The biggest barriers are definitely regulatory - and for good reason. It requires a much more sophisticated institution to manage savings, since they involve semi-random cash flows, as opposed to credit, which can be forecast more easily. Add that to the MIS, internal controls and staff issues, and your typical NGO couldn’t realistically offer savings even if it wanted to.

Credit got much of the initial focus b/c the assumption was that the poor are too poor to save. Which is BS, because the biggest problem most poor households have in the developing world is that their income is highly irregular. Savings helps these households smooth income over the course of the year. Credit does this as well, but they are paying effective interest rates of 50-90% for the privilege of doing so. Unfortunately, subsidized loans to MFIs have crowded out savings. The biggest benefit to MFIs for savings is the reduced cost of funds - interest rates on savings may be 10-20% lower than what they would pay for commercial debt.

The existence of informal savings networks (ROSCAs, tontines) around much of the wrold indicates a huge pent up demand for savings. The rule of thumb we used was always that there were 6-8 savers for every borrower. The key is to identify institutions (cooperatives, progressive banks, more mature MFIs) and technologies (mobile money, ATMs) that facilitate convenient savings.

We are a little wary of swinging too far in this direction and promoting microsavings as a panacea, as this article seems to do to some extent. The evidence for savings’s impact is also limited, and there are still critical questions that should be asked of a given savings program.

It’s still worth keeping in mind that if savings institutions are both rare and more needed, the focus of microfinance charities ought to be on expanding savings. The focus of their marketing clearly isn’t.

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.