Savings for Risk Mitigation and Crisis Recovery

This brief discusses the importance of savings in risk mitigation and crisis recovery.

Savings help the poor prepare for, cope with, and recover from crises including natural disasters. They convert physical assets into liquid savings, which the poor can use to invest in risk-reducing measures and replace lost or damaged assets. Emerging lessons indicate that:

• Many MFIs promote savings through mandatory, and sometimes, voluntary schemes, to help the poor, accumulate cash resources and help reduce vulnerability to crises;
• Not all MFI clients seek to withdraw their savings in the immediate aftermath of a disaster;
• Poor people are more likely to withdraw savings to meet personal emergencies than to cope with major disasters that affect many people;
• In areas frequently affected by disasters, personal savings are generally used for disaster preparation and during late recovery stages, rather than for coping during the relief stage;
• Demand for deposit services exists even during relief and early recovery stages.

Finally, savings are more effective in disaster management when combined with other financial products such as loans, insurance, leasing, remittances and pawn services.