The relative risks to the savings of poor people

Abstract

Central banks often cite the protection of poor people's savings as a reason for regulating MFIs, and prohibiting semi- and informal deposit-takers. Informal savings mechanisms often prove more risky than unregulated MFIs, however. This article describes research demonstrating that poor people lose as much, and usually more, of their savings in informal savings mechanisms, such as ROSCAs, ASCAs, savings in kind, and especially saving at home. Even formal savings institutions were found not to be completely safe. Prohibiting MFIs from accepting savings is likely to drive poor people to riskier informal alternatives, and is therefore undesirable. It is clear that when discussing the risks to poor people's savings, this has to be evaluated on a relative basis. Very often all the alternative savings systems available to poor people are risky... thus poor people are left facing decisions on the relative risk (or relative safety) of the various semi- and informal savings systems open to them. It would be better to provide higher quality, clearer information to poor people about the risks involved of the various alternatives open to them.