I had the pleasure of speaking in a colleague’s “Peacemaking and Justice” class last week about economics and the prospects of helping the poor through governmental and non-governmental programs.

One of the suggested solutions to (or ameliorations of) third-world poverty that is offered by the course’s textbook is one that is very popular: microcredit. In fact, the 2006 Nobel Peace Prize was awarded to Muhammad Yunus for founding the Grameen Bank and pioneering the concepts of microcredit and microfinance.

The class discussion made me recall this interesting article from a few years ago about the upside of microlending, as well as its limits: Karol C. Boudreaux and Tyler Cowen, “The Micromagic of Microcredit,” The Wilson Quarterly 32.1 (2008): 27-31.

What fascinates me is the interplay between the existing institutions in (materially) poorer societies that are the object of microcredit programs, and these exogenous loans. By “institutions,” I mean governmental, educational, etc., but also family expectations and social norms. The article suggests that microloans are helping people—but not as much by given them credit as by allowing them to save.

Sometimes microcredit leads to more savings rather than more debt. That sounds paradoxical, but borrowing in one asset can be a path toward (more efficient) saving in other ­assets.

To better understand this puzzle, we must set aside some of our preconceptions about how saving operates in poor countries, most of all in rural areas. Westerners typically save in the form of money or ­money-­denominated assets such as stocks and bonds. But in poor communities, money is often an ineffective medium for savings; if you want to know how much net saving is going on, don’t look at money. Banks may be a ­day­long bus ride away or may be plagued, as in Ghana, by fraud. A cash hoard kept at home can be lost, stolen, taken by the taxman, damaged by floods, or even eaten by rats. It creates other kinds of problems as well. Needy friends and relatives knock on the door and ask for aid. In small communities it is often very hard, even impossible, to say no, especially if you have the cash on ­hand.

People who have even extremely modest wealth are also asked to perform more community service, or to pay more to finance community rituals and festivals. In rural Guerrero State, in Mexico, for example, one of us (Cowen) found that most people who saved cash did not manage to hold on to it for more than a few weeks or even days. A dollar saved translates into perhaps a quarter of that wealth kept. It is as if cash savings faces an implicit “tax rate” of 75 ­percent.

Under these kinds of conditions, a cow (or a goat or pig) is a much better medium for saving. It is sturdier than paper money. Friends and relatives can’t ask for small pieces of it. If you own a cow, it yields milk, it can plow the fields, it produces dung that can be used as fuel or fertilizer, and in a pinch it can be slaughtered and turned into saleable ­meat or simply eaten. With a small loan, people in rural areas can buy that cow and use cash that might otherwise be diverted to less useful purposes to pay back the microcredit institution. So even when microcredit looks like indebtedness, savings are going up rather than down.

This is a less-than-optimal solution: “savings” at a negative rate. Couldn’t we come up with a system that allows these women to save a little at a time to protect against financial shock, but that also allows them to say “no” to a family member who could take advantage of them, without losing social standing? So, the logical step might be: open up banks that are safe and reliable (perhaps the accounts could be managed by smart phone or text message), and are open all the time for deposits, but closed to withdrawals except under a few circumstances that the account holder would state in advance: extreme hunger, sick child, etc. (This is sort of what we do with certain kinds of savings plans for college education and retirement.) Then the saver could legitimately say “no” when the mooching cousin comes looking for a handout: “Sorry, I really can’t help you because the money is unavailable right now.”

But what will this do to the social structure? Clan members who are known to have these private, limited-access accounts—even though the accounts may have only a few dollars for a rainy day—may lose social standing and be refused help in other ways that are just as tangible as money. What about places where property rights are not as clearly established, or are family rights rather than individual rights? A mother-in-law might very well resent her daughter-in-law or even mistreat her for “hoarding personal wealth,” even though the MIL’s poor household management led to the family’s lack of financial cushion in the first place.

It’s easy for us to say: “Just get them loans,” or “Just get them reliable savings accounts,” but expectations and norms don’t change overnight. For example, Corrie and I will soon be doing a delicate dance with her parents about how much knowledge of and control over their finances we should have, given that our financial households may merge in the next few years as they get older. We are trying to honor their independence and treat them like adults, while also recognizing that at some point all their and our financial pieces may be “on the same table.” In other cultures, this would be a different problem or not a problem at all, because we might never have separated in the first place.

I guess the takeaway is: real life is complicated. I’m glad I live in a society with secure banking, stable currency, and relatively effective public and private institutions.