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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