THE POTENTIAL FOR FINANCIAL SAVINGS IN RURAL MOZAMBICAN HOUSEHOLDS

Abstract

Abstract Many policy makers and businesses erroneously believe that rural populations, particularly in Africa, have no margin for savings over consumption needs. This study examines the potential for financial savings in rural Mozambican households by looking at the determinants of savings behavior. An econometric model for a household’s saving behavior was estimated using data from 113 rural households from Nampula province in Mozambique. Results indicate that income, physical wealth, household size, and years of schooling affect a household’s savings behavior. The study also finds that Mozambican rural households use their own grassroots associations for many financial services due to the lack of access to formal financial intermediaries. Key words: Africa, Mozambique, financial policy, savings, rural households I - Introduction There has recently been an upsurge of interest among development economists, governments, and international donors to increase financial savings in developing countries (DCs), particularly in rural areas and from non-wealthy households. However, a large number of DCs are unable to mobilize the potential savings of the non-corporate sector because the structure of their financial institutions, financial instruments, and financial policies are unsound (Vogel and Burkett, 1996). It is erroneously believed that rural populations, particularly in Africa, have no margin for savings over consumption needs (Robinson, 1994). In Mozambique, as in many other poor countries, some key characteristics and policies of the financial sector, particularly financial repression, explain the poor performance of the formal financial sector (Carboni, 2001). The incapacity of commercial banks and state banks to supply financial services to the rural and urban poor is an indication of the overall weakness of a rudimentary banking industry in this developing market economy. Most of the country’s commercial banks have been established recently, since in 1996. These banks generally do not