Media Global (New York): Microsavings Opens Up a World of Possibilities
For those living on less than $2 a day there are few available financial tools that many of us may take for granted like bank accounts, credit, or insurance. However, even when the denominations are small, these financial tools can make a major difference in the profitability, security, and viability of a family’s finances. A few dollars is generally not enough to open or sustain a minimum balance in savings account at a traditional banking institution yet it can provide substantial security for low income family in times of need. Without the security of a bank account, savings must be kept in hand, in the home, or in risky informal banking and investment ventures. Access to a safe place to keep money can make a major impact on the ability of families and individuals to “manage risks and take advantage of commercial opportunities.”
Without formal banking, saving money can be a risky endeavor. Robbery, flooding, and fires are real risks, not only for property, but for any savings hidden in drawer, under a mattress or in a pocket. Needy friends and family members and impulse spending can also seriously derail efforts to save for future opportunities or emergencies. To fill the void that formal banking institutions have left, many communities have relied on traditional banking, such as the ‘susu’ collectors in Ghana, for security. These small businesses “collect small but regular deposits generally over the course of a month… [then] return the accumulated savings to the client, but keeps a percentage of the savings as commission.” The susu collectors are often the safest and least expensive way to save money in many communities but also carry risk and high cost. The rate of commission is sometimes as high as 40 percent, there is little regulation and no guarantee that the money will be returned. However, many still emphasize their value added to their community in the absence of a better alternative.
In some countries, such as Ghana, where rotating savings and credit associations or susu collectors are very popular, significant efforts have been made to regulate the practice, increasing the safety of saving and investing. With more regulation and security susu collectors are attracting the interest of large financial institutions such as Barclay’s and Citigroup who use the small businesses as an avenue to provide micro credit and loans to individuals. Other international organizations, such as Microsave, provide alternative opportunities for savings accounts as well as micro credit and loan opportunities. Although efforts are being made to expand the availability of these services, nearly 90 percent of those who make less than $2 a day do not have access to formal banking.
While the cost and risk of saving can be high for low income families in Africa the benefits often outweigh them and have influenced many to continue investing. Just a small amount of savings can “help build assets, guard against risks like crop failure, and allow for investment in education, providing future generations with greater opportunity.” Families are able to better deal with unexpected expenses and emergencies increasing their own security and viability. Although providing safe and secure opportunities to save will certainly not eliminate poverty, it can make a major difference in increasing economic stability on a small scale, which is likely to eventually bring more stability to economies on a large scale.
A website dedicated to microfinance in Africa: http://microfinanceafrica.net/
A UN report on Microfinance in Africa: http://www.un.org/esa/africa/microfinanceinafrica.pdf
A short video about an organization in Niger which enables ‘group sharing’: http://www.youtube.com/watch?v=W1-Ked7g-Wo
An IMF working paper on Microfinance in Africa: http://www.insme.org/documenti/wp04174.pdf
A video about Savings and Credit Groups in South Africa: http://www.youtube.com/watch?v=xFX-3tNrNgQ
An IFC report on Microfinance in Africa: http://www.ifc.org/ifcext/gfm.nsf/AttachmentsByTitle/IFC+Africa+Microfinance+Brochure/$FILE/IFC+Africa+Microfinance+Brochure.pdf
1. Do you think micro-finance has the ability to transform a society away from poverty? Why or why not? What could increase the viability of such a transformation in conjunction with micro-finance?
2. Why do you think formal banking institutions do not provide micro-finance opportunities? Do you think that these opportunities could increase a bank’s profitability in the long run or would these services have to be based on charity?
3. What are some things low income families could use a small amount of savings for? Can you think of an emergency cost that could be covered by a small amount of savings? What difference could this make in the long term for these families?