Supporting savings mobilization is fundamental to building inclusive financial systems. Many microfinance funders have long recognized the importance of savings services for poor people. However, a majority of funders still focus on scaling up access to credit, rather than savings. There are three main reasons for this.
First, historically, credit has been regarded as having the most direct link to increasing incomes. The premise was that, with a working capital loan, poor people would start or grow a microenterprise that would provide them with a livelihood to build assets that they could reinvest in their entrepreneurial activities or households. In addition, over time, making these loans to poor people would pay for itself. The very simplicity of this microcredit narrative is compelling to development leaders and heads of agencies with a poverty alleviation and economic development mission.
Second, incentives in many funding agencies are skewed toward disbursing large amounts of funding. Financing loan portfolios, whether through debt capital, grants, or equity, is by all accounts a faster way to disburse than investing in the long-term work of building institutional capacity to mobilize local deposits and engage in financial intermediation.
Third, supporting savings mobilization requires special care because the hard-earned and scarce resources of poor people are at risk if something goes wrong. Financial institutions can fail, and high inflation can erode savings. Appropriate governance for deposit-taking institutions, sound prudential regulation, and effective supervision are all important safeguards. But they are not always in place.