Who are we saving? What are we saving?

"I don't earn enough to save!", "I have too many debts!", "I think savings require a huge amount to be set aside" ... How often do one come across these statements? In my experience as well as from what I have heard from my friends in the city, be it just college graduates or MBA graduates, there are often many excuses as to why savings is a difficult albeit a misunderstood affair. Is the case same for the poor? Why are poor people not using formal savings products? What or where does the problem lie?

At IFMR, I recently made a presentation on Savings: Perspectives from various studies as part of the Savings month at CMF. This November will witness the CMF blog dish out various posts/articles on this theme. We at CMF will be emphasizing on how studies on this theme (as well as stories/anecdotes from the field) has helped us understand the psychology of the poor when it comes to savings and what bearing does this have on the future. Though the presentation encompassed thoughts on how formal savings products were better than informal means and the obstacles that prevent the poor from being part of the financial inclusion drive, an interesting question popped up. "Is there any all-India study that tells us more about what drives savings behaviour?"

Though there are no concrete studies that would take the whole nation into account, various studies have taken certain populations in the country to understand the factors behind various financial products. We live in a country where every state has a behaviour of its own. For instance: If we were going to understand the remittances of outstation labourers of two states: say Bihar and Kerala, would that make sense? I am pretty sure it will not. Yes, this is not directly related to savings, but we need to take certain things like occupation and other economic indicators into account before we even think of conducting research. I do not think there is anything wrong in questioning the ways in which the financial inclusion drive has been designed?  

In 2005, the RBI initiated a drive to bring unbanked households into the formal financial sector. From a study conducted by CMF to evaluate the success this particular drive, it was observed that account opening does not necessarily mean account usage. Many of the account holders were not aware of the capabilities or the full extent of using the account. This does remind me of a management concept - marketing myopia. Marketing Myopia refers to the fact that businesses will do well in the end if they concentrate on meeting customers' needs rather than on selling products. How far has the government or any other financial institution for that matter understood its customers? This is just my opinion - but I think that lack of understanding the customers' needs as well as healthy competition has given rise to complacency.

Recently, the Frontline had a very interesting article/cover story about another interesting aspect of financial services - insurance and how the proposed hike in FDI (Foreign Direct Investment) ceiling will prove to be disastrous. Given the current political context as well as rather negative views that surround the term FDI, I would not like to take a stand on this. However, it is interesting to note that the chairman of the Insurance Regulatory and Development Authority (IRDA), Hari Narayan has declared that FDI in insurance was in any case required and the industry requires Rs.30,000 crore over the next five years. The article attempts to provide ample proof that the above claim is suspect. Anyways, food for thought: are we incompetent in front of foreign players who as per the article are only profit-oriented? Most of all, we are not profit-oriented, are we?

When we have clearly recognised that there are different income groups in our country, it is high time that we devise savings products catering to these groups. Customization is the key in today's world. When an item like the mobile phone is becoming a normal possession even in among the rural population, one should expect them to ask and aspire for more. Imagine a farmer who has a savings bank account, one that does not allow him to withdraw before a defined date (commitment savings). If an economic shock occurs before such a date, the farmer would still rely on informal sources to smoothen consumption. So, should both formal and informal entities co-exist or can formal entities innovate their approach and products to make the financial lives of people much easy? A savings product or service would definitely add value to the occupation of its holder or his/her aspirations within a given time period. The question is can we identify those needs and thus design the product to facilitate those.

Studies on savings across the globe have shown us that the poor desire the existence of such a product but a lot depends on the design of what is offered. Let us hope that practitioners are ready to innovate in this area and that policy-makers are always ahead to make financial inclusion a very meaningful movement by giving the backing where it is needed and ensuring that client protection is of utmost importance.  

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