Why Savings?

Contrary to popular belief, the poor can and do save. Unfortunately, with close to half of the world's adult population excluded from formal financial services,  the poor often must save through inefficient and costly mechanisms.  For example in some instances, given the lack of options, poor people actually pay an intermediary to save their money for them.  In recent years the microfinance sector's attention has begun to broaden from its initial emphasis on microcredit to include microsavings.

The evidence generated thus far on the impact of access to formal savings is limited but very promising. In the most cited study, conducted by Innovations for Poverty Action Research Affiliates Pascaline Dupas and John Robinson in Kenya, a random sample of small business owners received no-fees access to a formal bank account. Detailed follow-up data collected approximately 4-6 months after account opening showed that the accounts had sizeable impacts on a key demographic – the female vendor. The data revealed that female vendors who were offered the accounts had larger businesses, higher incomes and higher total expenditures than the female vendors in the control group. Further, female vendors with accounts were less likely to draw from working capital to find money to cope with shocks. This evidence from Kenya suggests that simple savings accounts can have big impacts on the lives of poor entrepreneurs. Indeed, savings accounts with practically negative interest rates produced positive impacts.

In close partnership with Yale University under the Microsavings and Payments Innovation Initiative, Innovations for Poverty Action oversees a large portfolio of rigorous research projects on savings.  These projects aim to answer a range of questions, from first order questions of impact of access to savings on household welfare, to understanding what product design features are the most cost-effective ways to increase savings balances.  Some examples of IPA's work include replications of the aformentioned Kenyan study in the Philippines, Chile, Uganda and Malawi.  Through other savings projects, IPA continues to build its knowledge of how to encourage the poor to save more, for instance through the use of commitment savings products to counter present-bias.  Commitment savings devices, as well as mechanisms to remind people to save, have been found so impactful that the two are part of IPA's Proven Impact Initiative. In the coming months and years, IPA savings research will also engage with innovative new technologies and channels such as mobile and agent banking to understand what works best in mobilizing savings.