Savings Services for the Poor- An Old Need and A New Opportunity for MFIs in India

This note argues that savings is the most effective risk mitigation strategy for the poor. It states that savings allow poor households to reallocate household expenses over time and tide over periods when expenditure outweighs income. The paper also finds that:

• While microcredit is effective in protecting the poor in an “ex ante” sense, it is less suited to protect poor households after a shock;
• The success of Self Help Groups (SHGs) in India proves that the poor can save;
• SHG channel maybe appropriate only for small sums and can provide only a limited risk management fund for poor women;
• A big obstacle to savings for the poor in India is that MFIs registered as societies, trusts or Section 25 companies are not allowed to accept deposits from clients.