Summary to the parer: The Economic Lives of the Poor.

Author: Roman Gorgan.

“The future of the extremely poor countries can change

if Governments would create good conditions for micro-credit”

The paper: The Economic Lives of the Poor, written by Abhijit V. Banerjee and Esther Duflo is based
on the survey data from 13 extremely poor countries from Asia to Africa to Latin America including
information of what they consume, where they work and how they consume and borrow. The
classification of extremely poor people is based on consumption per capita no more than 1.08$ per
person per day and classification of merely poor people is based on consumption no more than
2.16$ a day. By such classification individuals living under 1$ per day vary from 2% in Panama to 47%
in Udaipur and individuals living under 2$ per day vary from 6% in Pranama to 86% in Udaipur.

The poor families tend to be large in average of 7-8 members. Moreover extremely poor families
have more children living with them, but the situation changes in those families which live under 2$
per day, they have less family members. The survey data show that poor people do not have
tendency to spend some additional money to buy more calories per day, instead they are buying
alcohol, tobacco, spend their money on weddings and different celebrations.
Poor people from these region have tendency to work at many jobs, even if they have their own
business (selling “Dosa” in the morning and doing something else for the rest of the day) it is
because many extremely poor households operate their own businesses with almost no productive
assets.
The reason for doing multiple jobs is that they can’t raise the capital they would need to run a
business that would fully occupy them.
The agricultural business is not the main work for these people, it is caused by historical factor(
couldn’t own their own land in the past(“slavery”) and till now there is big gap in legal land
ownership(“ land titles”).

Because of the nutrition deficits, a lot of poor people have health problems: vision, different
diseases. The poor people are frequently sick, which is reflected in their productivity at work. As the
consequence there is quite high level of morbidity. Because of insufficient income, people are
constantly stressed, which reflects in bad sleep, work and eating. The public medicine in on
extremely low level because in most cases the governments can’t offer free medicine on its level and
the survey shows that people are attending paid private medical institutions even considering the
fact that there is big lack of qualified doctors.
Quite the same situation is with the schooling. Public schools are often dysfunctional and for
example in Pakistan parents are pulling their children from public sector to private, even if they
charge them some money. The other reason of bad education is current low level of education,
parents can‘t see how well is their child educated, sometimes good education is considered if the
child can read and write.
 Very few of the households get borrow money from a formal lending source, for example in Udaipur
23% borrow money from a relative, 18% from a money lender, 37% from a shopkeeper and only
6.4% from a formal source like a bank.
The problem with borrowing money from formal source is lack of collateral, as mentioned above
there is a gap in legal status of the land, which they can offer as collateral, and in most cases formal
sources do not want to deal with the poor. A very few poor households have savings accounts it is
caused by the fact that poor people have problems resisting the temptation of spending money that
they have at hand.

In my opinion the main problem of these countries is lack of education and access to additional
capital. If the governments would make some agricultural reforms for example legalizing the
ownership status of the land, people would have the opportunity to borrow money from the formal
sources, which in general have lower interest rate. If governments would make good climate for
micro-credit, the situation can change significantly even in short term.