To highlight the value of savings on economic well-being, and in honor of World Savings Day, the Consultative Group to Assist the Poor (CGAP) recently released a paper entitled, “Advancing Savings Services: Resource Guide for Funders.” The intent of the report is to encourage funders to incorporate savings into their strategies for alleviating poverty, and to introduce them to the issues that must be considered when doing so. The paper covers:
- The demand for savings among low-income clientele, and the benefit of offering savings accounts for financial institutions
- The need for client research to better understand where the demand is and how to tailor products to meet the needs of a specific client base
- The different types of financial institutions that donors can partner with, how to ensure sustainability, and the role technology can play in increasing both access and profitability
- The management of sound infrastructure, ranging from capacity building to money markets to deposit insurance
What is of particular interest, though, is the link between the capacity of the financial institution to adequately educate its staff on savings policies and practices and the willingness of consumers to participate. The guide notes that consumers must have both access to savings as well as knowledge of the terms and conditions of the savings product. According to the CGAP report, research has shown that take-up and use of savings products increase when financial literacy and capability are paired with financial services, and thus are less successful when one or the other is used in isolation. The takeaway for funders is that a two-pronged approach will have the greatest impact if the goal of the program is to bring about financial inclusion through savings accounts for the poor.
World Savings Day, instituted in 1925 by the World Society of Savings Banks, is celebrated on October 31st with the purpose of informing “people all around the world about the idea of saving their money in a bank rather than keeping it under their mattress.” In the beginning, it was primarily celebrated across Europe with campaigns, mascots, and even songs. However, as microfinance has gained credibility and recognition for its impact on alleviating poverty, increased emphasis has been on the developing world.
The CGAP guide keenly observes that, “Poor people know the value of saving, and this is reflected in their behavior. Household studies consistently show that poor people save and that unbanked households already use a variety of informal savings instruments to manage their small and unpredictable incomes.” Poor people save despite their poverty. It seems then that perhaps the goal of World Savings Day should not necessarily be to encourage individuals to save, but rather to persuade banks to offer them savings products, ensuring that their hard-earned savings are not kept “under their mattress.” Indeed, this is the very case the CGAP report makes.