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microsavings

Nick Kristof on microfinance, banking access and a way out of poverty

Asli Demirgüç-Kunt's picture

In today’s New York Times, Nicholas Kristof gives the example of a family in Malawi that improved their lives as the result of a village savings group.  We know that access to banks, cooperatives, and microfinance institutions has allowed many adults like the Nasoni family to safely save for the future, invest in an education or insure against risk, but just how widespread is the use of formal financial products worldwide? How do the barriers to access vary across regions? And how do the unbanked manage their finances?

In the past, the view of financial inclusion around the world had been incomplete. With the release of the Global Financial Inclusion (Global Findex) Database we now have a comprehensive, individual-level, and publicly-available database that allows for comparisons across 148 economies of how adults around the world manage save, borrow, make payments and manage risk. As cited in the article, the Global Findex data shows that more than 2.5 billion adults around the world don’t have a bank account.

Building a Robust Case for Microsavings

Ignacio Mas's picture

Editor's Note: The following post was submitted jointly by Jake Kendall and Ignacio Mas of the Bill and Melinda Gates Foundation.

At the Financial Services for the Poor team at the Bill & Melinda Gates Foundation we have made a deliberate choice to focus on promoting savings (you can read about our strategy here). We think that saving in a formal, prudentially regulated financial institution is a basic option that everyone should have. Having a safe place to save allows people to manage what little they have more effectively and to self-fund life-improving or productivity-enhancing investments without paying the high interest rates associated with small loans. Accessing other people’s money through credit may not be right for everyone, but making the most out of your own income surely is. From a donor perspective, we need to move beyond microcredit and support the development of broader markets. In fact, too much focus on microcredit risks tilting the incentives of local financial intermediaries to funding their credit portfolio from external soft funds rather than via mobilizing local deposits.

As I go around the world talking up these issues, I am struck by how often I need to justify the value of savings for poor people intellectually. Sure, we should do more to demonstrate these benefits with actual data, and we are funding a bunch of studies in this regard. But why is the notion so counter-intuitive for many people? I would trace that to two misconceptions and two fears.