Special Unit for Microfinance
SPECIAL UNIT FOR MICROFINANCE (SUM)
SAVINGS AS AN INSTRUMENT FOR POVERTY REDUCTION
As a result of the Africa Conference on "Savings in the Context of Microfinance" held in February 1998 in Kampala, an initiative to promote savings services for poor people in Africa has been started. MicroSave-Africa is charged with a wide variety of tasks to promote savings in East, Central and Southern Africa. The MicroSave-Africa core team (a Senior Regional Microfinance Advisor and a Microfinance Officer counterpart) is jointly funded by UNDP and the Department for International Development (DFID), and is based at the USAID-funded Centre for MicroFinance (CMF) in Kampala.
To promote secure, high-quality savings services for poor people.
To develop a sustainable programme to build the capacity of MFIs seeking to provide secure, high-quality savings services for poor people.
The Need for Savings Services
Savings have risen to the top of the MicroFinance community's agenda. Previously MicroFinance Institutions (MFIs) focused primarily on providing loans, and savings remained Vogel's (1984) "forgotten half", typically extracted from clients through MFIs' compulsory systems. There was a prevalent and powerful perception that "the poor cannot save", thus compulsory savings systems often required members to deposit small token amounts each week and levied more substantial amounts at source from loans. These compulsory savings were then often "locked-in" (usually as loan guarantee funds) until members left the organisation.
It is hardly surprising therefore, that poor clients view compulsory, locked-in savings not as a service, but as part of the cost of borrowing and significantly reduce their deposits. But there is increasing evidence (Montgomery, 1995; Wright et al., 1997; Rutherford, 1998, CGAP Working Group, 1998) that offering voluntary and accessible savings facilities may result in the inclusion of the poorest 10-15% of the population, who are averse to risk (and thus to taking credit), and are therefore not being served by most MFIs. For poorer households, savings can serve as invaluable reserves, as insurance, against the crisis factors such as illness, natural disaster and theft that can so easily drive the poor into destitution.
In recent years compulsory, locked-in savings systems have come under increasing pressure not only from the professionals involved with financing, managing and reviewing MFIs and but also from the clients themselves. This is driven by the fact that, in the words of Marguerite Robinson (1995), "There is substantial evidence from many parts of the world that: (1) institutional savings services that provide the saver with security, convenience, liquidity and returns, represent a crucial financial service for lower-income clients; and (2) if priced correctly, savings instruments can contribute to institutional self-sufficiency and to wide market coverage."
But for MFIs with a history of credit-driven services, the shift to flexible financial services including (even stressing) savings products is often hard to effect. The MFIs need to acquire sophisticated management capabilities to manage liquidity, risks and cost, as well as a more complex organisational structure and information and reporting systems. Furthermore, in order to deliver effective poor-responsive savings services MFIs need to undertake what are quite complex product development activities.