Nation of Beancounters

Reason #453 for bringing Wal-Mart to India: layaways

Posted in Uncategorized by Navin Kumar on December 17, 2011

From Wikipedia:

Layaway (lay-by in Australia, New Zealand and South Africa) is a way to purchase an item without paying the entire cost at once. However, rather than taking the item home and then repaying the debt on a regular schedule, as in most installment plans or hire purchases, the layaway customer does not receive the item until it is completely paid for. There is sometimes a fee associated, since the seller must “lay” the item “away” in storage until the payments are completed. If the transaction is not completed, the item is returned to stock and the customer’s money is returned minus a fee.

In their book Poor Economics, Abhijeet Banerjee and Ester Duflo are puzzled by

…the number of unfinished houses [in developing countries]. These are houses with four walls but no roof, houses with a rook but no windows, would-be houses that have an unfinished wall or two… Most of these houses have not been worked on for months. If you ask the owners why they keep an unfinished house, they generally have a simple answer: this is how they save.

They save this way rather than by putting it in a bank for rich people reasons: lack of willpower. Just as most people promise themselves that they’ll exercise more, spend less and study more but then slip and fail to, so too do the poor find it difficult to simply save the money they earn (usually in quick bursts like the harvest season). Furthermore it isn’t easy for a poor person to acquire a bank account. Thus by saving “brick-by-brick” the poor are ensuring that they save something, even if it’s in unattractive instrument.

Coming back to Wal-Mart, you’ll notice the difference between this and an EMI based purchase: although you’re paying for a good in installments, the latter is an example of debt (and all the problems it could cause) while the former is an example of savings. Poor people could pay for consumption goods (TVs etc) and investment goods (sewing machines) a hundred bucks at a time. Wal-Mart does layaways while Indian retailers (as far as I know) don’t. I don’t see how an additional method of savings for the poor can be anything but beneficial.

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