Savings

Saving is central to poor people’s economic management strategies: their current income is rarely sufficient to manage crises (a sudden illness or flood, for example), to invest when an opportunity appears, or to pay for large lifecycle expenses such as school fees, a wedding, or even a new roof.  Poor people want savings accounts to help them manage, as shown by the 1.3 billion "accessible" savings accounts worldwide (i.e. those which have a low average balance, and carry low costs) (see Figure 1). 

This data comprises some 130 developing and transition economies and is based on a CGAP survey [CGAP 2004: Financial Institutions with a 'Double Bottom Line'.] updated by the World Savings Banks Institute (WSBI) in 2006. [Access To Finance -What Does It Mean And How Do Savings Banks Foster Access]. The surveys show that there are more than seven savings accounts for every loan account, and one accessible account for every 2.5 adults. However, the average is biased by a few large countries with relatively high access. From 2003 to 2006, the number of savers in the top 100 MFIs increased from 43.8 million, to 58 million. That is - there has been a 30 percent increase in savers over the three years (see Figure 2). Despite this, most poor people lack access to safe, formal deposit services. 

Institutions that mobilize deposits are often far away, or the time and procedures needed to open accounts make transactions too onerous or too expensive. Deposits are increasingly becoming a major funding source for microfinance institutions. Savings-to-assets ratios of MFIs are highest in African countries (see Figure 3). This is in part explained by the fact that African MFIs find it difficult to mobilize debt capital and have to rely on deposits as their source of funding. 

Around the world, institutions have developed innovative mechanisms to provide useful deposit services to poor clients while minimizing the expense associated with small balance savings accounts. Also, they are experimenting with product mix, client segmentation, and the business case for small savings. As microfinance providers increasingly recognize the potential market for savings, and obtain appropriate legal status to offer access to deposit services, we expect that the demand side to respond positively.