Paying to Save
by Alexia Latortue : Friday, June 3, 2011
We often talk about the need for more flexibility in the financial services offered to poor people. Yet, sometimes lack of flexibility may be valuable.
Recent impact studies on commitment savings show that creating barriers to access for a stated savings goal can be very powerful. Over on the technology blog, my colleague Mark Pickens offers two examples from a recent focus group in Uganda he conducted with AppLab showing just what lengths people will take to create “anti-temptation” barriers for themselves.
Surprising stories of people paying high fees to save, and even tricking themselves into good economic behaviors are leading researchers to examine to look more deeply at behavior as a way to design more appropriate financial products. Such ingenious tricks may turn into great business ideas too.
–Alexia Latortue
October 25th, 2011 at 9:18 pm, Sarah Fathallah » The case for more product innovation in mobile money and branchless banking ()
[...] these consumers have a range of financial service needs which are deeply felt but often poorly met (even by the microfinance industry itself). CGAP has called for more attention to consumer wants and deeper thinking about converting the [...]
2 Comments
June 13th, 2011 at 8:22 am, Dr.V.Rengarajan ()
Alexia
I agree ingenious tricks for designing appropriate financial products based on the behavior would certainly facilitate for great business for the institutions and inculcation of saving spirit to the poor clients.
Basically human behavior is more influenced by their social religious cultural values. Besides in the context of open market economy the human behavior is also tempted by materialistic values attracted by infusion of tempting consumption goods fuelled by various media irrespective of degree of ethical consideration and moral sentiments. In the real world, social phenomenon like gift or dowry to girls during wedding in the form of goods such as gold jewelry, costly silk saris, house hold furniture and even some piece of land is not uncommon in the life style of most of the community people. For this, poor people go for savings from their earnings for future expenditure with the preference to acquire the above goods. Taking cue from the above social behavior the corporate institutions representing textile shops, banks, real estates have already designed kind of saving/deposit product for the people to access their respective goods as referred to above with an easy mode of savings ( different range of amount )over a pre planned period. Here the barriers for temptation for withdrawal or break a way , is the ruling of mandatory obligation of the savers only to buy the intended goods and not eligible to get back the money in the middle. Few example
1. Savings scheme for silk clothes- Textile shop
2. Savings scheme for Gold coin/gold/silver jewelry- Jewelry shop/banks
3. Saving scheme for land/plot for house construction- Real estate firms
4. Saving/deposit scheme for religious ceremony at popular temple- banks
The value of these savings products deployed by the financial and non financial institutions as well is to encourage savings habit for a predetermined purpose with barriers of temptation and meet the ‘end’ purpose ( without paying- opportunity cost not considered)) for enhancement of their social welfare for the poor clients and at the same time great business for the above firms.
Rengarajan