MICROFINANCE PAPER WRAP-UP: “Driving Financial Resilience Through Formal Savings Among the Low-Income Population,” by Laura Courbois et al, Published by World Savings and Retail Banking Institute

This paper explores the extent to which saving through the Scale2Save program allows customers to increase their financial resilience. Two NGOs, the Canada-based Mastercard Foundation and the Belgium-based World Savings and Retail Banking Institute, created Scale2Save in 2016. This research draws on the program’s operations in Côte d’Ivoire, Kenya, Morocco, Nigeria and Uganda. (Scale2Save is also active in Senegal.)

Prior research in the countries of focus indicates that volatility in disposable income is often a greater problem for poor people than simply level of income. Volatility is caused by factors such as seasonality of income and financial shocks such as theft; climate-related disasters; and the need to pay for healthcare, school fees, holiday celebrations and agricultural inputs.

The authors identify the following goals as the major drivers of customer demand for savings: 40 percent of participants prioritized saving for unexpected expenses, 36 percent for a specific household-related goal and 20 percent for business purposes. The rate of saving for business purposes was lower among women and youth, but female customers saved more for household-related goals. Youth also saved much more frequently for unexpected expenses than middle-age and older clients, which the authors argue indicates greater income volatility and vulnerability to financial stressors among young customers.

The research underscores three challenges of using savings to build financial resilience: (1) for coping with financial emergencies, the saved funds were often “inadequate to the loss;” (2) clients saving for a particular goal may be reluctant to use that money for an emergency even though doing so may be the best choice; and (3) some customers noted challenges in accessing their savings during emergencies, such as due to distance to the financial institution, pandemic-related lockdowns, and high fees or other restrictions on withdrawals.

Overall, customers who had accumulated savings were able to cope with financial shocks much more easily then non-savers. Savers were able to accumulate more savings when given incentives to save – and to refrain from making withdrawals – such as tiered interest rates and milestone benefits. Savings products marketed with specific goals, such as saving for a child’s education, greatly appealed to customers. Although accounts with fewer limitations on withdrawals helped “customers to withdraw savings during a crisis,” these accounts lacked incentives, and their users achieved lower levels of savings than those holding other types of accounts.

To boost savings going forward, the authors recommend practitioners should expand incentives and provide “two types of savings accounts: one account to meet the day-to-day liquidity needs for customers’ households and businesses; and another account for goal-driven savings.”

This is a summary of a paper by Laura Courbois, Ben Fowler, Liz McGuinness and Larissa Schneider; published by World Savings and Retail Banking Institute; November 2022; 14 pages; available at https://www.wsbi-esbg.org/driving-financial-resilience-through-formal-savings-among-the-low-income-population/.

By Arin Atluri, Research Associate

Additional Resources

Homepage of the World Savings and Retail Banking Institute and the European Savings and Retail Banking Group
https://www.wsbi-esbg.org/

Scale2Save description
https://www.wsbi-esbg.org/scale2save/

More MicroCapital paper wrap-ups
https://www.microcapital.org/?s=wrap

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