1 the economics of poverty. 2 overview udaipur health surveys (banerjee and duflo) – sub- sample...

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1 The Economics of Poverty

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Page 1: 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,

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The Economics of Poverty

Page 2: 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,

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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

Page 3: 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,

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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%

Page 4: 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,

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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)

Page 5: 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,

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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

Page 6: 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,

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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

Page 7: 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,

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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

Page 8: 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,

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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)

Page 9: 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,

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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%

Page 10: 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,

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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!

Page 11: 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,

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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.

Page 12: 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,

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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?

Page 13: 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,

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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)

Page 14: 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,

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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) .

Page 15: 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,

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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

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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)

Page 17: 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,

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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