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Poor people save all the time, although 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 may set aside corn from their harvest to sell at a later date. They bury cash in the garden or stash it under the mattress. They participate in informal savings groups where everyone contributes a small amount of cash each day, week, or month, and is successively awarded the pot on a rotating basis. Some of these groups allow members to borrow from the pot as well. The poor also give their money to neighbors to hold or pay local cash collectors to keep it safe.
However widely used, informal savings mechanisms have serious limitations. It is not possible, for example, to cut a leg off a goat when the family suddenly needs a small amount of cash. In-kind savings are subject to fluctuations in commodity prices, destruction by insects, fire, thieves, or illness (in the case of livestock). Informal
rotating savings groups tend to be small and rotate limited amounts of money. Moreover, these groups often require rigid amounts of money at set intervals and do not react to changes in their members‚ ability to save. Perhaps most importantly, the poor are more likely to lose their money through fraud or mismanagement in informal savings arrangements than are depositors in formal financial institutions.
The poor 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. These organizations also may 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.
Despite these constraints, some financial institutions have developed savings products appropriate to the needs of the poor. These institutions have found that when poor people have a choice, they choose to save far more often than they choose to borrow. For instance, the World Council of Credit Unions (WOCCU) reports that in 2001, 146 popular banks in Rwanda had 274,350 savings accounts and 43,216 borrowers. Approximately two-thirds of its savings accounts were under US$ 22. As of September 2002, the unit desa system of the Bank Rakayat Indonesia had an estimated 20 million savers and 2.9 million borrowers.
What do poor people value in deposit services?
Poor people use savings for a wide range of purposes—from taking advantage of business opportunities to accumulating assets to protecting against a variety of risks. They
have a variety of cash requirements for events like the marriage and education of their children; structural risks like macroeconomic fluctuations and seasonal variations in cash needs and availability; and crises like theft, fire, damage, accidents, and death of a family member. The less predictable the opportunity or risk, the more difficult it is for the poor to manage without some sort of savings.
Experience shows that the poor value security above all other considerations. 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). Appropriate products encompass both highly liquid accounts that allow for frequent, small deposits and withdrawals, combined with time-bound accounts that allow people to save for specific objectives (school fees, weddings, etc.).
Since security is the number one priority of the poor, institutions that offer tailored savings services must protect poor people‚s money, whether commercial or state-owned banks, savings and credit cooperatives, or community-based organizations. To ensure the safety and
soundness of savings, only those institutions with strong ownership; effective governance; strong, committed management; a track record of financial self-sufficiency; and well-trained and motivated staff should be entrusted with deposits. In most cases (beyond very small community-based organizations that can often regulate themselves), institutions that mobilize deposits from the public must be supervised by an appropriate and capable financial regulatory authority.
Madeline Hirschland, Developing Deposit Services for the Poor: Preliminary Guidance for Donors, CG Working Paper on Savings, revised April 2002.
Joyita Mikherjee and Sylvia Wisniwski, GCAP Focus Note No. 13: Savings Mobilization Strategies: Lessons Learned from Four Experiences, (Washington, D.C.: CGAP, August 1998).
Marguerite Robinson, "Savings and the New Microfinance," in The Microfinance Revolution (Washington, D.C.: World Bank, 2001).
Stuart
Rutherford, The Poor and Their Money (New Delhi, India: Oxford University Press, 2000).
R.C. Vogel. "Savings Mobilization: The Forgotten Half of Rural Finance," in Undermining Rural Development with Cheap Credit,
ed. D. Adams, D. Graham, and J. von Pischke (Boulder, Colo: Westview Press, 1984).
The World Council of Credit
Unions:
www.woccu.org German Technical Cooperation Organization (GTZ): www.gtz.de/fsd/products/saving_mobilization_details.htm.
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