Savings and deposits for low-income households
Poor households already save, often a lot, but in forms that are risky, illiquid or expensive: cash under the mattress, livestock, jewellery, or informal groups.
Informal savings tools
- ROSCAs (rotating savings and credit associations): each member contributes a fixed sum each period, and one member takes the whole pot in turn.
- ASCAs and savings groups: members pool savings into a fund, lend from it and share it out at the end of a cycle. Village Savings and Loan Associations (VSLAs) are a widespread version.
- Deposit collectors, such as West Africa’s susu collectors: a collector visits daily to take small deposits, for a fee.
The book Portfolios of the Poor (Collins, Morduch, Rutherford and Ruthven, 2009) documented how households juggle many of these tools at once to manage irregular income.
Why formal savings are hard to offer
Collecting many tiny deposits is costly. Taking deposits also requires a licence and prudential supervision, because the institution holds the public’s money. That is why most microfinance NGOs only lend, and why transformation into regulated institutions mattered so much.
Design features that work
- Small minimum balances and no or low fees.
- Proximity: agents, mobile wallets or doorstep collection.
- Commitment features: accounts that restrict withdrawals until a goal or date. Field experiments have shown that many people choose these and save more.
- Labelled accounts for school fees, health or emergencies.
Savings vs credit
Credit lets households act now and pay later, while savings lets them build up first. For emergencies, savings carry no repayment risk, which is one reason many practitioners now see savings as the foundation of financial inclusion.