Access to Finance: Ideas and Evidence- The Economics of Saving

This report focuses on how informal and formal financial services influence savings decisions.

MFIs must understand the psychology of the decision making process, and the household and societal constraints that lead to certain decisions and coping strategies. The paper states that:

• Educating poor people about the relative risk of semi-formal institutions is better than dictating where they should save;
• Poor people face a narrower margin of error in decision making due to their adverse financial condition;
• Financial illiteracy is correlated with poor savings;
• Poor people are willing to save at zero or negative real interest, but might save more at higher interest rates;
• Poor people might see saving as giving up current consumption for future unclear gain, and prefer to consume rather than save;
• Presentation and promotion style influences outcomes for savings products;
• Role of peer effects and social networks in savings is important;
• Clients are using branchless banking technology for payments rather than savings.

Finally the paper states that measuring the impact of access to savings is difficult because it is hard to capture in survey data and isolate savings from other financial services.