Monday, February 9, 2009

Microsavings: The New Microcredit?

. Monday, February 9, 2009

From the the World Bank's PSD blog:

Just what does it take to make a successful female entrepeneur in the developing world? At least part of the answer is that a woman needs a relatively effective way to save money. A new paper on Savings Constraints and Microenterprise Development reports on the results of an experiment in Kenya that provided zero-interest savings accounts to village microentreprenuers:

..formal savings accounts had substantial positive impacts on business investment for women, but no effect for men...roughly a 40% increase in average investment, four to six months after the opening of the account.

Emphasis added. Is it surprising that zero-percent interest-bearing savings accounts can have such a large effect? Perhaps, but the authors point to one possible mechanism:

..many women in developing countries face constant demands on their income (from relatives or neighbors), and it may be difficult to refuse requests for money if the cash is readily available in the house.

Of course, it's also harder to spend cash if you're not holding it in your hand, and these accounts didn't come with debit cards. Harder for the husband or child to spend it as well. Or maybe it's a purely psychological effect. Whatever it is, I'd love to see some more empirical work on this to see how well it holds up.


Sarah Bauerle said...

This finding is in line with a lot of research on the development of microfinancial services. Microlending tends to get most of the coverage because its sexier than savings, but in general its really hard to stockpile money in the 3rd world. One of the reasons why microfinance can be so effective at such low levels is because the real barrier to great financial security for many poor families is access to lump sums. In fact, some microcredit models basically double as microsaving - a group will form and each contribute a small amount of money to the communal kitty each week. A different member gets to take the aggregated money each week and then uses it to make a purchase that requires a lump sum (like seed for the next planting season). Instead of paying back the loan, the recipient continues to contribute her weekly amount, and by the time every member had her turn taking the lump sum, everyone paid back their loan.

As microfinancial institutions grow, we're seeing a growth in microsavings accounts and even microinsurance (there's one micro health insurance program somewhere in Africa that's particularly interesting). The need for and success of such financial products stems from the high fees usually associated with banking in developing countries. So, even a savings account with 0% interest is a deal if there are no fees involved.

MCS Intern said...

We are really excited about how you are using your blog to spread the important message about the effectiveness of microfinance! As a international leader in facilitating microfinance stakeholders to focus on helping the world’s poor, we at the Microcredit Summit Campaign are working to make sure that 175 million of the world’s poorest families are reached through microfinance by 2015. To learn more about the Microcredit Summit Campaign and our goals, check out our website at and we hope you visit our blog too at

Microsavings: The New Microcredit?
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