Looking ahead....is savings the darling of today only to be the pariah of tomorrow?


For anyone that hasn’t read the article from ODI “Microfinance as a development and poverty reduction policy: is it everything it’s cracked up to be?” I recommend you do so. The article neatly summarizes the state of microfinance now, and it isn’t very enthusiastic. Here’s a brief summary of the article:

Impact evaluations, which in the early years were done by MF practitioners and not very robust. Later on when random control trials were introduced, the most robust of them was re-worked by Morduch et al and it was concluded that ‘Strikingly, 30 years into the microfinance movement we have little solid evidence that (microfinance) improves the lives of clients in measurable ways’.

Impact on HH debt where it is stated, ‘The fear is that significant financial flows are flowing out of the poorest communities, rather than being retained and recycled within them to underpin productive investment as the precursor to an escape from poverty’.

Market saturation and displacement: Those with access to MF credit simply push out those microenterprises that don’t (another case of robbing Peter to pay Paul).

Does MF promote growth and development? In a word, no. The findings state that it is rare to find significant instances of microenterprises growing into small and then medium enterprises.

A few of the recommendations highlight the need to promote micro savings before microcredit and to promote genuine community owned and controlled financial institutions.

So what does this mean to the savings revolution? Reading the article, several red flags were raised in my mind. First off, I am sceptical of the type of research that is ‘good enough’ for academic researchers and don’t necessarily accept everything they say in terms of impact studies. Personally, my take on such things is from a practitioner’s point of view and I ascribe to the need for studies that will help improve impact as opposed to prove impact. I find it hard to believe that there hasn’t been ANY positive impact as a result of microcredit at all. Don’t get me wrong, my stance on microcredit is that it isn’t going to work to “lend one’s way out of poverty”. However,I remember the excellent work of AIMS (Assessing the Impact of Microenteprise Services) commissioned by USAID, which pointed to positive impact. I also know that it isn’t easy to prove definitively anything at all! In fact, sometimes my scepticism regarding research has bordered on cynicism and I am reminded of the quote (forget who to attribute it to) “People use statistics like a drunk uses a lamp post—for support rather than illumination”. Seriously though, whatever one thinks of proving vs improving impact or how statistics are used, the following questions for the savings revolution are relevant:

1) How is the revolution evaluating itself? How are we measuring our impact? Is it on enterprise growth? Good saving habits? Social capital? Stronger economic resilience? More kitchen appliances? 2) Is there a danger that some may place too much emphasis on the credit provision part of the savings-led movement? And value it more highly than the savings function, such that it becomes a debt trap much like MF is criticised for creating? 3) Do we know if our clients are lightening their debt load, or is the savings-led mechanism creating unsustainable debt too? I am thinking here of an evaluation I read-about Swaziland groups- where members were increasing their debts to loan sharks to pay off savings group loans. I know in our program that this happens, but don’t know how widespread it is.

I liked this article because it was informative and current. However, it made me wary. I am thinking of the ‘meme’ phenomena that Paul recently wrote about. It all makes me wonder what we can do to ensure that the savings revolution doesn’t become the darling of today only to become the pariah of tomorrow.

What do YOU think?


Reader Comments (2) 

Jill, interesting post.

"what we can do to ensure that the savings revolution doesn’t become the darling of today only to become the pariah of tomorrow."?

1) don't oversell what the savings revolution *could* do.
2) measure (rigorously, i.e. with attribution) what the savings revolution actually does.
3) publicize what the savings revolution does.
4) improve the revolution, and repeat 1-3.

The savings group sub-sector has the opportunity to avoid the growing pains of microcredit - the hype, the promulgation of unrepresentative and unattributable results, the focus on financial performance to the detriment of social performance, the upmarket drift. Will the sub-sector seize that opportunity?


Wed, June 1, 2011 | marc bavois


How can anyone perceive a need to "prove" the value of having savings? Just ask someone who doesn't have enough money to do what they want to do with their life!

As one of the subtexts of the development process is the incorporation of the poor fully into the cash-based market economy model, how can an emphasis on the accumulation of financial resources owned and controlled by the poor not be right on target? It's a bit like requiring proof that sex is a useful behaviour to achieving parenthood.

In our economics-obsessed system, where trading (labour, goods, services) for cash is the primary means of improving the tangible quality of our lives -- and even trading of cash itself has become a globally dominating activity -- it seems to me axiomatic that having savings is beneficial.

Wed, June 15, 2011 | Greg Pirie (gregpirie@bluebottle.com)


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