Archive for: savings

Savings has been gaining traction as a vital financial resource for poor people. More financial institutions in poor communities now offer savings accounts to round out their portfolio of products for poor customers; development researchers are testing the best ways to encourage saving; governments are exploring the benefits of enabling the deposit of social transfers and other cash sources—like remittances—into bank accounts.

As a concept, promoting savings makes a lot of sense for a lot of people. Unlike credit, you can’t do damage by offering too much of it; it is less expensive for the saver to pay expenses using capital he or she has accumulated than pay interest to a formal or informal lender; and formal savings held in the bank contribute to the commercial stability of the institution and the business case of serving poor clients.

Yet savings has its challenges. The first is attitudinal—it is still quite common for government officials, bankers, and others to doubt the ability of poor people to save. I had a conversation just yesterday with a field researcher working on a savings project in the Philippines, who told of the typical conversation she has with a local government official. “You realize these people collect garbage to earn a living,” he told her. “They can’t save.” Yet this same researcher also saw the gold ring a woman in the village had recently bought with money she’d put by because a ring is “harder to spend.”

The second challenge to savings comes from the saver. People around the world show the kind of ingenuity displayed by the Filipino woman. They buy rings or bracelets or a goat because they’re “harder to spend.” Those mechanisms also may be easier to access. If a store down the road sells gold rings every day, but the bank is ten miles away, or the savings collector comes only once in awhile, the more convenient option wins. Yet even ingenuity gets eroded by temptation: when people come into a little extra they might treat themselves with sugar or sweet tea because they can and its there. They also might give a loan or some help to a friend or neighbor who asks.

Attitudes change with experience, so as the number of institutions offering savings accounts has grown, so too have the efforts to help people save more by dealing with the challenges of convenience, impulse control, or requests from friends. In the new CGAP report, Latest Findings from Randomized Evaluations of Microfinance, I wrote about a number of design approaches that have been proven to help poor people save. Commitment savings accounts, for instance, limit the saver’s access to funds until a predetermined time or balance is reached. Text-messages or letters sent through the mail reminding people to save help keep savings goals current and relevant, so that people may be less tempted by short-term treats like the sugar or the tea. Read the rest of this page »

For many years I worked as a partner at one of the world’s largest strategy consulting firms. As I specialized in consumer finance, I got to work with many of the biggest financial institutions in the world. Some of the work was mundane, but a lot of it touched on innovation. When clients asked me how they could get better at designing innovative products, I would prescribe good market research, solid modeling of operations, and financials with a healthy dose of creativity. Read the rest of this page »

In 2009-10, ACCION International conducted a qualitative and quantitative study of the financial behavior of rural inhabitants in the Dominican Republic, Nicaragua, Ecuador, Colombia, and Peru with the support of the IADB, AIG, and CITI Foundation. The research targeted micro-entrepreneurs and small farmers as heads of households. Here are some of the highlights.

Shared aspirations. We found three key motivations that drove the behaviors and financial decisions of both rural smallholder farmers and micro-entrepreneurs: (1) ensuring the education of their children, which they perceive as important for breaking the cycle of poverty; (2) improving housing to enhance quality of life and build assets; and (3) growing their business or crops as a mean to achieve the first two objectives and perhaps most import as a form of self-achievement (especially among men).

Income differences among rural micro-entrepreneurs and farmers. Both groups have more than one source of income. In our sample, 20% of the second income of a farmer’s household comes from a micro-business while only 6% of the second income of a micro-entrepreneur comes from farming. To augment the revenue they earn from farming, farmers tend to take on occupations that require intense labor such as construction or working for other farmers. Micro-entrepreneurs, on the other hand, take up activities such as adding other products or services to their business line. Read the rest of this page »

Since 2002, FinMark Trust has promoted FinScope,¹ a research tool to address the need for credible information that could facilitate evidence-based financial sector development. Over the years, the tool has evolved to provide a holistic perspective of the financial sector by integrating demand-side and supply-side information, as well as incorporating special surveys on consumers and small businesses.

FinScope has been used by policy-makers and regulators and private sector institutions to facilitate decision-making and effective interventions that have accelerated sustainable financial market development. One important market where it has been used to stimulate market development is Nigeria, where EFInA, launched its Access to Financial Services survey first in 2008, and repeated in 2010. Read the rest of this page »

More than 5 million poor people around the world are members of Savings Groups that provide essential services to help manage their daily lives. In Mali, one of the world’s poorest countries, there are 400,000 members in over half the villages in the country. Earlier this month more than 250 people from 46 countries met in Tanzania at the first global summit for practitioners promoting community-based, savings-led microfinance to begin the process of building a vision for the role Savings Groups play in financial inclusion, social protection, and empowerment.

Savings Groups are basically an improved form of the traditional ASCA (Accumulating Savings and Credit Associations). They provide members a secure place to save, the opportunity to borrow in small amounts and on flexible terms, and affordable basic insurance services. Savings Groups are composed of 15 to 25 self-selected individuals who meet regularly and frequently to save; amounts are based on each member’s ability. Groups then pool the savings to make loans on which they charge a relatively high service fee or interest rate which in turn increases the loan fund.  Member’s savings and loans are recorded in individual passbooks or one central ledger (some use memory-based systems that require no paper records at all). Read the rest of this page »

Women think and behave differently than men when it comes to financial matters. These differences have major implications for product design and marketing strategy.

Since 1999, Women’s World Banking (WWB)  has conducted market research to understand how best to serve women through microfinance. We’ve conducted over 50 studies in 23 countries, segmenting our research populations by gender as well as household income. Eight of these studies are gender baseline studies, which focus on how “gender identity” informs the way in which resources are allocated inside poor households. These studies show that women and men generally describe women’s roles to include wife, mother, homemaker, financial manager and increasingly, income generator. Men’s roles are typically described as head of household, bread-winner, authority figure and, sometimes, father.

At WWB, we have learned that these “gendered roles” result in different priorities for men and women when it comes to spending, savings, and investment. Women tend to prioritize investment in children, which means more emphasis on education and health. In some socially conservative societies, financing a daughter’s marriage is often a priority for women. Read the rest of this page »

It’s been interesting to watch the microcredit sector struggle with the concept of what it means to put the client at the center of their work.  Perhaps, we should start the conversation with family finances, how the poor generate their income, and the big expenses they incur along the way.  A 2007 Oliver Wyman study tried to do just that. Commissioned by the Bill & Melinda Gates Foundation with the purpose of describing the potential demand for financial services from 2.6 billion people who live on less than US$2 a day, the study divided the poor up into livelihood segments according to how families generate most of their income. The thinking was, if we knew how families generate their incomes, we could better understand: which financial products would best fit their cash flows, how they can take advantage of major investment opportunities, and how to address their primary vulnerabilities. Read the rest of this page »

Since 2007, IFC has actively invested in branchless banking services such as WIZZIT in South Africa and FINO in India and provided advisory services to financial institutions, MNOs, and third party payment service providers. IFC’s interest in payment service providers stems from the recognition that payment services provide an entry point to access to a broad array of financial services. For example, FINO in India (with 30 million customers across 24 states in India) started with just payment services to clients but now offers savings, insurance, and loans. Through its advisory services, IFC is supporting FINO in the design and market testing of some of these products as well as educating customers.

IFC hopes to reach some 40 million un-banked or under-banked consumers over the next five years. Through its advisory services, IFC supports small start-up companies and works with more established firms to develop additional low cost channels that will help reach into more remote areas at a reasonable cost.  For instance in Papua New Guinea, IFC supports Bank South Pacific in developing its rural banking business and network of cash and POS agents to help the bank reach an additional 200,000 customers in rural areas through mobile phone banking and cards. Read the rest of this page »

In 1946 or thereabouts my father took me to the local bank and helped me to open an account. He made something of a small ceremony of it, and he added ten shillings (around two U.S. dollars in those days) to my ten shillings of savings to make it up to one pound.

I do not remember much of the occasion, I was very young at the time, but I certainly do NOT remember that there was any talk of credit or a loan. The bank was a place to save, they would take good care of my money, and might even add a little to it, and perhaps I could (with my father’s permission of course) take some of the money out one day, but even that was not mentioned.

So my own and maybe most readers’ first view of a financial institution was that it was a place to save. Borrowing might come later, but much later, and the purpose of saving was not to qualify for borrowing; it was a useful thing to do for its own sake.

Why should it be any different for ‘the poor’? Read the rest of this page »

The importance and role of savings with respect to the economic and social development of developing countries and of African countries in particular have long been recognized.  Savings are quite often the primary source of financing for small individual projects. They are also the main source of funding used to meet daily needs such as education and health costs, purchase inputs needed for agricultural crops, or survive lean periods in rural areas.  In sum, savings are essential for protecting and boosting the assets of rural and urban populations.

While the range of savings needs of rural populations is apparent, do savings services offered by microfinance institutions meet these needs in an equally clear manner?

The institutions’ perspective
Mobilizing savings is a long-term strategic decision for an MFI.  Savings are an independent resource for financing the credit activities of an MFI that are not subject to fluctuations in interest rates and external financing sources. An MFI must build trust between itself and its depositors and be prepared to adhere to the principles of sound and professional management, as it bears responsibility for protecting the savings of these clients. Savers are primarily looking for a system that guarantees the security of and access at all times to their savings and, second, an attractive interest rate.  Borrowers from the same institution seek easy access to credit at the lowest interest rates possible.

How then can the interests of these various actors be reconciled? Read the rest of this page »