Is 2012 the New 1810?
Recently, while searching for examples of how banks may have helped customers level lumpy cash inflows into even cash outflows, I found this:
“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.
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Reader Comments (2)
Thanks Kim for an interesting post. I have 3 take homes from this:
1. I also don't know of savings groups that offer a stream of regular income for members and this is a possible prospect - especially if it can be facilitated by technology. It could be a simple app that informs members of how much they could get as regular income if they, suppose, retained their annual share out in the group.
2. The need for an app that makes share out computations so much the easier.
3. An app that people can 'talk' to.
As we work on an e-Recording application, we will certainly keep these three points on the cards.
Kuria
Tue, March 27, 2012 | Kuria Wanjau
Hi Kim,
A couple of thoughts (expressed, as usual, in my disorganised free-flow format)...
The idea of a sensible savings facility, providing relevant useful services to its savers as being a "benefaction" really hits a good spot with me. Despite the depredations of neoliberal junk socioeconomics, the concept of something being a 'public good' has not yet been completely erased. And as we consider the sorts of things that might be accepted as a public good in today's technology-driven and complex world, I believe there's a case for the abovementioned savings facility to be included.
Just as we now accept that clean drinking water and effective sanitation are public goods -- with the consequential view their provision should not be left entirely to the vagaries of the unfettered market -- to say nothing of electricity and telecommunications (both hotly debated in New Zealand as our unthinking government prepares to sell-off such state-owned assets) and other utilities, the economic and social dependence we now have on money creates a strong argument (in my view) for core personal/family savings to be similarly classified.
Just as sanitation is intended to reduce people's ill-health, so too should practical savings tools be provided to prevent poverty (both the short-term arising from volatile cash flows and the longer-term inability to acquire essential assets). The range of relevant needs runs from the circumstances you describe to the thorny question of provision for income in one's elder years.
I'm not automatically advocating a state owned and operated institution -- we've seen too many of those turn ugly -- but at least the conscious provision of an empowering financial services sector policy, matched by appropriate levels and styles of regulation and supervision. India's approach to letting SHGs flourish comes to mind, as do those countries with strong savings & credit cooperative movements.
Secondly, if I weren't newly up to my eyeballs in Dili -- where savings are key to our MFI's transformation -- I'd happily show you how the accounting can be made very straightforward; no longer a fear factor!
Sat, March 31, 2012 | Greg Pirie