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Savings Mobilisation: Tenets of Micro-credit for Poverty Reduction

 
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Savings Mobilisation: Tenets of Micro-credit for Poverty Reduction
   

One of the more common requirements of most MFIs is to encourage savings amongst the clients so that they develop an attitude of savings first and borrowing on that amount, and also to empower them, in the long term, to be independent of borrowing from external sources. Savings requirement also represent a form of collateral and allow the MFI to recover at least a small part of their outstanding loan in case of default. The issue of forced savings mobilisation and linking it to eligibility to borrow may contribute to increased poverty. Field discussions in Malawi reveal that most of the time the poorest of the poor do not have access to and cannot generate savings.

Because a potential client will resort to other means to put up the necessary “savings” in order to qualify for the loan, she may, for example, borrow the money from the husband, making her further disempowered within the gender dimension. She may borrow from an informal moneylender at exorbitant rates to qualify for a comparatively cheaper loan. Therefore, field observations show that forced savings mobilisation, although meant to instigate a culture of saving discipline, does not match the realities of socio-economic situation of the poorest of the poor. This, however, does not deny the fact that voluntary savings, independent of loan eligibility, has become quite acceptable in many communities in Malawi and Ethiopia.

ECONOMIC RESEARCH PAPERS NO 74 (January 2003)

Factors Impeding the Poverty Reduction Capacity of Micro-credit: Some Field Observations from Malawi and Ethiopia by Sunita Pitamber To learn more about this author, visit African Development Bank's Website.

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African Development Bank
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The African Development Bank is the premier financial development institution of Africa, dedicated to combating poverty and improving the lives of people of the continent and engaged in the task of mobilizing resources towards the economic and social progress of its Regional Member Countries.The Bank’s s mission is to promote economic and social development through loans, equity investments, and technical assistance. The ADB is a multilateral development bank whose shareholders include 53 African countries and 24 non-African countries from the Americas, Asia, and Europe. It was established in 1964, with its headquarters in Abidjan, Côte d’Ivoire, and officially began operations in 1967.
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