the finances of poor households from national statistics, the authors spent a year working with 250 households in Bangladesh, India, and South Africa, collecting detailed financial diaries — records of every financial transaction, week by week, for twelve months. The result is a portrait of financial life among people living on roughly two dollars a day that contradicts most of what casual observers assume.
The central finding is that poor households are not financially passive or simple. They manage complex portfolios of informal instruments — saving with neighbors, borrowing from moneylenders, participating in rotating savings clubs, taking insurance-like arrangements with relatives — and they do so with considerable sophistication and at significant cost. The challenge is not that they don't engage with finance but that the instruments available to them are unreliable, expensive, and calibrated to needs that don't match their actual situation.
What it gets right
- 1.
Poor households manage complex financial portfolios using informal instruments — savings clubs, moneylenders, informal insurance arrangements — not from necessity alone but from active financial management.
- 2.
The core financial problem of poverty is volatility, not just low average income. Managing unpredictable income against predictable, timed obligations requires sophisticated financial instruments.
- 3.
Poor households simultaneously borrow at high interest and hold low-return savings — a pattern that looks irrational from the outside but reflects the different timing functions each instrument serves.
What it covers
Who wrote it
Daryl Collins is a researcher who worked at Bankable Frontier Associates on financial access for low-income populations. Jonathan Morduch is a professor of public policy and economics at New York University's Wagner School and one of the leading scholars of microfinance and household financial behavior. Stuart Rutherford is a practitioner and researcher in microfinance who founded SafeSave in Bangladesh and has worked in financial inclusion for decades. Orlanda Ruthven is a development researcher focused on the economics of poor households. The four collaborated on the financial diaries research underlying this book over several years in the mid-2000s.
