In Support of Micro-Savings

In reply to Holden’s post on GiveWell, one of my favorite blogs…

I would have to disagree with David & Basti.

MFIs do not want to provide savings products for many different reasons, but most of all because it is less profitable. The ROI on savings is far lower than that for MFIs, and so MFIs avoid providing savings alternatives. (Compartamos, for example, one of the financially most successful MFIs – think $467M IPO – has had savings pilots for years they have not launched)

The real challenge behind this, as Holden correctly points out, is that the priorities of the ‘financial services for the poor’ sector is skewed too far toward monetary return on investment and not enough toward social returns on investment. This creates entities that look good financially but are not delivering as much social return.

I am also in the process of reading Portfolios of the Poor and studies like these clearly articulate the needs of the poor, and savings is a need that is not receiving enough attention. This is partially because of regulatory hurdles, which are quickly being changed here in Africa, but it is mostly because of skewed priorities: financial over social returns.

Cell phone technology promises to reduce the costs of servicing even the poorest and least-densely populated regions to the point where it will become a more viable social enterprise with better financial ROI. In the meantime, however, I think we all need to re-adjust our priorities and focus more on Social returns. With additional funding and focus, savings can and will be realized for the bottom billions.