This Briefing Note highlights the extra-ordinary phenomenon of “borrowing while savings” described in the book – Portfolios of the Poor: How the world’s poor live on $2 a day. It also describes factors like simultaneous borrowing and saving and provided evidence for an explanation rooted in the difficulty of rebuilding savings. This evidence leads to another seeming contradiction – why high interest rates on loans may in fact be a desirable attribute for some borrowers.
Insights from behavioural economics help to show why is it hard to rebuild accumulation of savings after making major withdrawals. The note further discusses why poor borrow when they can dis-save, what lenders do in order to cater to the flexible and irregular cash flow patterns of poor and the discipline of high prices.
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