Page 50 - BANKING FINANCE FEBRUARY 2016 ONLINE
P. 50
FEATURE
RICH OR POOR, LIQUIDITY
CAN BE A PROBLEM FOR ALL
A friend recounted the story facility. But neither are they willing to down due dates for taxes and fees, and
around his subscription to use banking services extensively, nor planning spends on holidays and gifts
one of the popular IPOs. He are banks keen to lend to them. The is quite helpful. Any expense that does
was not too sure if he result is that the use informal not fit into the routine income will
should invest, and it was on arrangements. need providing for. Investments can be
the last day of the offer that he tuned to liquidity needs if estimates are
decided to put the money in, when it They come together to run chit funds; made with care. Draw a calendar for
seemed like the issue would be a they seek the local money-lender who liquidity and keep it real.
success. Such was his eagerness that charges usurious rates; they take hand
he decided to increase the amount he loans from friends and family; or they Second, the choice between borrowing
would invest. use gold as the provider of liquidity. It and liquidating assets has to be made,
is not uncommon for women in this based on the preferences of the
It seemed like a good opportunity. A group to buy gold both to ensure that investors. Virtually all assets can be
couple of days later his wife reminded some money is saved, and to pledge it liquidated (unless they have a lock-in
him about the upcoming wedding they to raise money during times of need. period). However, investors may worry
had to attend. Our friend did not have about not being able to build the asset
enough money to cover the travel, Those who are well off, or have a back if it is liquidated. Assets can also
clothes and gifts. His wife was furious. balance in their banks before the next be used as security to borrow money
Managing liquidity is not an area of salary comes in, can make the effort to meet the need for cash. This is an
strength for so many of us. to manage liquidity
well. They either
Liquidity is the ability to generate cash overestimate their
at short notice. It is not about how liquidity needs and
wealthy we are but about how much keep idle cash handy
of cash we can pull out. There are so or they are constantly
many facets to the problem of scrambling, having
managing liquidity. misjudged their need
for cash. What are
The poor and low income groups that the rules to manage
do not earn adequate income to cover liquidity?
expenses face liquidity crunches
routinely. The mismatch between the First, quarterly
inflows and outflows is too high for this estimates for liquidity
group. Ideally, they should be able to should be drawn with
use a bank account with an overdraft earnestness. Putting
50 | 2016 | FEBRUARY | BANKING FINANCE
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