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In spite of the developed opinions and stereotypes, the poor frequently start their own businesses because of impossibility to find the work and because of necessity to support their households. From this point, poor households try to operate their own businesses to receive some assets which are necessary for the everyday life, but these businesses often do not provide any resources to overcome the line of poverty because of some limits. The poor operate their own businesses in order to earn some money in the agricultural or non-agricultural spheres, depending on the specifics of life in rural or urban regions.
To receive the productive assets, it is important to develop businesses within the large scale. The conditions of the poor typically do not guarantee the provision of the persons with the possibilities to develop their own businesses. According to Banerjee and Duflo, “many of these businesses are probably operating at too small a scale for efficiency” (Banerjee & Duflo, 2007, p. 10). This small scale is one of the basic limits for the business development. Thus, being self-employed or operating the definite small business, the poor in many developing countries have no opportunities to gain real profits from their businesses.
The poor often have to borrow money in order to operate and develop their own businesses and households. Nevertheless, the decision to borrow money from banks which is typical for the developed countries and businessmen globally is not appropriate for the poor. That is why, the poor usually borrow money from friends, the members of the family, neighbors, and moneylenders, depending on the informal relations.
The situation of borrowing from commercial banks is rare because of the contract enforcement which is disadvantageous for the poor (Banerjee & Duflo, 2007, p. 11). Thus, the rates of informal borrowing are significantly higher in comparison with the rates of borrowing from commercial banks because it is risky to lend to the poor who operate their small businesses, and the contract enforcement limits the poor possibilities to borrow the necessary money formally.
Although the life conditions of the poor make them think much about money and any resources to support their living, it is hard for the poor to save money. There are several reasons which are important to be discussed to explain the fact. The poor do not use savings accounts because “a lack of access to reliable savings accounts appears common to the poor everywhere” (Banerjee & Duflo, 2007, p. 12).
However, the poor could save money without using the special accounts. Banerjee and Duflo pay attention to the fact that the poor could easily save more without getting less nutrition by limiting the daily expenses and “spending less on alcohol, tobacco, festivals, and food items such as sugar, spice, and tea” (Banerjee & Duflo, 2007, p. 18). Nevertheless, the problem is in the fact that such a kind of saving can be discussed as the situation of resisting temptation.
From this point, saving money while rejecting the necessity to buy sugar, spice, and tea, the poor have to reject the things which are usual for the other people (Banerjee & Duflo, 2007, p. 18). Thus, self-control problems of the poor in relation to saving money should be discussed with references to their life conditions when the poor even cannot save money in their unlocked houses.
Reference
Banerjee, A. V. & Duflo, E. (2007). The economic lives of the poor. The Journal of Economic Perspectives, 21(1), 141-167.
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