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Savings Mobilisation: Tenets of Micro-credit for Poverty Reduction

Guest post by: African Development Bank

Article Overview: 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.

Free Download - References: Human Capital and Economic Development By African Development Bank
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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

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Home > African-Accounts > African Development Bank > Savings Mobilisation Tenets of Microcredit for Poverty Reduction
Article Tags: attitude, collateral, discipline, economic research, economic situation, exorbitant rates, external sources, field observations, gender dimension, loan eligibility, mfi, micro credit, money, moneylender, necessary savings, poverty reduction, realities, research papers, sunita

About the Author: 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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