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Savings Mobilization - Modern Piggybanks

I worked on a project in Uganda focused around savings mobilization - we ID'd important barriers to savings for low income customers.

Photo of Mallory St Claire

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In 2011, I worked with a microfinance group in Uganda (a SACCO, savings and credit cooperative) on ways to expand their working capital.  Our solution was to mobilize savings, and to do that, we had to make savings easier and more affordable for our clientele, which consisted of rural and suburban customers. 

We identified the barriers to saving as follows: 

  • poor savings culture - public are not informed, public also do not trust banks

  • there is a perception that you have to be rich to save - people do not understand "incremental saving," or saving small amounts everyday 

  • long distances to travel to banks to make deposits.  If a customer wanted to make even a small deposit, it might be more expensive to travel to the bank than make the deposit itself! 

Our group decided to provide interested clientele with savings literacy training and small, wooden lockboxes.  These lockboxes would have a slot in top to insert coins and paper bills.  The boxes could only be opened by our loan officer, who would come around once a week to houses, remove the savings deposit, and place the money in the client's account.  Customers could only receive a lockbox after attending a 2-phase savings and financial literacy workshop.  

This program boosted the MFI's working capital, allowing it to make more loans into the community.  Ancillary effects to this program were widespread - interestingly enough, there was some social or peer effects that positively influenced savings deposits.  When the loan officer came every week, there was some pressure to have at least something to give as a deposit.  As a result, clients were more mindful of saving throughout the week. 

Though it's not a silver bullet or a scalable solution, it did shed some interesting light on why people, especially in rural communities, don't save in traditional financial bodies.  

Edit - Some questions were asked about more of the community effects around this intervention.  I think that savings workshops and the act of giving a client the lockbox for free helped engender trust in the community.  This was an area that had a high level of mistrust for MFI's and banks in general - a couple years before we started the project, there were two microfinance organizations that came in, and offered savings accounts with ludicrously high interest rates.  Of course, once everyone came and made their deposits, these organizations simply took off with the money.  

People were still wary of financial institutions a couple of years later.  I think that after we overcame initial trust barriers, peer pressure from the community also helped to maintain savings culture among our clients - it was seen as a bit embarrassing not to give something into one's savings account.  

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Photo of Trevor z Hallstein

Hello Mallory. Very thought provoking post. Would you be able to give us a sense for what people in the community would use their savings on? What does having a means to save money allow them to do differently than without the lock boxes? Are their other 'financial services' types of products where they have a work-around but could benefit from mainstream types of products and access (e.g. insurance, investments, retirement accounts..). Is this even relevant to their way of life or community?

How are you enjoying Bangalore? I used to travel there a lot for work! I even got to spend a night in the Mallya hospital ICU after some grape and musk mellon juice disagreed with me from eating at 'juice junction'. And paneer subway sandwiches at forum mall, so good! Why don't we have that option in the san francisco bay area!?

Photo of Mallory St Claire

When we surveyed community members, savings use was highly varied. A lot of people said they wanted to save for emergencies or school fees for kids. Additionally, when we spoke to community members, they detailed some informal ways of saving. Community members (and this is in the Southern part of Uganda) often buy livestock, jewelry, goods like TV's, or they stash their money under a mattress or in a clay pot.

Obviously these can be unstable forms of investment, and you don't accrue interest the way you can in a formal savings account. I think a lot of these microsavings products can be extremely beneficial, especially to low income communities. If you believe the "poverty trap" hypothesis, we know that for low income families, wages are very irregular - you can have a lot of money one week, not so much the next. Furthermore, families are very susceptible to disasters or "shocks," like someone getting sick, bad crop season, family death, etc.

These microsavings products and other products specially designed for low-income people can help smooth the income cycle and protect against shocks. I think that mobile money like M-PESA holds a lot of promise in this regard. I have also seen some MFI's offering microinsurance, and that can be especially useful to subsistence farmers.

Bangalore is quite interesting and very challenging! I have also been sick twice here...luckily the healthcare is cheap. This wouldn't happen to me if the food wasn't so delicious.

Photo of Trevor z Hallstein

Hi Mallory,

I wonder if micro-insurance would help alleviate shocks ("families are very susceptible to disasters or "shocks," like someone getting sick, bad crop season, family death, etc."). http://en.wikipedia.org/wiki/Microinsurance

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