A Safe Place to Save Can Break the Generational Chain of Poverty
A safe, flexible savings account may be the most important tool very poor households can employ to manage vulnerability, build up reserves, and ultimately accumulate enough assets to get out of poverty. With no place safe place to save, villagers cannot secure their futures, no matter how hard they try. A safe, flexible savings account is a critical defining freedom that opens the door to future opportunities.
Yet, data from the Microfinance Information eXchange (MIX) for 2010 indicates that 47% of microfinance institutions offer no savings services at all, while another 18% deliver minimal savings. Of those that do offer savings services, most of their outlets are located in urban areas.
“Barefoot Hedge Fund Managers”
Even in peaceful nations, villagers face extraordinarily high ambient risks – floods, droughts, disease, crop failure, livestock illness, wild swings in commodity prices, etc.
They save at home, for the most part in-kind – in rice, in chickens, in building materials, in gold and jewellery. Because they have very limited assets, even small income interruptions — like the loss of a month’s work when an adult falls sick – can lead to significant hunger in the family, and children being forced to leave school.
In their book Poor Economics, Banerjee and Duflo describe poor people as ‘barefoot hedge fund managers’, while the financial diaries of poor households reported in Portfolios of the Poor give us clear insights into the complex strategies for juggling value undertaken by households without cash or accounts.
Learning New Savings Habits
Saving at home involves traditional habits and practices handed down by parents and wise elders: ways to protect home assets from damage or places to hide cash. At-home saving also shapes and reinforces certain attitudes: “my money is safe at home because I can get it any time” and so on.
To save in an account means learning to trust cash more. It means cultivating novel habits and practices — like monitoring the health of an institution (there is no deposit insurance) and monitoring transactions in a passbook, deposit slip or SMS confirmation. It involves satisfying oneself that the account is safe, for example by depositing money and asking for it back later, to see if it is still available. It involves trying to align personal savings goals (“my daughter’s marriage is coming up in 15 months”) with the features of savings accounts available.
Building trust involves oralizing the record-keeping, so villagers will ‘get it’ quickly and easily. See OIM Solutions. It also involves better governance so that institutions consistently deliver good service, design good products, and keep their product-related promises. See Governance.