Poor too Can Become Reliable Investors

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Economy

If an economy has high savings rate, the stock money is normally used as investments in the productive sectors. In case of Nepal, looking at the past trends, the gross domestic savings as percentage of GDP has changed a lot. In recent years, the trend has been moving in a downward direction. As per the available data, in 2016, Nepal’s gross domestic savings as percentage of GDP stood at 3.82 percent. As the country adopts federalism and works to make different parts of Nepal as economically competent as possible with the use of a highly decentralized development model, it is necessary now more than ever to have Nepalis saving more to generate substantial funds necessary to invest in local and regional small, medium and large scale infrastructure development works and other related works that drive local and national economic growth.

However, the major challenge that the country faces now is that a large chunk of citizens live in poverty who are commonly thought of as the inappropriate sources for getting investment capital from due to their poor financial statues. According to Nepal’s National Planning Commission, almost one third of Nepalis are in multidimensional poverty trap with country’s two provinces – Province 02 and Karnali Province – having highest proportion of poor people, almost half of population in each province. However, now, there are number of empirical evidences that hint even poor do and can save considerable amount of money that furthermore could be invested in any productive sector. Karlan et al has highlighted in their 2014 study that the poor face unique issues while savings their incomes. All those issues can be categorized into five distinct headings for our convenience namely transaction costs, lack of trust and regulatory barriers, information and knowledge gaps, social constraints, and behavioral biases.

In the light of these issues, a recent research by Casaburi and Macchiavello has found that the Kenyan daily farmers, most of whom did not have substantial incomes, preferred monthly payments over daily payments from the milk buyers and the other traders. With his simple behavioral twist, the farmers were able to boost their personal and family savings and thus invest extra money in productive sector for even higher yields. These findings are crucial for Nepal’s economy as well, especially if the concerned stakeholders in Nepal would like to make use of available behavioral science tools to boost local poor’s savings thus establish the latter as the potential investors in current and in future Nepal.

Featured photo courtesy: WSJ

Jaya Jung Mahat

About Jaya Jung Mahat

Jaya is a researcher at Samriddhi where he leads a research on public debt management in Nepal. He has an MPP from Lee Kuan Yew School of Public Policy, National University of Singapore and is also an alumnus of Evidence for Policy Design, Harvard Kennedy School's BCURE Program.

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