The Economics of Poverty

1. The Economics of Poverty

2. Overview • Udaipur health surveys (Banerjee and Duflo) – sub-sample of households under $1 and $2 a day • Gujarat rural (Cole, Tobacman and Topalova) – a sample of SEWA clients and non-clients • Ahmedabad city (Pande and Field) – clients of SEWA Bank • Karnataka rural (Duflo and Banerjee) – clients of SKS, a microfinance institution • Hyderabad slums (Duflo and Banerjee) • West Bengal (Dulfo, Banerjee and Shapiro) – a sub-sample of the poorer households in a village

3. Expenditure patterns • The poor do not seem to put every available penny into buying more calories • Only 56% of consumption on food. • There is a lot of non-food consumption and on festivals • 5% of consumption in on alcohol/pan/tobacco • In a year, 99% of the households spent money on a wedding/religious festival or a funeral (14% of total consumption) • By cutting down on “temptation goods” and festivals, they could theoretically increase their consumption by 30%

4. Asset ownership • Land ownership is high • In Udaipur, 99% of hhs below $1/day own some land apart from the one their house is built on (this includes wasteland and unirrigated land) • 48% of the households in Gujarat own land • 21% of the sample selected in the West Bengal (Ultra Poor) study was landless. • Durable goods ownership is low, so is productive assets • In Udaipur, less than 14% of the households own a bicycle; only about 10% have a chair or a stool. • Only 4% of households in Gujarat own a bullock cart; 2% own a tractor and less than 1% own a thresher (32% of the sample households own a bicycle)

5. Access to credit • Most households are indebted • In the Hyderabad slums, approx 70% of households had a outstanding loan at baseline and over 40% had more than one outstanding loan • In Udaipur, over 66% of households had at least one loan

6. Access to credit • Loan usage and sources • Multiple purposes and multiple sources • Most of the loans are from informal sources and not surprisingly have high interest rates • Even among MFI clients in AP more than 10% of clients reported borrowing from more than one MFI • Most loans are used to finance health expenditure • In Karnataka, 43% of health events were financed by loans • Of the 3,300 loans recorded in Hyderabad slums over 1/5th were used to finance health expenditure • Other loan uses include wedding expenditure, repaying old debt and regular consumption • This is true even in urban areas such as the Hyderabad slums • Only 5% of the loans were from commercial banks

7. Do poor people save? • Savings accounts • In Udaipur, only about 6% of the extremely poor had a savings account (12% among the poor) • In the Hyderabad slums, 34% of the households had a savings account. • Participation in informal savings groups – Self-help Groups or the ROSCA types is low. Savings accounts typically tend to be with banks • In Gujarat, 63% of the households had a savings accounts (SEWA members) • The poor do find innovative ways to keep money away from their hands (curb temptation) • One woman in Hyderabad slums had borrowed Rs 10,000 from an MFI and then put the money in a fixed deposit account; effectively earning a negative interest rate! • Savings instruments • Life insurance • Jewelry

8. How do the poor manage risks? • Many households do have access to life insurance (considered savings) • In Udaipur, 4% of the extremely poor • In Hyderabad slums, 10% of the households • Many households do have access to life insurance (considered savings)

9. Livelihoods of the poor • India and its agricultural economy • 72% of population in rural areas • 50-60% of the workforce engaged in agriculture • Agriculture as main source of income?? • Among the poor ($2/day) and extremely poor ($1/day) in Udaipur • self-employment in agriculture reported by 19% of all households • only 1% of all households reported working on somebody’s land • 74% of all households report daily labour • Households in Gujarat: 72% • own cultivation: 19% • agricultural labour: 45% • non-agricultural labour: 27%

10. Livelihoods of the poor.. • They engage in multiple occupations • 94% of the extremely poor report more than one type of activity in Udaipur • In Hyderabad slums, while 31% of the households owned at least one business, 9% of these households had more than one business • In West Bengal: The median family had 3 working members and 7 occupations!

11. Livelihoods of the poor.. • The scale of their business is small and there is little specialization • In the Hyderabad slums, • only 10% of businesses had any employees • 20% of businesses had no assets whatsoever. Typical assets were tables, scales, pushcarts and tailoring machines • Only about 1% of the outstanding loans used to acquire business assets; less than 1% to purchase stock • average profits was Rs 3,040 per month • Clients of SEWA Bank in the Ahmedabad city engaged in kirana (general) shops, tailors, vegetable vendors, bidi rolling, embroidery etc. • Even in the case of agriculture, land ownership is small • Among the poor and the poorest households in West Bengal land ownership was 5.65 katthas (0.113 acres). • Gujarat: 6.03 bighas (3 acres approx) spread over 1.64 plots. Only 48% of all households own land.

12. Livelihoods: what does the data suggest? • Agriculture is a high risk activity • 60% of land holdings in India are rain-fed • 90% of crop losses can be explained by weather • And the poor lack access to insurance for various reasons • Profitability comes at a cost • Requires investment in high-quality seeds, fertilizers, training etc. • But, they lack access to credit and savings (the later could be compounded by commitment issues) • Are the poor diversifying risk by engaging in more than one activity? • Do they engage in multiple activities to simply use up the slack time they have? • Are they mitigating risks by investing in agriculture only for sustenance and no more, no less?

13. Livelihoods of the poor.. • India migration statistics (Census 2001) • How many people live in a place different from their place of birth: 30% of the total population • Population that migrated from one part of the state to another: 84% of the total migrant population • Most migrants moved because of marriage (43%) with 14.7% moving because of work/employment and 1.2% for business • Temporary migration data from Udaipur • 60% of the poorest households: someone lived outside for part of the year for work • Not for a long time – only 10% of migration exceeds 3 months • It is usually the head of the household who migrates • They do not travel far: 28% stay within the district. Only 42% go outside the state • The extremely poor rarely migrate permanently for work • This stands at 4% in Pakistan (LSMS 1991)

14. Livelihoods of the poor.. • Migration is a complicated issue • When do they migrate and for how long? • Where do people migrate to? • Which occupations do they choose? • Issues • Lack of access to credit, savings and remittances • Transportation cost to destination and initial cost of boarding • Support consumption in the family they are leaving behind • Easier to come back if something goes wrong • They frequently lack specialized skills and identity cards. Easier to be a daily wage laborer or be the apprentice for someone you know (social networks) .

15. Their health and well-being • The poor suffer frequent health events • In Udaipur, 72% of the poor report at least one symptom of disease; 46% report an illness that required a visit to the doctor in the past month • Again, 55% of the poor adults were anemic • In Hyderabad slums, during the baseline: 17% of households reported the main purpose of an outstanding loan to be “health expenses” • In Karnataka, a survey of rural microfinance clients: 51% of households experienced one major illness; an average of 2.4 events

16. Their health and well-being • Health shocks: single most important factor for households falling into poverty • 107 villages of 3 states in India: 60% of all descents in Rajasthan, 74% in AP, 88% in Gujarat (Krishna 2005) • Over 40% of those in India hospitalized borrow money or sell assets to cover expenditure (World Bank 2001)

17. Their health and well-being • Public facilities are inadequate, health insurance rates are low and average spending on health is high • 80% of all healthcare spending in India is private, nearly all of this out-of-pocket. Less than 2% of households in India have access to health insurance • The rural mf clients in Karnataka tend to visit private facilities and spend an average of Rs 1,867 i.e. 40% of their average monthly expenditure on health events • In the Hyderabad slums: almost none of the households had health insurance • Again, among the Karnataka clients only 0.5% of all households had a health insurance policy. Only 13% had ever been offered insurance or were aware of this being available in the village