The Relative Risks to the Savings of Poor People: Survey

This paper seeks to quantify the relative risk faced by poor people as they save in the formal, semi-formal and informal sectors. It discusses the methodology of the survey and weaknesses of the data.

The paper presents the following results of the survey:

• The profile of clients losing savings was as follows:
  • 99% in the informal sector;
  • 15% in the formal sector;
  • 26% in the semi-formal sector.
• People who had access to the formal sector saved three times as much than those who saved in the semi- and informal sectors;
• Savings in kind was the most important method of informal savings;
• In reciprocal arrangements the loss rate was 69%;
• Only 23% of the sample had participated in a "Rotating Savings and Credit Organization (ROSCA)":
  • 27% of them had lost money.

The paper presents the following conclusions:

• For central bankers: When considering safeguarding the deposits of the poor, it is important to think in terms of relative risk rather than absolute risk.
• For the microfinance industry:
  • MFIs are far safer than informal mechanisms;
  • MFI clients would like MFIs to start savings services;
  • It is important to improve internal supervision;
  • The microfinance industry has to look for appropriate approaches to external supervision.

The paper concludes that poor people cannot wait for the perfect system to protect their deposits. They should be informed of the choices so that they can make their own decisions about the relative risk of the options available to them.