Savings: FAQs

Yes, people with low incomes can and do save. Financial diaries research, which documents the money management practices of people living on very low incomes (such as these studies in South Africa, Malawi and with smallholders in three countries), has helped to show how they save using a variety of different financial tools, both formal and informal. 42 percent of adults living in developing countries reported having saved or set aside money in the past 12 months in the Global Findex 2021 survey.

People are increasingly saving through formal channels. According to the Global Findex 2021, slightly more than half of adults who reported saving money in the past 12 months in developing countries have saved using formal channels, such as an account at a financial institution or a mobile money account. Mobile money has contributed to the growth in formal savings, especially in Sub-Saharan Africa, where 15 percent of adults saved using a mobile money account.

While access to formal deposit services is growing in developing countries, it is still limited for many people experiencing poverty. Savings groups, which have long existed around the world under many different names, provide an organized, convenient and safe way for millions of people with low incomes to save. Facilitated by digital innovations, efforts have been made to link these groups to formal financial institutions to provide safer places to save and open up access to other financial products and services. 

People living in poverty also use other informal savings methods, such as storing cash under the mattress, buying animals or jewelry that can be sold at a later date, or giving money to neighbors for safekeeping.

Savings can help people meet day-to-day financial obligations, cushion financial shocks and work towards long-term goals, thus contributing to their overall financial health. Having sufficient liquid and long-term savings are key indicators in measuring financial health, along with income, debt and insurance. Being able to draw on savings supports feelings of financial security, resilience, control and freedom. Participation in savings groups is especially associated with improvements in financial health, as the groups provide multifaceted support that is more holistic than a simple savings account, helping their members to manage their financial lives.

Savings groups provide a safe, convenient place for members to save, and usually offer much more than that, including access to loans, basic insurance products, leadership experience, group solidarity and peer learning. While there are many variations around the world, groups generally consist of 10 to 30 self-selected members, mostly women, who meet regularly to save and borrow together. The groups define their own governing structure, policies and terms such as interest rates and fees, while each member decides how much they can save each week to contribute to the core group fund. 

In Rotating Savings and Credit Groups (ROSCAs), group members contribute a fixed amount each week to the group fund, and each week the total collected is paid out to a different member until all have received their payouts. 

NGO-trained Savings Groups, using the Village Savings and Loan Association (VSLA) methodology, build on ROSCA traditions, adding flexible savings and borrowing. Group members lend to each other at interest rates they decide on collectively, thus generating an accumulating capital sum made up of member savings, interest, fines for missing payments and late fees. The accumulated capital is distributed to members at the end of each cycle in proportion to the members’ respective contributions to the fund. Since the group fund is financed entirely by tapping the savings of the group members, there is no external loan fund to manage and oversee. 

In India, Self-Help Groups (SHGs) provide access to informal savings and credit for their members, as well as a link to the Indian banking system through a government-supported bank linkage program.

Digital financial services (DFS) have the potential to reach more people, with greater convenience and at lower cost, by using mobile technology, point-of-sale devices and agent networks. DFS can decrease barriers to save by bringing saving services directly to a person’s mobile phone or nearby agent, thus eliminating transportation costs to get to bank branches. Digitizing savings groups could increase transparency in the groups, help safeguard funds from theft or fraud, and provide transaction histories that could open options to formal savings services.

Providing savings services to people at the bottom of the pyramid is a challenge primarily due to issues related to financial sustainability. Low savings balances and high levels of inactivity are common issues that can complicate the business case. Know-your-client (KYC) regulations required to open accounts can add to the costs of opening an account for both the customer and the financial provider. Low-income customers are price-sensitive to fees, which can greatly influence usage of the accounts. While mobile savings and agent network models provide greater choice to customers, connectivity and electricity remain issues, especially in rural areas, which can result in loss of trust and lower account usage.

For a savings product to be viable, institutions must invest in understanding customer needs, behaviors and aspirations to design a product that will encourage regular use of the account. A fee and marketing structure (e.g. no fees to open an account) that drives certain positive customer behavior (e.g. making deposits with agents instead of branches) and discourages others (e.g. withdrawing all funds at once) is crucial.