“When a depositor was unable to work the bank granted him a weekly allowance out of his own savings.”
The quote caught my attention. It was from a 1925 article in the Delmarva Star, referencing a bank founded in 1810 by Reverend Henry Duncan of Dumfriesshire, Scotland*.
I had been working on a project for a bank in Brazil and curious to learn which financial institutions had been clever enough to help self-employed customers substitute unpredictable incomes with ones more certain. Portfolios of the Poor explains how low income people find ingenious ways to convert small, uneven, cash influxes into useful lump sums, but does not elaborate on the reverse, how the poor find ingenious ways to convert lump sums into even cash flows. Nor does it discuss financial instruments that perform this service. Various bonds, pension schemes and insurance policies offer annuities, of course, but I was specifically looking for something simpler, more accessible, when I came upon the Duncan article. It goes on:
“The idea of the savings bank was not new in 1810, when Duncan evolved the elaborate plan by which his bank was run. Two hundred years before it had occurred to a Frenchman, it had been tried out in widely different forms in England and Germany. Daniel Defoe, creator of that enterprising hard luck victim, Robinson Cursue, has been called the original savings bank man, for he suggested that the government establish a savings bank and run it as a public benefaction.”
It appears that Rev. Duncan’s bank was a private benefaction with more than a few of its incantations conjuring the same promises of savings groups. For instance: “Even in the poorest of poor families, [Rev. Duncan] reasoned, there must be some odds and ends of income wasted on ineffectual trifles. And he offered reward, in the shape of interest on investments, hoping to induce his flock to realize that is saving is, itself valuable.” Promoters of savings groups captivate new members with similar counsel: “Sequester your spare coins and notes in a group fund and watch your deposit grow twice: once from your abstinence and again from interest!”
But do savings groups take the extra step Rev. Duncan did when he offered his poorer customers the chance to level chunky, uncertain incomes into smoother, certain ones? Sure, groups offer loans, annual distributions, and even withdrawal of savings but they don’t help members receive a stream of regular income around which they can plan meals, purchases of animal feed, or payments for medicine. One might easily imagine a member requesting that her annual share-out be converted to bi-weekly annuities in the following year.
To my knowledge, groups don’t offer members such a service. Likely the accounting would be cumbersome, at least today. But might we look to a future where technology eases this burden. Imagine members speaking into an app to record transactions and instantly present individual and group balances. Share-outs would be a breeze, as would as the calculation of annuities. If we can imagine such a capability, perhaps in 2012 we might summon the services of 1810.
* Note if you are into the History of Microfinance, check out David Roodman’s CGAP post on the Lessons of Microfinance History.