Mobilizing Household Savings through Rural Financial Markets

Abstract

There is general agreement that in early stages of development most lowincome countries must rely heavily on agriculture for capitalizing their economies. Much less agreement is found on questions about the magnitudes of agricultural savings capacity and on how surpluses can be mobilized most efficiently. Only a handful of countries have stressed mobilization of voluntary household savings through rural financial markets. In part, policymakers have ignored these savings because of widely held assumptions about rural household saving behavior. It has been assumed that these households are too poor to save and that those which do acquire additional income spend the windfalls on consumption or ceremonial sprees. It will be argued that these assumptions are incorrect, that substantial voluntary rural household savings capacities exist, and that household savings are strongly influenced by rural financial markets. The discussion opens with remarks about the importance of household savings, a brief outline of the household decision-making process which determines savings behavior, and a few comments on how rural financial markets relate to household behavior. This is followed by a review of evidence on the extent of rural household savings capacities. The discussion concludes with an examination of the benefits which result from mobilization of voluntary rural financial savings and a few suggestions on savings mobilization strategies.