The Centre for
Microfinance (CMF) brings to the spotlight the research agenda in various
facets of the financial inclusion agenda, including results from rigorous
social experiments[i] around
the world as well as the policy agenda for which this research is designed. This article
compiles several studies and background literature on Microsavings.
The literature on formal savings starts
by saying that members of the poorest section of a society often choose to
stash their savings under mattresses due to lack of better options or a lack of
knowledge of formal products. Researchers collaborated with a rural bank in
Kenya to randomly provide small business owners access to savings accounts.
Despite no interest on deposits and substantial withdrawal fees, the product
was extremely popular, suggesting that existing alternatives were worse.
In a paper from 2010, Ignacio Mas at the
Bill and Melinda Gates Foundation discusses benefits that can be derived from
the mass-scale delivery of formal financial services. Formal savings can take
place through various motives, including ‘saving up for a purpose’ and ‘saving
down on periodic income’. Either way, formal savings products provide several
advantages over informal products, such as risk of theft, risk of default, limited
liquidity, more costly)
In India, the drive for formal financial
inclusion has not been as successful. A CMF study from 2009 presents evidence
that the push for No-Frill Accounts by the RBI to make districts 100% financially
included did not have major impacts on excluded households in Gulbarga district
in Karnataka, with 70 per cent of the sample in the study not having access to
bank accounts, despite the aggressive drive. Accordingly, the goal of policymakers
has changed from “account opening” to “account usage”.
Other studies have demonstrated that
rational behaviour may not always be followed when it comes to savings choices.
Despite providing several incentives and nudges to vegetable vendors in India
to save tiny amounts every day to prevent taking daily loans, the vendors would
just not resort to saving.
Several researchers discuss the context
of savings product in the direction of commitment and productive investments. A
study conducted in the Philippines showed that commitment savings accounts are
effective in increasing savings, especially for those who are tempted to
otherwise resist. Such commitment products have also been demonstrated to help
farmers improve their yield by investing more in their crops.
A policy which is designed to adopt
appropriate technology and creates an effective regulatory framework is the
first step to address the supply shortage of well designed formal savings products
in the developing world.
Providing avenues to save is not the
only end goal. Access to one’s savings is an issue still being sorted by
bankers and policy makers alike. It is for this purpose that newer technologies
such as Electronic/Mobile banking (E/M Banking) and the Banking Correspondent
(BC) model are being tested, especially in rural areas, where branchless
banking is deemed to be the future of making transactions.
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