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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.
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Free Download - References: Human Capital and Economic Development By African Development Bank |
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
When is microfinance NOT an appropiate tool? FAQ
1.19 Building trust: Working Out of Poverty
Overview of Microfinance
Recommendations for future research - Factors Impeding the Poverty Reduction Capacity of Micro-credit: Some Field Observations from Malawi and Ethiopia
III. BACKGROUND - Microfinance in Africa
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About the Author: African Development Bank RSS for African's articles - Visit African's website Click here to visit African's website   Recommendations for future research Factors Impeding the Poverty Reduction Capacity of Microcredit Some Field Observations from Malawi and Ethiopia Interest Rates Tenets of Microcredit for Poverty Reduction Targeting women Tenets of Microcredit for Poverty Reduction Variation within the continent Africas human development Comparison with other developing countries Africas human development |
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