Poor people save because they must. Their income is rarely sufficient to manage crises (a sudden illness or a flood, for example), to invest when an opportunity appears, or to pay for large expected expenses, such as school fees, a wedding, or a new roof.
Poor people save mostly in informal ways. They invest in assets such as gold, jewelry, domestic animals, building materials, and things that can be easily exchanged for cash. They also participate in informal savings groups.
Most poor people lack access to safe, formal deposit services. Institutions that mobilize deposits like banks, credit unions, and postal savings banks are often too far away, or the time and procedures needed to complete transactions are too onerous. Institutions may also impose minimum transaction sizes and/or require depositors to retain a minimum balance, both of which can exclude the poor. Operating hours may not be convenient for poor depositors, nor are they welcome as clients.
Low-income savers tend to care most about accessibility and security of their savings. Accessibility can be seen as physical accessibility (proximity) and financial accessibility (affordability). Clients value both highly liquid accounts that allow for frequent small transactions, and time-bound accounts that allow people to save for specific objectives. Other priorities include convenient locations and operating hours, flexible products, helpful and friendly staff, confidentiality, and a decent return (although this last feature is less important to the smallest depositors).
Two of the biggest obstacles to serving low-income depositors are distance and product terms. To provide convenient, useful services to poor savers and remain financially viable, most institutions must employ alternative forms of staffing and delivery channels.
Donors can powerfully help – or hinder – savings operations. Donors often provide disincentives for financial institutions to mobilize deposits by offering soft loans. However, donors can help develop sound savings operations by helping to strengthen regulation and supervision and improving regulators’ understanding of microfinance issues. Donors can also provide technical assistance grants, support visits to successful deposit institutions and fund savings-focused market research. Finally donors can support a range of institutional types and delivery channels to extend services to poor and rural markets and invest in physical or technological infrastructure to jumpstart savings mobilization in rural areas.
Before developing savings operations institutions should have the legal authority to mobilize deposits, effective governance, financially sustainable operations and a sound business plan showing continued viability and indicating where savings can be invested profitably. Institutions should also have sufficient internal controls and the technical capacity to manage liquidity and interest rate risks. The physical infrastructure—in a safe and convenient location—and a strong management information system are also required.