It has become increasingly clear that the most important element of microfinance isn’t lending, but savings. That lesson was taught to me by SEWA in India, Kashf in Pakistan and Grameen in Bangladesh. Only some poor people will benefit from the chance to borrow, but almost all will benefit from the chance to save.
That’s also a lesson of a fascinating new book, “Portfolios of the Poor: How the World’s Poor Live on $2 a Day.” It looks at the financial activities of very poor families, and I was struck in particular from the surveys by how often poor families lost everything from crime. If you don’t have a bank account (because you can’t open one), and all your money is in a coffee can under the bed — well, you can be wiped out in an hour. In South Africa, 11 percent of the sample faced a financial emergency in any one year from theft or violent crime. In Bangladesh, 7 percent were cheated or lost cash, and 19 percent lost their home or property through fire or other means. To be poor truly is to live precariously.
Likewise, the book notes that many poor people must pay to save. That’s right — instead of receiving interest for depositing their savings with someone, they have to pay interest on their own money. One common scheme in West Africa, for example, charges an annual interest of 40 percent for accepting savings. If you struggle to save $100, a year later you have $60. But at least it’s safer than it would be under the bed. If we develop banks that actually serve the poor and accept savings, even if they paid zero interest, that would be a huge step forward and a big incentive to start saving.
By NICHOLAS KRISTOF
http://kristof.blogs.nytimes.com/2009/05/26/putting-the-microsavings-in-microfinance/?_r=0
