Comments on: Promoting Formal Financial Savings: Know Your Goal, Know Your Competition

By: Gebeyaw Aychile

Gebeyaw Aychile — Mon, 08 Aug 2011 09:00:03 +0000

The poor peoples’ saving capacity has not been clear to most people. The problem is that microfinance performers have also similar view on poor peoples’ saving capacity, interest and willingness to save. That is why the microfinance industry has been largely dependent on donor handouts for loan able funds, leaving saving mobilization opportunities at its door steps.

Poor people around the world are able to save and need to save to catch up future investment opportunities and secure their life from uncertainties to come up with time. Saving is more important to the poor than any body else as they are more exposed to shocks of any kind due to the fact that their income is not only small but also irregular in its inflow.
Therefore, the microfinance industry needs to work on availing appropriate savings schemes and other financial products at convenience of the poor with skillful education and promotion.

By: John de Wit, The Small Enterprise Foundation

John de Wit, The Small Enterprise Foundation — Fri, 05 Aug 2011 18:09:42 +0000

Ignacio, thanks so much for this excellent article. I found it to be really thought-provoking. Possibly the best piece I have ever read on what the challenges are to encouraging the poor to build up formal savings.

By: Ignacio Mas

Ignacio Mas — Mon, 01 Aug 2011 18:25:55 +0000

Hello Sean. Just to be clear, I wasn’t saying that formal savings is “only” useful to more well-off people. My point was that banks need to work extra hard to put together savings propositions that beat informal savings options for poor people. For you and me, it’s a no brainer to keep the money in the bank rather than under our matress. For people with small savings balances who have always relied on informal savings options, you can’t assume that they will find the bank option so obviously superior.

So it was not an argument for giving up, but for trying harder. To “suppport the poor where they are (and their money is),” as you say.

Ignacio

By: Sean Kline

Sean Kline — Mon, 01 Aug 2011 05:08:12 +0000

Good concluding point regarding the differentiation banks need to demonstrate to poor savers if they are going to mobilize savings that otherwise sit in savings group lock boxes or tied up in jewelry, cattle or grain.

However, if, as you suggests, formal savings are only valuable to more well-off people, why not focus some attention on helping poor people save better until banks matter to them? That is, while we continue to try transform how banks think about and serve the poor, it seems worthwhile to support the poor where they are (and their money is).

By: Ignacio Mas

Ignacio Mas — Sun, 31 Jul 2011 18:46:58 +0000

Hello Darshana. Yes indeed, credit and savings can serve the same purposes but they are by no means the same thing. Credit offers reward now and discipline later — both good things that most people think they want — but comes at a higher cost and locks peole into a set schedule of payments. Savings offers discipline now and reward later, a less appealing combination, and is hence a little bit harder on people despite the lower cost. I don’t think we should be passing judgement on which is ‘better,’ but we should try to make sure that people have the full range of choices available to them, so they can pick whatever they think is best for them.

Ignacio

By: Darshana

Darshana — Fri, 29 Jul 2011 18:30:34 +0000

Before debating the merits and demerits of microsavings and concluding on whether it would be a good enough alternative to microcredit, we need to take a step back and look at the functions that both serve. The former involves keeping aside small amounts regularly to accumulate a surplus that is put to some use, say to purchase an asset. In the latter, the asset is purchased with borrowed money which is then paid back regularly in small amounts. In either case, both are financed by the household’s balance sheet and serve the purpose of smoothing short-term consumption. It is worthwhile to remember that microcredit is not like project financing where repayments are made from revenues streams that the project would generate upon completion. To this end, there is no difference between the two, except in the timing and the relative costs (interest expenditure, inflationary losses and opportunity costs). Let us not quickly assume that the high interest rates on microloans necessarily make it a ‘bad’ option or that having the ability to spend from own funds is always the better option. They are both fundamentally the same and therefore, we could even conclude that the microcredit movement has indeed been serving the same function as that of a micro savings program. Due care would certainly need to be taken in the design of the delivery channel and stability of the provider.

By: Links We Like | Your formation

Links We Like | Your formation — Fri, 29 Jul 2011 16:54:51 +0000

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