A Critical Review of Savings Services in Africa and Elsewhere

This paper reviews why and how poor people save, and how Microfinance Institutions (MFIs) might assist them in doing so whilst still retaining MFI's focus on profitability and sustainability.

The paper notes that two different strategies are pursued by outside agencies and by poor people themselves as they seek to design and deliver financial services.

• The former tend to use a strategy of "permanence and growth" and attempt to create sustainable institutions that deliver financial services to an ever-increasing number of clients.
• By contrast, poor people use a strategy of "replication and multiplication" and create many small self-contained, often self-liquidating, schemes such as ROSCAs, Christmas clubs etc.

The permanence and growth institutions tend to encourage the long-term build-up of funds through relatively slow, but steady, saving (and are therefore extremely well suited for addressing longer-term savings needs). The latter replication and multiplication schemes tend to encourage the rapid accumulation and disbursement of funds (and are therefore better suited to meeting shorter-term savings needs).

The author concludes that:

• The saving needs of the poor can be categorised into life cycle needs, emergencies, and opportunities;
• There are no magic formulas for designing appropriate savings products for the poor;
• There is no substitute for intensive market research and careful product development. The rewards for MFIs that undertake these exercises can be remarkable in terms of profits and client loyalty.