Mapping Informal Savings Practices: Peru Final Report

Mapping Informal Savings Practices Peru Final Report Jeff Macdonald
Mapping Informal Savings Practices
Peru Final Report

Jeff Macdonald August 2011
Microsavings and Payments Innovation Initiative
Table of Contents
Table of Contents...........................2 General Overview of Peru..3 Methodology5 Sicuani (location background and surveying strategy)...5 Puno (location background and surveying strategy)...7 Infierno (location background and surveying strategy)....8 General Location Comments....9 Composition of Sample (Representation and Bias).....10 Survey Instrument and Process...11 Comments on Updated Survey....12 General Comments on Survey Instrument...13 Challenges to Data Collection...14 Findings and Trends from Surveying...14 Perus Financial Hierarchy...15 Savings Attitudes....20 Individual Savings Mechanisms....21 Group Savings Mechanisms.23 Common Patterns in Dealing with Expenses/Seasonality..24 Family Dynamics..26 Cultural Elements...27 Worrying and Comforting Signs.....29 Personal Comments....30
General Overview of Peru

Though still quite poor, Peru is one of the worlds more promising developing countries. This coastal Latin American nation, along with its neighbor Bolivia, has been a hotbed for microfinance and other development projects in recent decades. Peru provided an excellent location for the Informal Savings Study for a variety of reasons. Peruvians are a very proud and open breed. Many understand the large structural problems facing their country, as well as the high level of poverty; yet they are optimistic that once the government is reformed these hardships will be alleviated. This sentiment is particularly strong given the recent electoral change to left-leaning populist candidate Ollanta Humala. Because the country is highly saturated with NGOs and MFIs, most respondents are quite familiar with various financial institutions and aid programs. Many poor Peruvians utilize these resources to make their lives easier. There is no shame or negative stigma attached to using such financial instruments or talking about them, which made my surveying much easier. The Peruvian economy has been somewhat of a growth miracle in the last five years (excluding 2009), growing at about 8% annually. Of course, this figure is an absolute measure of growth, and it is clear that the bottom millions have yet to see massive changes in their income or lifestyle. Though social mobility is possible, it is confined to the densely populated urban areas that offer extensive education, insurance, and banking options. The more remote rural and mountainous regions, which compose a large portion of Perus economy, remain frozen in time in many respects. They tend to use more primitive farming and business techniques, and most citizens labor for basic shelter and alimentation. Nonetheless, MFIs and NGOs have made extensive efforts to reach out to this final unbanked frontier, tailoring their products to the diverse demands of these clients. Thanks in part to these recent efforts, the rate of poverty has dropped to around 30% and the country boasts a high Human Development Index score of .723. A notable feature of the Peruvian economy is its general lack of a healthy formal sector, whether public or private. Countless university-level graduates cannot find work and are forced to try their hand in the ultra-competitive informal sector. This sector, which is heavily saturated with business loans, relies heavily on contraband from other countries because there are few factories and production centers in Peru. State jobs are highly coveted (mostly teaching positions in public schools), because they include a steady salary, pension, and use of the staterun Banco de la Nacin. Nearly all of my respondents are from the poor informal sector, and virtually none receive any type of aid from the government, nor do they pay taxes. This cross section of people, though hard-working, seems to be trapped in difficult trades without the business skills or financial knowledge to escape a stressful and laborious lifestyle.
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The strong dissatisfaction with the central government (all of the power is concentrated in the coastal capital of Lima, of which 1/3 of the population lives) has recently come to a boil. The tumultuous election process evidenced this, as well as large strikes across some of Perus poorest regions. Poor campesinos and miners rose up against the government sale of land and resources to transnational corporations. One of my research locations, Puno, was the epicenter of such rioting. Because of the general government indifference towards poorer Peruvians, many MFIs and NGOs have stepped in to take the place of the government and provide a type of welfare system and safety net for the people. The central government places very few restrictions on these organizations, and as such Peru is currently ranked the number one country for microfinance. Nearly every town, big or small, is littered with banks. These institutions function in a type of hierarchy, with small MFIs at the bottom and large government banks at the top. I will later detail the specific subsections that different groups of respondents used, but it suffices to say that Peruvians have enormous access to financial institutions. This is due to a recent microcredit revolution in the country, led by the ubiquitous Cajas Municipales. I will describe the advantages as well as shortcomings of such financial saturation, and in particular how it influences savings behavior. Peru has three very distinct regions, each with its unique character and attributes. There is the coastal region, epitomized by Lima and Ica, the Andes mountain region and high plane region, featuring Cuzco and Puno, and finally the rich Amazonian jungle region, home to Iquitos and Puerto Maldonado. Lifestyle varies greatly in each of these geographically and ethnically distinct regions. I focused my research on the Andean and jungle areas, which tend to be Perus poorest and are generally ignored by the central government. As such, I encountered many respondents of indigenous heritage. In Peru, there still exists a large amount of racism. Generally, the darker and more indigenous looking you are, the less likely you will be able to rise above a life of constant, 7-day-a-week toil. This is important to take into account and I have made this explicit in the codes for Race. Finally, on a more basic level, Peruvians are very family-oriented and nearly all are Catholic (at least nominally). They enjoy large families and have strong support systems of friends and family to depend on in case of emergencies. In my experience, there also appears to be a high level of gender equality. There is not a wide sense of machismo for women. Also, Peruvians tend to think in the short-term and seek more instant forms of gratification. As I have mentioned before, they are also very hard workers and many are self-employed and work a number of jobs just to get by and support their friends and relatives. Given these circumstances, there is not a very large savings culture in this country, particularly when compared with the burgeoning demand for loans.
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In this report I will detail my findings and connect them to context-specific explanations and theories. Perus saturation of microfinance is rivaled by few other developing countries in the world, so it is essential to look at the data and findings with this feature in mind.
Methodology
I surveyed in three distinct locations in Peru. Because I speak Spanish fluently, I did not need a translator. For each location, however, I utilized contacts that served as unofficial guides initially to help me get situated and identify particular locations for surveying. I will describe each location and the unique strategies I used to survey in each. After, I will make some general observations about the overall methodology I used and how this lead to certain biases in my sample.
Sicuani - Location Background

Sicuani is a semi-urban provincial capital with a population of about 50,000 people. It functions as a type of commercial center for a large agricultural region. Many people from the surrounding campo (rural countryside) converge on the city for a variety of services, primarily agricultural supplies and general goods. The city is fairly bustling with business every day of the week (the vast majority of store-owners I spoke with work 7 days a week, a necessity to make ends meet), and there are always informal colectivos and combis (multiperson taxi-cars and vans) coming in and heading out for the campo. On Saturdays, there is a feria (large market) in Sicuani, and people from a wide geographical region congregate in the large outdoor markets to buy and sell their goods. These markets are more or less models of perfect competition, with dozens of vendors all selling the same product for similar prices. Large distributors, called mayoristas carry supplies in bulk and small street vendors, or minoristas, sell the product on the streets directly to consumers. Markets are filled with contraband from all over the world, typically smuggled in from neighboring Bolivia. In this environment, business loans and informal personal loans are ubiquitous. Many respondents described that a constant stream of credit, whether formal or informal, was necessary to stay competitive. The people of Sicuani are very accustomed to large seasonal swings, because of their proximity to the campo. During the time of surveying, it was the cosheca or harvest season so business was slower. At the end of this season, in late July, farmers begin to flood the markets with their crops. The raising, buying, and selling of livestock is also a very common practice in this region. Sicuani is known as the capital of solidarity and this was evident throughout my surveying . Andean culture tends to be very communal, and community members work together and share
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much of their financial resources. When there are emergencies, whether they are related to business or personal life, friends and family are quick to come together and offer financial support. In this smallish town, there is large saturation of financial institutions including MFIs, NGOs, and small private banks. These organizations enthusiastically offer various forms of micro-credit to poor individuals, yet this push for micro-loans is not at all matched by an emphasis on savings.
Sicuani - Surveying Strategy

IPA associate Adam Betty suggested this region to us, and put us in contact with the head of the local branch of Arariwa, an MFI that IPA has worked with on projects in the past. Upon arriving in Sicuani, I used contacts from this MFI to meet respondents as well as other financial institutions. Therefore, my sample is biased in that towards the beginning I was largely finding respondents that had some connection with MFIs (because there was a level of trust when I mentioned the name of various MFIs that I had been working with in the town). I am very indebted to Arariwa; they were very hospitable and truly helped Zachary and I get our research off the ground in this first research location. Because people were generally very busy, I would often set up times later in the day or week to come visit them to conduct the survey. Often, I had to visit three times to fully complete the survey, because even though Peruvians were many times willing to do the survey, they are terrible with time and often get impatient or want to get back to their work (even if that consists of sitting down in their market stall and doing nothing). This made surveying a bit difficult, because despite a full day of scheduled interviews, inevitably a few respondents would be inexplicably missing, late, or suddenly uninterested. In addition to meeting people through MFI contacts, I also walked around striking up conversations with various business owners and people on the street. These conversations didnt always end in surveys, but they provided many valuable qualitative insights. I embraced this serendipitous encounter approach more fully in Puno, my second research location. In addition, I was able to sit in on a number of savings and loan group meetings as well as loan appointments through my connections with various MFIs. From these, I was able to observe the behavior and attitude of poor Peruvians as they made their financial transactions. To summarize these various meetings, it seemed as though many microfinance clients felt somewhat uncomfortable or uneasy at these financial institutions. Because they lack a high level of financial literary, they tend to put all of their trust in the leaders of their group or their credit officers without giving much input. At nearly all the savings and loan group meetings I attended (at both Arariwa and Pro Mujer), there was inevitably one or two members of the group that were missing or could not make their full payments.
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Generally, taking out loans is very stressful for these people, but it is a necessity for their businesses and in order to cover larger family-related costs such as funerals. My sample is largely representative of small business owners and vendors. I completed 26 surveys in this location, and additionally gathered a large body of qualitative notes from the various MFI clients that I spoke to and observed.
Puno - Location Background

Puno is a bustling urban hub located on the shore of Lake Titicaca with a population of 100,000 people packed into a small geographical area. This location attracts many tourists and is also a center of commerce because its proximity to Bolivia (from which loads of contraband are smuggled in). The area has been designated a Special Economic Zone by the central government, and is one of Perus poorest. Many people in the surrounding countryside devote their time to agriculture and raising livestock, while the city dwellers focus mainly on the buying and selling of goods. A few weeks before I ventured to this location, the entire city was at a standstill because rioting campesinos and informal miners converged on the city to protest the government. As such, I got an interesting perspective of the financial as well as emotional climate in this city after this civil unrest. For many storekeepers, this affected them greatly because all stores were forced to close down and additionally tourism screamed to a halt. In my surveying I observed how these individuals coped with this significant local economic downturn, and how this affected their cash flows and savings behavior. Puno is filled to the brim with various financial institutions that compete for clients with attractive interest rates and promotional deals. It has been the target of much research and project-piloting in recent years; a thorough assessment of the financial environment can be found here http://www.fsassessment.umd.edu/publications/financial-landscape-peru.html.
Puno - Surveying Strategy

Upon my arrival in Puno, I met with a few IPA staff members who were working with an MFI called Pro Mujer on a program evaluation project. I met with the local surveyors that IPA hired and they gave me useful tips for surveying (though they also made me envious of their slick netbooks that they used to survey). Per their suggestion, I spent the majority of my time surveying in large markets throughout the city, where people were likely to be open about their finances. Market-dwellers in Puno have been targeted by many MFIs and NGOs to develop products such as group-liability savings and loans groups that will better suit the needs of this population.
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I had an official IPA credential printed to wear around my neck as I surveyed in the citys four large markets, and this was very helpful. I simply wandered around the different locations striking up conversations with small store-owners and soliciting surveys. Having established various friendships using this technique, I branched out to their family and friends as well. My sample from Puno is quite homogeneous, though it captures the essence of the commercial hustle-bustle that is Puno. Life in Puno is fast-pasted a full of transactions. I completed 21 surveys in this location, many of them with women.
Infierno - Location Background

My third and final research location was a small village called the Native Community of Infierno located deep in the Amazon jungle of eastern Peru. The small village has no running water or electricity, and is located about an hour away from a moderate sized town called Puerto Maldonado. Though native people have been living on the land for centuries, the formal community was founded in 1985 and includes an organized board of elected officers and bimonthly community meetings. The community has an ecotourism relationship with a company called Rainforest Expeditions, and community members receive an annual check from the tourism proceeds in the area. There is a large, popular river lodge up the river from the community and many male community members staff this location. Infierno definitely fits the description of rural. The small community is very spread out and most community members support themselves by agriculture. It is situated alongside a large river that the community uses as its main water source, its chief form of transportation, and to irrigate crops. Outside of a government health outpost and a small school building, there are no public or commercial buildings. Because there were no lodgings or stores, I stayed with the very kind and very old Shaman in the community free of charge. This location was interesting not only because of its remote and exotic locale, but also because of the community structure that I observed there. Membership is only automatic for natives that have lived in the community for their whole lives. The majority of this recently formed community, however, hails from the regions of Cuzco, Puno, and other Amazonian areas so they must undergo a membership application process that consists of attending many meetings and having residence for about 10 years. The community of Infierno receives a large sum of money from Rainforest Expeditions each year, and divides it up among the various community members (only one member from each family receives these funds). Before the funds are distributed, however, a certain percentage is taken out to serve as communal funds. These funds are held in separate accounts that are
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marked for education, health, and taking care of the elderly. In addition, there is a slush fund that community members can withdraw loans from with relatively little interest. Though this system sounds ideal for a small rural community, many residents complain that the leaders mismanage the money and pocket much of it for themselves. I was privileged to sit in on a group meeting (where all the community members attend), and many members gave speeches about the need for serious reforms in the handling of the communitys fina nces. The junta directiva (the executive board of the community that handled all the money) tried their best to deflect the criticism and insure the members of Infierno that they could be trusted. Many respondents I spoke with where not thrilled about the mandatory contribution to the various communal savings funds.
Infierno - Surveying Strategy

Surveying in this remote region was a bit more difficult because I had to obtain formal authorization from both the communitys president (who was nowhere to be found for many days) as well as Rainforest Expeditions, the company that partners with the community. After quite a process, and a mandatory donation to conduct the research, I was given the green light. Each day, I ventured out to a number of small houses in the community to conduct surveys. This was made difficult by sometimes torrential rain, and the fact that men tended to be out in the fields all day (and there is no electricity at night). Despite these set becks, I had moderate survey success with 10 surveys and was able to learn about the unique financial functioning of the community.
General Location Comments

Each one of these locations featured a distinct financial environment and mindset. Nonetheless, the savings practices and attitudes I recorded in each were not wildly different across the different geographical locations. In general, Peruvians save very little, and in this report I will offer various explanations for this general trend and comment on possible solutions. Peru tends to be a very top-down country, in the sense that for this project I needed to obtain authorization or referrals from the heads of organizations in order to pursue my research and establish trust. Where possible, I used in-country IPA contacts and had them send out emails to various people higher up in MFIs in order to help me out. I followed up this initial contact with many emails, phone calls, and visits to make this research a success. If you are not a part of some trusted organization or referred by one, this research can be nearly impossible in Peru. I am indebted to Miguel Paredes, Adam Betty, and Hannah Trachtman for all of their help and suggestions.
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My sample did not consist of one of the coastal cities. However, the coastal region of Peru tends to be wealthier, so I chose to focus my research in areas of more serious poverty and social conflict. I would have also liked to do a bit more rural surveying, but it was difficult in these months because it was the harvest season and I ran into various logistical problems. I attempted to survey in the rural regions of Cochapata (near Sicuani) and Platera (near Puno). Although I was accompanied by IPA field workers, these locations did not work out. I think it would interesting to do the savings survey across many different regions of Peru, instead of trying to get about 30 in each place, to see an even wider variety of savings mechanisms in the many diverse environments in this country. However, I do see the value in staying in one place for a few weeks because it allows you to really gage the financial attitudes of the region and offer a considerable qualitative complement to the raw data collected. For this project, I believe the qualitative observations (such as field notes as well as this final report) are just as valuable, and perhaps more reliable, than the data.
Composition of Sample (Representation and Bias)

My sample is largely composed of self-employed respondents who run a small business, work in the field raising crops, or have a stall in the market. Peru has a massive informal sector, because there is a general absence of a healthy, thriving formal sector. These respondents generally do not pay taxes, nor do they receive any substantial help from the government. This segment of the population tends to work just to be able to support their family; they typically do not have ambitious business plans or long term personal life goals that they are saving up for. Within this sample, I was able to access both men and women, as well as a variety of wealth levels. The respondents have almost all tended to be middle-aged, with a few younger and older respondents in between. It was more difficult to access rural people in the campo during this study because of reasons mentioned in the previous section. As such, the majority of my respondents are those with access to various financial institutions. I find this sample interesting because I was able to evaluate more closely the effects of recent efforts from commercial banks, MFIs and NGOs to cater to low-income respondents and mimic the advantages of the various informal mechanisms that they use. Through my surveying, Ive found an interesting blend of formal and informal finance mechanisms, as well as countless opinions about the strengths and weaknesses of these different devices. Many respondents admitted to using more informal savings mechanisms in the past, but commented that now formal options are considerably more reliable and less stressful.
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About half of the respondents I surveyed were of indigenous heritage and the other half were of mixed heritage (indigenous and European). Also, nearly every respondent in the sample claimed to be Catholic, though most were Catholics in name who did not regularly attend church or practice their religion in a significant way. Most respondents lived together with either their parents, siblings, or other relatives though their individual households (which only includes their dependents and those they share their finances with) within these living arrangements were typically around 4-5 people. Because I was not walking door to door soliciting surveys, my sample is definitely not representative of any one region or country as a whole. I tended to meet respondents in large common areas, at various financial institutions, or at their place of work on the streets or in the markets. I generally chatted with potential respondents for about 10-15 minutes about their financial lives before bringing up the survey. Though I faced very little rejection, this strategy was perhaps not as efficient as cutting to the chase and spreading a wide net trying to survey random people in random places. Because there was no monetary incentive involved, I had to rely on good will and develop a small friendship with each respondent beforehand. Given this survey strategy (without a designated guide leading me around and setting up interviews with me), I was able to complete less surveys overall, but I am extremely confident about the quality of the surveys I completed. I firmly established trust with each respondent and helped them open up about the details of their financial lives (which should be evident in my field notes). That said, it is important to note that there is inherently bias because only a certain type of person is willing to sit down and discuss their savings and loans behavior for multiple hours with an almost complete stranger. Additionally, given my surveying style, I was not able to tap into the following segments of the Peruvian population very extensively: younger people, formal sector employees, rural farmers, and the ultra-poor. Though these groups constitute important parts of the population, I feel that I have captured the common savings practices in Peru at this point in time. I was surprised to have found very few informal savings groups (such as ROSCAs, ASCAs) and informal savings options in general.
Survey Instrument and Process

I have submitted an extensive document commenting on my evaluation of the survey instrument. Here, I will comment on the newest format of the survey (which has been greatly updated) as well as summarize my general comments about working with the survey.
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Comments on Updated Survey

The prize element of the new Time Preference section should be helpful conceptually, though I still believe that fac_c_pref_7 will throw off a fair number of respondents. Instead of using this question to test if they understand the hypothetical situation, I find it easier to ask them why they prefer the particular option they chose. This will not only allow the surveyor to gage their comprehension of the question, but the respondents explanation is often illuminating (I almost always asked for such an explanation and included my findings in the field notes). Asking for household names might be considered awkward, but I suppose we are going for a more financial diaries feel with more personal, qualitative stories. I believe this is a more natural way of inquiring about the family setup, however, because in my experience people like to talk about and describe their family, instead of being asked rather strange questions about whether or not they would be mad if someone else hid money from them. Surveyors will have to play with this section a bit in order to get the best, detailed information about a family without coming off as demanding or overly inquisitive. The new Economic Activities section offers a more intimate and exacting way of estimating income, though this process might become very tedious with large families. It can also be difficult to judge how much of income is shared. Perhaps a question can be added about the specific nature of income-sharing that goes on within the household, because most households seem to be in between sharing everything and sharing nothing. The addition of question fa_a_0 gives helpful context, though surveyors will have to tweak it to get the right kind of response. Perhaps something like, is savings important in your family, do you have friends or relatives that save, in the case that they themselves express a rather lackluster attitude towards savings (as I often encountered). The Access to lump sum section is more geared toward obtaining a solid estimate now. However, between the two questions (how many times during the year and how much in total was spent) this requires considerable recall. Respondents can most easily tell us how much an expense typically costs each time, be it weekly, monthly, annually, etc. Since we are focusing on the respondents access to that particular sum of money, I believe that we should inquire how much it costs each time, and then ask how many times a year it occurs. I am uncertain that the new Household Expenditures section will not yield accurate estimates. Many respondents are not aware of how much they spend in a particular month, because most rely on very rough mental accounting and money is constantly being pushed and pulled through the household. However, I suppose this is the best way to go about getting the most accurate estimate we can, because we can add up the respondents various monthly expenditures.
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The edits of question sav_a_6 through sav_a_14_bis are a helpful improvement. The older questions specified money from savings (and now it is just money in general). I had man y respondents telling me that their family and community members never asked for money, which seems rather unfeasible, but perhaps that was because of the savings component of the question. I am a fan of the addition of business supplies to the description of in kind savings, because from my experience many respondents truly view this as their chief form of savings. It seems that they sometimes overestimate the liquidity and value of these assets, but many times the business is the livelihood and the mechanism through which people save and loan. As Ive commented elsewhere, business and personal finances are practically one in the same. The additional of the specific in kind savings blocks for self-employed businesspeople and farmers will certainly shed light on this. I am fond of the addition of loan_a_10-12 in the Loan Generalities section, because we can begin to gage this so-called trade-off between loans and savings. With multiple loan payments every month, saving money does not seem feasible to many people. While respondents will go to extravagant lengths and make large sacrifices to insure that they make a loan payment on time, they would not do these things to keep up with a vague monthly savings goal. This speaks to the psychological component of borrowing versus saving, which will be vital in this research going forward, particularly in Peru.
General Comments on Survey Instrument

Towards the beginning of my time in the field, I spent many tedious hours translating and perfecting the survey instrument. With new versions coming in weekly, it was a very trying process. After numerous versions, and a bit of trial and error, I believe that we have created a survey that is enormously better than our very first one. It also takes time to adapt the survey to the local context. For many questions, I had to develop very specific strategies and examples to obtain the most accurate data. This was a big challenge for this internship, and ultimately a rewarding one (as you can see I have analyzed every section and question of the survey). I am aware that is project focuses on savings, but as I have expressed throughout my field notes, Peru lacks a general savings culture and I believe that the loan culture is among the biggest reasons for this lack of savings. In my experience, the amount of savings and the level of commitment to savings are wildly depending on other, more urgent financial needs of respondents. It is essential to understand these barriers. Therefore, in terms of the survey, we must sometimes take the approach of not directly asking about savings, but trying to figure out why other beliefs or financial needs are seen as more important. This is not captured in a
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simple why dont you save with x or y mechanism question, there needs to be a bit more probing as to why income is allocated to things other than savings.
Challenges to Data Collection

The biggest challenges to collecting data came from the length of the survey. Though perhaps necessary, the length turned many respondents off to the idea altogether. Though the generic section was nice and breezy, respondents sometimes got bogged down in the many savings and loans blocks throughout the course of a 2 hour interview. I also found this survey difficult to administer when dealing with respondents with very little education and financial literacy. Because of its extensive estimation and recall sections, perhaps it needs some dumbing down or an alternate version for the ultra-poor and ultra-rural populations. Though I commented on in before, perhaps the biggest barrier to easy data collection is the unreliability of respondents in terms of sitting down for a complete survey (or sitting down at all). Often times respondents are hesitant to give answers in the specific format that the survey questions demand, and prefer to explain the situation in a more conversational style. Part of a surveyors skillset is leading these conversations to include the desired data points w ithout pestering the respondent too much. Though I believe that the survey is certainly asking the right questions, and in many instances also using the right strategies to get at the answers, there is inevitably a measure of unreliability to many the figures that respondents give. Given the constraints of our one shot survey, this is the biggest challenge to accurate data collection. These challenges, and possible solutions, are described perfectly in the Appendix of Portfolios of the Poor, in which they had the resources to utilize a financial diary method to analyze specific data on cash flows as opposed to a one-shot survey like the one that we are using. Perhaps we can incorporate some of these strategies once the Informal Savings project is scaled-up, because it is essential that the data reflect the true financial lives of the worlds poor and their ability to save.
Findings and Trends from Surveying

I will now discuss the details of the savings mechanisms that I did and surprisingly did not observe. I will first describe some essential background factors about the financial lives of Peruvians that greatly influence the savings environment. First of all, it is important to note that Peru has an overwhelmingly cash economy. The vast majority of transactions and payment methods are taken care of in notes and coins. Though mobile banking and debit cards have had some promising results in the development literature
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Ive read, I did not see much presence of such financial tools in the segment of the population I was surveying. Instead, I spoke to many people that kept small savings boxes at home, or simply hid their money elsewhere to keep it safe. Because most workers do not receive checks and do not have checking accounts, they are constantly passing around money and making trips to and from the bank (or their home) to facilitate transactions. Also, Peruvians are constantly sharing money with friends and family; they do not tend to be stingy or obsessive about money. Money is a means to put food on the table and educate the children more than anything, and very few families spent money on luxury or leisure-related goods. With the little free time they have, most of it is spent playing or watching ftbol, attending church, or spending time with their large families (and perhaps enjoying a cerveza from a local bar or chicken from a pollera). In this simple and humble culture, communities work and struggle together. Their financial behavior is largely influenced by that of their peers, and people of a similar socioeconomic background tend to follow the same trends as others in their situation. As such, Peruvians openly talk about money and financial struggles that they currently face, so the survey I presented was nothing out of the ordinary for many of them.
Perus Financial Hierarchy

Before delving into the various trends and behaviors I observed, it is essential to understand the basic structure of Perus financial system, which seems to have more of an effect on savings and loans practices than any other factor I observed. Banks are ubiquitous in this country, and credit tends to be widely available to nearly all that seek it. It used to be the case that loans required collateral and a healthy credit history, but since the recent micro-credit revolution has shown that poorer individuals are reliable clients, small banks and MFIs have sprung up rapidly and now they compete aggressively for this large market of unbanked Peruvians. There is a wide spectrum of Peruvian financial institutions, with small profit-seeking private banks at the bottom and large government-run banks at the top. Clients with more capital and collateral can climb up the ladder of these banks, while the poorest Peruvians, though still offered financial access, face higher interest rates and more stringent requirements at the bottom. I will describe which subsections of the population use which banks, and what this says about them and their likely savings practices. I begin with a large group of people that remains outside the entire system itself those who refuse to deal with financial institutions. Typically, these individuals lack a high level of education and have a very pessimistic financial outlook. Additionally, they believe that banks
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are out to scam them and take advantage of their financial ignorance. While this belief does hold some truth (as we will see on the bottom-most rung of the financial ladder described in the next paragraph), these unbanked individuals espouse a set of beliefs that are detrimental to their financial future. They have no ability or desire to save because they believe it is for rich individuals (like corrupt politicians and state employees and police officers), therefore they simply labor away just to scrape by from their small self-employed work. They are generally unwilling or unable to keep track of their personal finances, and therefore they do not wish to approach banks. They also view themselves as unqualified. This poorly educated and ultra-poor class of laboring citizens, of which I surveyed quite a few, remains resigned to their fate and is not eager to look for help from NGOs and banks. At the bottom step of so-called hierarchy are banks like Banco Azteca that are notorious for loaning to anyone and everyone. If a person seeking a loan has been rejected by all other financial institutions, they have a good chance of being approved by Banco Azteca. Only the most serious morosos (defaulters) who pop up on the central database called Central de Arriesgado are outright rejected. Not unlike an informal moneylender, this bank offers short terms loans with very high interested rates. The typical rate for a loan is 1.62% each week, or 6.48% monthly. Banco Azteca focuses on personal loans, not loans for businesses like many other institutions. Their philosophy is that even the very poor should have access to loans, and should not have to rely on risky and dangerous moneylenders for such rapid funds. They have a default rate of approximately 20%, which is substantially higher than other institutions in the area, but the figure is not so surprisingly considering their cliental and lending practices. The representative that I spoke to acknowledged that the customers often used informal sources as well, and that many would take out loans from moneylenders in order to pay their semi-formal loans. Although credit officers try to discourage this behavior and teach clients about financial responsibility through training programs, it is often to little effect. Interestingly, this bank offers a saving account with 8% annual interest that can be opened with a mere 1 sol, or 30 US cents. It is clear that this bank wishes to include those traditionally excluded by financial institutions. Though this seems to be the ultimate goal of MFIs and an overarching idea in IPAs research, there is a generally negative view of these lending practicing in the microfinance and development communities. They do not screen their clients rigorously and typically only require a DNI (national identification card) for a loan. Small banks such as these, and a number of smaller MFIs as well, aggressively advertise their financial services to poor Peruvians. Respondents report that representatives from these banks travel door to door in small neighborhoods passing out their pamphlets and urging people to take out loans for their business, consumption, house repairs, etc. In addition, there are countless promotional deals and minor perks that entice more and more people into this world of debt. Many inexperienced people can be deceived by the literature and the loan officers
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because they do not fully understand the terms of the loans or how the interest rates might be subject to change. Once they take on a loan (or more), they must struggle to pay back the high interest rates or else they will default and be locked out of the system. After a few weeks of surveying, I could more or less predict what financial institutions an individual used after a few minutes of chatting with them. The respondents that utilized these lower-rung banks often had a rough credit history and jumped on the opportunity to take out a loan without any real collateral. Some of these institutions demand a garante (sponsor), but many do not. It is hard to say if this cross section of Peruvians truly benefits from the loans they are receiving, because they often struggle greatly to pay them back, and in reality, they are not qualified for such loans in the first place. They are often compelled to take out the loans because they believe that it will help their business grow, or there is a grave emergency. This group of respondents tends to lack a high level of financial knowledge and saves very little. Additionally, they complement these bank transactions with many more informal behaviors. In summary, these banks offer a gateway from truly informal finance into the world of formal finance and they take considerable risks in doing so. The next step above these institutions is a litany of MFIs and NGOs that have flooded Peru in recent decades to help its poor citizens. These organizations focus on funding micro-businesses, which are plentiful in Peru. Also included in this group are EDPYMEs, which also specialize in funding small enterprises. Many small business owners, even those who have just a tiny stall in the street market, take out loans from such institutions as Arariwa, Promujer, Edyficar, or Solidaridad. Because these clients have small and irregular incomes, the process of evaluating and approving a client is quite dynamic. Although it is illegal, many of the credit officers at the various financial institutions communicate with each other about specific clients. These credit officers stress that in an environment with so many people seeking loan opportunities, and such wide availability of credit, they need good information on their prospective clients. This amounts to investigating their portfolio, doing background checks, and even making surprise visits to their houses and places of work. With the more semi-formal options, people tend to think they can stretch the truth and hide things from credit officers. This is perhaps because the environment at these places can be more lax and very inclusive, whereas formal institutions can be cold and uncomfortable for this type of client. This section of the financial ladder works closely with their clients and is often very lenient with its payment structure. In addition to offering loans and savings, these institutions attempt to train their clients to be responsible and financially savvy. I saw firsthand the work that Arariwa put into its clients, particularly with its savings and loans groups called Banco Comunales (more about these later). Pro Mujer is a similar MFI that focuses on financing groups of women and teaching them how to manage their complex financial lives. These MFIs reach out to poor,
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yet reliable Peruvians and try to offer them the advantages of informal financial mechanisms within a much more reliable and organized organization. Peruvians that utilize these institutions are often well-meaning and eager to boost themselves out of poverty. The vast majority of loans issued from these institutions are for small businesses. While these micro-loans are generally a helpful addition to a small burgeoning business, respondents often inject this borrowed capital into stagnant or struggling business and then find it stressful to keep up with payments or gain any significant profit. As such, there is little room for any type of savings. Between daily familiar expenses and monthly interest payments, it is difficult to build up any substantial amount of savings. However, many have obligatory savings accounts as part of their membership in these MFIs so they are forced to save up small sums in order to take out loans. With the properly-designed loan products and support systems, this group can definitely be brought to the next level of the financial ladder. More than any other, this group shows promise and their lives will continually improve with more access to better institutions and services. The next big step is to the extremely popular system of Cajas Municipales. This chain began as a humble MFI and now has been greatly bolstered by government support. It is impossible to walk down the main drive of any Peruvian town without seeing a few of these slick red and white buildings. The Cajas demand more requirements, and do a bit less hand-holding than NGOs and MFIs. However, if the requirements are met, they dispense large amounts of cash very quickly. By and far the preferred provider of small business loans, they offer a huge array of different loans and savings accounts specially tailored to the needs of their clients. Whether a client wants to start a business, save a business, open another branch, refinance, buy seeds for the planting season, etc., the Cajas have a unique product designed to meet that need. Typically, Peruvians with a bit of financial knowledge and a somewhat successful business will take out loans from the Cajas. This system of banks requires collateral (but usually not the clients house) and has very standardized lending practices. They also grant attractive offers to clients that are loyal and have a good track record of paying pack their loans on time. Established members can open parallel accounts when they need a bit more money during a loan period, for example. The respondents that used Cajas also tended to be more educated and more disciplined savers. The Cajas offer a fixed term account that many respondents find very desirable, because it gains a considerable amount of interest and keeps the money out of temptations grasp. The Cajas, in some sense, are an important arrival point within the financial system. Their cliental is still predominantly poor individuals, yet those with a desire to use finance to improve their lives. These individuals tend to save up for specific goals such as sending their children to college, buying a house, or expanding a business. In my experience, this type of specification or labeling incentivizes saving much more than a broadly-defined
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rainy day fund. It is clear that as you climb up the financial ladder, you get access to the better tools and more friendly interest rates. The Cajas have been an absolute phenomenon in Peru, because they offer a good service and promote the proper goals (even if they give credit a bit too liberally). Though respondents could impressively recall the details of their outstanding loans, very few could recall much information about their savings accounts (especially the fixed termed accounts). It would be preferable for financial newcomers to enter the market with the Cajas instead of the lower rungs of the ladder, where they are likely to be taken advantage of. Finally, topping the hierarchy are the large, SBS-regulated banks that are utilized by the middle and upper classes. This includes a number of national and international banks, most of which have ATMs, point of sales agents, and mobile services. These banks give out large, longer term loans and thus charge lower interest rates. Most respondents considered these large, imposing banks to be out of their league or largely untrustworthy. However, a few respondents had spouses or family members that worked as public employees, which gave them have access to Banco de la Nacin, a large government bank. These respondents had the ability to take out loans from this bank and the loan payments were simply subtracted from the monthly fixed salary that the family member received. This takes away the stress of trying to scrape the money together each month in time for the loan payment. Few Peruvians, however, enjoy the services that this state-run bank offers. Despite the recent revolution in microfinance and a booming banking sector (many MFIs and small commercial banks in Peru boast large and profitable portfolios), there is still a somewhat widespread distrust of financial institutions. I learned that in past decades, there were a number of poorly-managed and corrupt banks that targeted poorer individuals and then suddenly and inexplicably closed. Many older respondents recalled losing the better part of their savings in this type of event. Additionally, the judicial system was unable to punish these sham banks or recover any of the lost deposits. Though a number of respondents pursued legal action, they failed to see a dime of their money. However, it is clear that the government is now regulating financial institutions much more rigorously, and the average Peruvian can feel very safe with an account at a local Caja Municipal, for example. However, the anti-bank sentiment is still quite strong with many people, so they will continue to hide their cash away at home where they have constant control. Though todays banks may be more secure, many respondents still question their ultimate motives. Respondents almost unanimously distrusted large government-related banks, calling them robbers that take advantage of people using high interest rates and unreasonable requirements. Peruvians tend to see interest as a form of robbery, and I met very few respondents that were content with their current interest rate, whether on a savings account (too low) or an outstanding loan (too high). Banks compete aggressively for poorer clients,
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which has soured some Peruvians because they are selling complex financial products to a section of the population that does not truly understand the consequences or purpose of these tools and can fall easily into debt because of mismanagement. Large scale advertising campaigns and promotional deals entice the poorest of the poor to these institutions, but as I have mentioned, the banks are preoccupied with making profitable loans, and not so much paying out interest on their savings accounts. Given the level of financial access that a Peruvian has, as I have laid out in this section, it is fairly easy to predict their savings patterns.
Savings Attitudes
I will start off by discussing the perception of savings and the general savings environment (or lack thereof) in Peru. There is definite awareness of the need to save. The vast majority of respondents viewed saving as very important, mostly because of the illnesses and emergencies that inevitably come up in their lives. However, a much smaller percentage actually make this ideal of savings a reality, because it is in fact very difficult to save (even for wealthy individuals in the developed world). There are more immediate and basic needs. Food, clothing, and shelter will not be forgone to keep up with savings goals. Simply put, most people do not save because they believe that they cannot afford to do so. Many affirmed that real savings is for rich people with employers that take care of them, and those who have access to low-interest loans and high-interest savings accounts. However, even for those with some financial cushion and potential to save, the effort to put aside money each month was lackluster. So despite a general awareness that saving up money for future expenses (both planned and unplanned) is important, there is little action or available options to encourage these behaviors. This contrast is immediately apparent in the Savings Perception section, as people would say they are committed to savings, and would like to save, only to admit later that they do not currently save, but have saved in the distant past. On that point, I believe that we should add some questions to the survey that gage savings perception throughout a lifetime, and see if respondents associate certain stages of life with savings and others with spending. By and large, people with families and children do not believe that they have the capacity to save, while single respondents or those will no dependents (such as older couples) seem to be better savers. Additionally, business owners do not tend to separate their business and personal finances, and do not set aside money for savings. All of their savings takes place in their business through inventory spending. If they need a lump sum, they try to sell off their merchandise. In addition, when asked about their mental plan for finances, it is very common for these respondents to mention grand plans of expanding or improving their business (much more than thinking about their childrens education or old age or even short to medium term expenses). Many hold a vague dream-like plan for their business a few years down the road,
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and many believe that it is possible to achieve this plan by taking out loans, or saving up a large sum of money that is often unreasonable based on their savings behavior and income. Therefore, taken together, the data from Peru will show a generally low level of savings and a higher level of loans, because many respondents in my sample belong to larger families and have their own micro-businesses (two groups that appear to have lower savings rates). This generalization of the savings in Peru is drawn from my experience as a whole, including all of my informal chats, meetings with banks, discussions with local economic development officials, etc. For the purposes of this project, however, I typically attempted to seek out respondents that did have some type of savings, so that I could better study the mechanisms that they used. This is to say that I generally avoided surveying people that affirmed to me in a conversation that they do not save in any way, shape or form.
Individual savings mechanisms

The savings I observed largely took place on an individual basis in the home or with a small local bank. Saving up money is not viewed as an elaborate or particularly important affair, so few respondents went to the pain of joining savings groups, using savings collectors, or even saving with other people. This would simply add an unnecessary element of risk and unreliability. Given the omnipresence of banks in Peru, I encountered very few respondents that suffered from the opportunity cost of routinely traveling to the bank. Most urban and semi-urban respondents worked within 1 km of their bank. In the remote rural region, few people regularly used banks, but those that did did not express dissatisfaction, because they needed to venture into a bigger city for other errands anyway. Of the hierarchy I described earlier, about half the respondents fell within the second tier (using moderately sized MFIs, NGOs, and private banks), while the other half was split between people who refused to use banks and those who utilized the Cajas and beyond. Also, it was quite common for respondents to own a few animals or a bit of farmland, which can be considered a type of in kind savings. Respondents used the bulk of this food for autoconsumption, but could turn a decent profit if there was a surplus. Additionally, many business owners view their products as a type of in kind savings. They store the larger part of their wealth in their merchandise and pump business loans into this inventory to increase its size. If times are rough, they sometimes need to slash prices and sell off their products to access these savings. More instinctive, however, is to take out either a formal or informal loan to cover the tough financial straits and then slowly repay this debt with profits from the business. More people save at home than in banks, and they gave a variety of reasons. First of all, it is much easier and more flexible. Given that these people are not saving large amounts of money,
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and are constantly drawing upon their savings, it doesnt make sense to keep it locked away in a bank account. In addition, they do not find the interest rates very attractive, usually somewhere around 7-8% annually, especially when they compare these figures with the interest that the banks earn on loans. As I mentioned before, a fairly high level of distrust for financial institutions pervades the country, so people are skeptical to put their hard-earned savings in an entity that can always fail and can always close as one respondent put it. While banks give special offers for loans, there are not similar promotions for savings. People will not save enthusiastically with financial institutions unless the incentives are powerful and the accounts work for them, or at least seem worth it based on an attractive interest rate. The fixed-term savings accounts have certainly had some traction with people that are truly committed to saving up money for particular goals, yet this type of account is not feasible for many poor Peruvian families who need constant access to their savings in order to smooth out the irregularity and unpredictability of their incomes. For survey questions that deal with savings goals, many respondents display a combination of wishful thinking and fallacious mental accounting. When asked to estimate savings goals for one month and then six months, respondents routinely gave overinflated numbers that would not be achievable with their current savings habits. I often feel that this type of monthly and annually planning is a foreign concept to many respondents, as they often laugh at my inquiry about a date so far in the uncertain future and then proceed to give me a figure that is very improbable. The case is made stronger by responses to fa_a_16, which asks respondents to describe their financial plan in an open-ended manner. Though respondents admitted to having a plan in the previous question, they seemed to produce only a very vague representation of long term goals related to their home and their business when I inquired further. Though Portfolios of the Poor suggests that the poor households of the world carefully track and manage every dollar that enters their complex lives, my surveying in Peru seems to cast some doubt on this hypothesis. In terms of the mechanisms that respondents would ideally choose to save with, the big winners were the Cajas and buying up land. Many people are hopeful to use the Cajas once they have gained a bit more financial literacy and can understand the terms of loan agreements and savings accounts. Through my surveying, I noticed that people know very little about the details of their contracts with various financial institutions. They are uncertain of interest rates and late fees and the like. The other coveted saving tool is in kind property savings. Countless Peruvians affirmed to me that the very best way to save was to purchase cheap land in the campo, or maybe even a small foreclosed house, and sit on it for a few months or years as the property value goes up. Though this method is clearly attractive because it is both easy and profitable, the amount of capital needed to initiate this type of investment would require an
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extensive amount of savings beforehand (or a sizable loan, which would be nearly impossible to repay for at least a few months or years). Generally, I was surprised by the lack of savings by respondents with other poor individuals, such as group savings or saving with friends or family members. There are many loans of this informal type, but not much in the way of savings. Most respondents responded that there is no confidence with other people handling their savings, though loans do not seem to be so problematic. I see clear evidence of the borrowing to save phenomenon, because in response to illness, accidents, or slow sales, the first instinct is to look for an interest-free family loan, and if that is not a possibility, an MFI or bank loan. Very few respondents had the conception of a rainy day savings fund that could be utilized during the rougher patches.
Group savings mechanisms

Though I have heard the term pandero floating around and a few respondents mentioned that they had once been part of an informal ROSCA, I did not meet a single respondent that was currently a member of such a group. Given the current alternatives offered by financial institutions, this is not entirely surprising to me. If previous pandero members enjoyed the commitment aspect of the group or the communal feeling, modern MFI savings groups can offer these things minus many of the drawbacks of an informally run savings association. One such group is Arariwas Banco Comunal, which functions as a type of hybrid ROSCA/ASCA that is managed by the MFI to insure integrity and compliance. These groups have anywhere from 10 to 20 members, usually small business owners or individuals with other sources of somewhat steady income. Within a six month cycle, members have monthly reunions in which they deposit their savings and can solicit a loan from the group fund. They have a mandatory contribution of 5% of their income plus how much else they wish to contribute voluntarily. The group is run by four elected positions (President, Treasurer, Secretary, Scribe) as well as the Arariwa credit officer who oversees the proceedings, runs the books, and keeps the group money in a bank account where it can accrue interest. The position-holders have a certain level of autonomy in how they manage the group and ensure that the group pays punctually and in full each month. The maximum loan group members can take out is 2000 soles/ 725 USD, and they receive their total savings at the end of each cycle. The final meeting of each cycle is full of joy and celebration, as everyone receives the money they have diligently saved together over the past half-year. There are fines for late payments, as well as arriving late to group meetings, yet these fines are primarily paid into the group fund so the whole group ends up benefiting. Because I established a good connection with Arariwa, I was able to sit in on a number of group meetings and observe the proceedings. At the close of every meeting, I would chat with respondents about what type of things they were saving for and if they enjoyed saving with this
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group. Pro Mujer, another MFI, offers a similar savings and loans group option largely for women called Asociaciones. These groups follow a model of group-liability (though IPA is currently running a study on group versus individual liability with Pro Mujer groups in Puno). In my final research location, Infierno, I observed an entirely different form of group savings. The community and all of its members functions as a single entity; electing leaders, voting on important issues, and saving money for its important communal objectives. Every year the community receives a large sum of money from tourism in the region and divides it up among the officially registered community members. Before this happens, the executive board decides how much money should be allotted to various community savings funds for education, funerals, medical attention for elderly, etc., and deducts an equal portion from each members annual check. This is obligatory savings, which many community members dislike, even if it will one day benefit them or their families. I was able to sit in on a community meeting and during the open forum section many community members complained that they would like to decide what to do with their full check, not just the portion left over after putting money aside for community savings. Though the community dislikes this policy, it is certainly for the better. I spoke to many community members that benefitted from these community funds when one of their loved ones fell sick or died. Though resented, perhaps mandatory savings is the right way to go about promoting savings until people embrace the concept on their own terms. Though all these group savings mechanisms certainly have their merits and bring people with common goals together, groups are inevitably susceptible to a plethora of issues. Though Peruvian culture is very communal and supportive, this solidarity functions better when it is not forced. I spoke to a number of respondents that were previously in groups with Pro Mujer and Arariwa and left because the group dynamics made the process stressful and cumbersome. Though many people may be content to help out a friend in a time of need, the formal group setting establishes an uncomfortable obligation that cannot be escaped and can bring about considerable tension and frustration. As I was surveying in Puno, there was one Pro Mujer group that was collapsing because one of the members had cancer and could not make her payments. In response, none of the other women showed up to the mandatory payment meeting because they did not wish to cover the costs for their poor friend.
Common Patterns in Dealing with Expenses/Seasonality

I encountered very few respondents who enjoyed a fixed and regular income. Many were accustomed to large swings throughout the year and therefore had to carefully manage and distribute their accumulated funds. The few people I met with the luxury of a dependable income source were primarily state employees (who also enjoyed health benefits and a pension after they retired). If a family member did have such a salary, it typically went towards constant
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expenses such as monthly fees for school or business loan payments. Families took advantage of this reliable stream of cash immediately, and saved little for future unplanned, non-constant expenses. This second type of expenses, such as accidents, deaths, or business failures, was typically recouped by taking out loans, whether with a bank, a close friend, or a family member. By turning to friends and family for help, reciprocal patterns are usually set in motion. Most people do not worry too much about their lack of savings because they know they will be able to get funds from someone close to them, or a bank with which they already have a line of credit. It does not occur to them nor bother them that this method of mitigating shocks is more expensive and altogether less reliable. As I mentioned before, Peruvians are not particularly tight-fisted with their money. Funerals are one good example. When a parent or sibling dies, all the surviving family members contribute to a bolso (communal purse) to cover the expenses for the funeral. Though this appears to be the most equitable way to go about things, the contribution of funds typically varies greatly, and some family members share more of the burden than others. It is an informal mechanism without a strong social obligation attached to it (such as the burial societies in Africa). Most respondents claimed to have used their loan money for its designated purpose (typically business expenses), though I cannot be sure of the accuracy of these claims, particularly because virtually all respondents receive their loan money all at one time, instead of in periodic installments. I have a hard time imagining that they carefully meter out the money they need for each business expense. Interestingly, respondents consistently claimed that they paid for education expenses with their income alone, never using their loans or savings. This expense was fairly universal and constant with my respondents. I find this interesting because my research partner Zachary, who was researching informal moneylending, informed me that informal moneylenders in Peru see huge increases in traffic during school matriculation season because people approach moneylenders for loans. He also commented that a large cliental of such moneylenders were clients of MFIs that were struggling to pay off their microfinance loans. Strangely, I did not encounter these types of informal loans (for education and for paying off MFI loans) from the demand side. I had no respondents that admitted to taking out these types of loans with a moneylender. Perhaps there is a certain shame associated with admitting that extra help is needed with these particular expenses, because respondents were very open about informal loans for other important expenses such as medical bills, house repairs, and even gambling debts. It is not uncommon for respondents to hold loans from more than one financial institution, or have multiple loans at one institution. The same is true, to a lesser extent, for savings accounts.
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There is the desire to diversify and hunt around for the most favorable interest rates. For poorer respondents, qualifying for loans can be a bit of a game with the various requirements, so this process is typical. Sadly, many times they will take out smaller loans to pay big loan payments and they become trapped in a cycle of debt that they cannot escape from. Respondents confirm that many small private banks and MFIs do not think twice about issuing a loan to someone with 2 or 3 concurrent business loans. This is yet another sign that credit is being haphazardly issued, which ends up hurting poor individuals that believe they can pursue the Peruvian dream with a small bit of business sense and loans galore (see Cultural Elements section).
Family Dynamics
The family unit is important in Peru, and most of my respondents were members of sizable families. Instead of a simple nuclear family, most Peruvian households are composed of multiple adult siblings living under the same roof with their older parents as well. Therefore, there is often a dizzying array of different inflows and outflows from a single household of three generations, yet each family member works together to support the household as a whole. In general, I did not detect a high level of machismo that is often attributed to this part of the world. Rather, I sensed a high level of gender equality in most regions. Most respondents claimed to make financial decisions together with their counterpart, and women work just as frequently as men (albeit, in different jobs). For example, markets are almost entirely composed of women, and as such MFIs have catered their services to this section of the informal sector. Women are much more likely to be involved in savings groups or work with NGOs and MFIs, which allows them to keep their finances distinct and separate from their husbands if needed. More commonly, however, I observed husband and wife working in tandem for the same business, dividing time and responsibilities between the two of them. Their decisions bear equal weight; it is not to say that the head of the household is the male who must cont rol the finances and make all the decisions. Typically, the wife will maintain the store, shop, or stall, and the husband will go off to purchase and collect merchandise from the distribution centers of Peru, or will work in other jobs to bring in additional income. It is not uncommon for a Peruvian man to have a small business, raise crops on a piece of land for a few months a year, and buy and sell livestock on the side. All these sources of income are funneled into the household to provide for the children and other relatives in need (most time siblings or aging parents). I did note, however, that in the very rural areas the gender roles were much more tradition al; where the mother stayed at home cooking and tending to the children while the father slaved
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away with the crops and made all of the decisions. This was a stark contrast to what I saw nearly everywhere else, where raising children and dealing with finances was very much a team effort involving input from all sides. In terms of surveying, I feel that women were perhaps more honest about their financial situations. They tended to admit that they regretted emotional spending on their children because they could not resist the temptation. Not surprisingly, they valued saving for the sake of children more than any other reason. They also tended to be more pessimistic (or perhaps realistic) about their financial situations and some would even shed tears as they spoke of hard financial times. Males, on the other hand, tended to have a bit more pride about their financial situation. They almost never admitted to any kind of regrettable temptation spending, and claimed to be working laboriously in multiple jobs to support their families. Generally, they seemed to have a more optimistic financial outlook, claiming that things would certainly get better in the coming years because of some strategic business schemes that they had in place. These gender differences were very visible.
Cultural Elements
There is a palpable Peruvian attitude that was present in nearly all of my interactions in this country. Peruvians are intensely proud of their country, and they enjoy the influx of tourists that come to see Perus many mystic sights. Being white and about a foot taller than everyone else, I had a certain novelty factor as I ventured into some of the deeper, less tourist-ridden regions of Peru to conduct the research. Because I am fluent in Spanish, love soccer, and deeply appreciate their culture, the Peruvian people took very kindly to me. Peruvians are convinced, perhaps with good reason, that the government is corrupt and essentially offers them nothing. In general, I noticed a glaring lack of remittances of any kind, whether from the government, family members, or NGOs. These poorer people are delighted that at least MFIs and small banks will invest in them. However, there were numerous riots taking place across Perus poorest regions while I was conducting this research, and numerous respondents warned me that the tides would change and the central government would be forced to pay attention to this oft-neglected portion of the population. Peruvians view large banks, and to some extent smaller banks as well, as essentially corrupt and untrustworthy like the government. The principle reason they cite for why such banks are crooked is that they take peoples houses away if they cannot pay their loan. They complain of gaping structural inequalities within the country, in which a small class of elites holds power
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over politics, banks, and higher-level education. It is difficult to tell how much of this is true, and how much is a psychological reaction to the man, so to speak. From my surveying, I learned that Peruvians have an extremely lax sense of time, and they often are not very responsible. They have a generally relaxed life style that does not seem to mesh well with the demanding schedule and rules of the financial world. Also, there is a strong preference for the present and short term gratification. The majority of my respondents had some component of indigenous heritage, which is very common in the non-coastal regions of Peru. These people, who descended from the age-old Incas, are known for chewing cocoa leaves and toiling away in the harsh weather conditions of the Andes Mountains. They tend to be quite reserved and taciturn at first, and most speak Spanish in addition to their native Quechua. There still exists a considerable amount of racism against individuals with an indigenous appearance, which is visibly short and dark. The greater part of the population is mestizo (mixed-heritage), and a much smaller portion is Criollo (purely European-descendants). Strangely, despite this very recognizable division and classification of race, respondents had trouble answering the race/ethnicity question. I often had to inquire extensively about their origins and sometimes I could not get a clear answer. Regional differences are very pronounced as well. The three main regions are the coast, and mountains, and the jungle. I did not spend much time on the more populated and wealthy coast, but focused my efforts in the poorer Andean regions that are often neglected by the central government. The coast is known to be more open and relaxed, so perhaps there is a different set of informal savings practices there that revolve more around working with other people in groups. Just as there is a quintessential American Dream that generations of Americans have strived to achieve, there seems to be a Peruvian Dream that many have expressed, and this comes in the form of starting ones own business, or expanding the one thats already there . There seems to be the illusion that this self-employment is profitable, when in reality it is very competitive, requires arduous work 7 days a week, loans, and a good amount of stress. However, this route is the most attractive one many Peruvians can take, given their level of education and the financial tools available to them. Many hold the belief that with a little bit of business knowledge and experience, they can jump ahead of the competition curve. Businessowners have an extremely large preference for the present, assuring me that they can quickly turn a small amount of money into a large profit with various investments in their business. Ultimately, I find this fixation on starting businesses to be a bit futile because there are very slim profit margins and with all the loans, people incur a high level of debt. However, it seems to be more of a necessity in the Peruvian economy, and less of a genuine option.
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Many poor Peruvians do not have the conception of retiring one day. They believe that they will be forever working and paying things off. Even into old age, they cannot simply retire because if any expense comes up, they wont have the accumulated savings to deal with it. Many times, their children are no better suited to help them out with these expenses than they themselves are. Conversely, many older respondents report sending money to their children and grandchildren to help them out. Even when a couple receives a pension check, it is usually not sufficient and they must continue working to supporting themselves.
Worrying and Comforting Signs

To summarize, I will mention the most salient observations and take-aways from my surveying both positive and negative. Going forward with this research, it will be interesting to see the progression of these general trends. In general, there seems to be a clear over availability of credit to clients that are unable to keep up with the loan payments. Though access to credit is clearly a positive thing, too much of a good thing quickly becomes a bad thing. Additionally, it is worrying that many respondents have multiple overlapping loans and are not entirely sure of the details of each and have trouble keeping track of them. As I mentioned before, the Peruvian Dream of starting ones own business is a sentiment that pervades the poorer classes as a way out, yet there needs to be better employment opportunities because this enterprise is risky and often times uncompetitive. The rural area, though fairly well organized and with impressive access to their own unique financial options, still suffered from corrupt leadership and very traditional gender roles that suppressed women. Finally, one of the most worrying signs is the banks lack of enthusiasm for micro -savings. There needs to be a big push, because many banks told me that savings accounts are not profitable like loans. It appears that micro-savings might be the next big thing in development, so hopefully it can take hold of Peru just as micro-loans have and a healthy savings environment can be developed with various options and a high rate of uptake. On the positive side of things, I was impressed by Peruvians appreciation for the importance of savings, even if it is difficult to execute in reality. Most people I talked to were quite optimistic about their financial future and had mapped out some kind of long term plan for themselves that involved an extensive amount of savings to achieve. Also, many individuals that were outside of the financial system were eager to get involved with the Cajas and utilize financial tools to make their lives better. The Caja phenomenon in generally is a great development that
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is more and more bringing poorer Peruvians to a more comfortable financial situation with access to the funds they need. There is a very strong commitment on the part of the respondents I spoke with to educate children until the university level so they will be well prepared to enter the workforce and can one day help out their parents with their knowledge. It was inspiring to see people rise up from the poorest regions of Peru and protest government neglect and mistreatment of resources. In a parallel situation, it was inspiring to see community members in Infierno stand up to their executive committee and demand more financial transparency, accountability, and expediency in executing initiatives in the community. Overall, I detected a strong sense of gender equality in most families that I came across, which I believe improves the overall financial health of the entire family as well (because the women tend to make sure that income is spent to sufficiently cover the needs of the children, while this is typically less of a priority for men). MFIs and NGOs, which are everywhere in Peru, understand the fundamental problems facing Perus poorer citizens and have already designed services and groups to help them. Many of these innovations mimic the advantages of informal savings and loan devices that poorer Peruvians have traditionally used. I see this time as a transitional phase in the Peruvian economy, in which more and more people are gravitating towards more formal practices to manage their finances. Informal loans and savings were more popular in past decades when there were much fewer formal options. Many respondents claim that they had some type of informal finance in the past, but that these arrangements turned out badly. Now, they either use more formal and reliable options, or express the desire to do so in the near future. Things appear to be moving in the right direction. However, it is essential that the numerous financial institutions of Peru act responsibly and design the proper products to best serve the needs of this growing body of clients. It needs to be easier to climb the financial ladder that I described earlier, or else these people will be trapped with loans they cannot afford and will fail to save in any significant way.
Personal Comments
This was my first time doing anything of this caliber. Though a bit daunting at first, I quickly adapted to Peru and gained the large skillset that this project requires. More than anything, whats needed is people skills. In every new location, I tried different angles, made as many contacts as I could, and convinced poor, suspicious Peruvians to sit down and talk to me for 2 hours about their most private financial details. Though I struggled at times, it was a learning
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process and I cant describe all the things Ive taken away from this project. The more respondents I talked to, the more I came to embrace the people, the culture, and the financial predicament that so many in the world find themselves in. More than anything, I enjoyed chatting in an informal, conversation style with respondents and letting me open up to me. I often asked many questions not included in the rather dry survey just to get more context and better understand what they were dealing with. Many times, the survey felt like a secondary element, a necessity for data entry but not the core of the project for me. I was trying to understand, in broad strokes, how Peruvians managed their finances and why so few saved. The structure of the savings mechanisms themselves was not too difficult to understand. So instead I focused my efforts on investigating various other phenomena, which I have detailed throughout this report. I enjoyed the freedom afforded to me on this project. It was liberating being able to set my own schedule, create my itinerary, and ultimately help shape the survey and project as a whole. Though the numerous survey changes and translation work towards the beginning was very tedious, this is simply part of launching and piloting a new survey. I am confident that we now have a much better survey, but it will still take surveyors a bit of practice and trial and error to get used to. It would be impossible to mention here all of the tips and tricks that would be helpful for surveying in Peru that I learned over the months. However, I think I have described very thoroughly throughout the report some of the very Peru-specific strategies that I used. Though I was focusing on savings, I think it is clear that loans somewhat hijacked my project because they seem to me to be intertwined. As I have stressed throughout the report, I believe it is important to look at the whole person, the environment, and all other financial information when analyzing something like savings. I find Peru to be an interesting location because of the extensive financial resources they have. It is not so much a matter of how they save, but why or why not. I hope that in the coming years the numerous financial institutions in this country will incorporate an influx of micro-savings products, merging them into the already very popular model of micro-loaning. I am incredibly thankful to IPA for giving me this unforgettable experience in Peru. I cannot thank Henriette Hanicotte and Bill Gallery enough, who were very helpful and patient with my sometimes poor communication habits. Hopefully I will speak with future generations of Informal Savings Study interns and be able impart the small body of knowledge I have gained this summer!
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Mapping Informal Savings Practices: Peru Final Report

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Mapping Informal Savings Practices Peru Final Report Jeff Macdonald