The deluge of debt : understanding the financial needs of poor households

This paper is about the financial lives of poor households. It examines the different sources of income and expenditure of the poor households residing in a coastal settlement in Kerala. The method of financial diary for data collection is adopted for the study. The sample size is 13. The study finds that more than 50% of the poor households in the socially excluded hamlet are not yet connected with the formal institutionalised system for their financial needs. The poor frequently borrow small amounts from money lenders, friends and relatives even though about 46% of the households had access to SHG [Self Help Groups] or bank linkages. In the sample households, the maximum amounts of over 72% of such loans were less than Rs 500. Debt or borrowed funds constituted about 47% of the resource inflow for the sampled households. The share of food in the expenditure basket of the poor was very high, regardless of the occupation and the source of livelihood of the household. The paper suggests the need for a relook at the design of financial products that banks offer to these underserved, vulnerable clients. The paper also urges more research in the area, and also a clear client consultation process before designing financial products for the poor. Key words: Poor households, Financial inclusion, SHG, Kerala, Moneylender JEL Classification: G2, G20, G21