PoP Briefing Note 8 - Understanding Price

This Briefing Note offers insight into the prices paid by the poor households in order to avail the financial intermediations, and the reason behind their financial decisions. The findings in this Brief Note are based on the set of financial diaries developed in India, Bangladesh and South Africa from 1999-2005. The results challenged the presumptions of the researchers and forced them to relook at the perception of the poor on the price and also at the costs financial institutions assume while lending to the poor.

The Briefing Note explains the reason behind the high cost of financial services for the poor. The MFIs usually charge high costs due to numerous small-sized transactions. In the case of moneylenders it can range between 61-700%. The Note also explains with the help of case studies from India and Bangladesh that despite the high rate of interests charged by the moneylenders, the actual rate of interest comes drastically down once the repayment period is considered. The Note puts forth the findings that the poor households borrow money to save for future and also pay prices to avail savings facilities.

The Note observes that the pricing is not the overriding determinant of financial choices among the poor.

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