Savings and the Poor: The Methods, Use and Impact of Savings by the Poor of East Africa

Publication Date: May 1999
Published by: MicroSave
Document Type: Paper (PDF)

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What “Savings Practices” do the poor adopt?

This paper is a synthesis of the research study on “savings practices” of the poor in three East African countries. The objective of the study was to explore the possibilities of providing improved savings services to the poor in the region.

The study assumes that the poor needs lump-sum amount of cash to meet their common life cycle events, emergencies and business opportunities. The three conventional ways of converting savings into lump-sums are:

• Saving up;
• Saving down - taking a loan as an advance against future savings;
• Saving through - making a continuous set of deposits which are converted into a lump sum at some point in time during the flow.

The paper describes the money management instruments / services used and the extent of their accessibility to the poor. It groups the savings tools broadly as:

• Informal services such as savings at home, savings club, reciprocal lending, etc;
• Formal services such as banks / insurance companies;
• Semi-formal sector including microfinance institutions (MFIs).

The study finds that:

• The poor have limited access to formal / semi-formal institutions;
• MFIs transact business with a very narrow range of clients who are not so poor;
• The reliance on informal setup is predominant among the poor in managing their money.

The paper concludes by suggesting that MFIs broaden the range of their services /clients and by highlighting three issues for sustainable pro-poor banking:

• Attractive product design;
• Realistic pricing of services;
• Focus on cost effectiveness.