It turns out that microcredit is not just for developing small businesses and raising incoe levels. One of the major benefits of microcredit is the way it helps people survive emergencies and unexpected expenses. Far better to take a loan to cover medical bills, for example, than to kill an income-producing animal like a cow or sell necessary assets. However, microcredit isn’t the only solution to that kind of problem. Savings are equally – or more – effective in an emergency.
I suspect that the next big thing in microfinance is going to be microsavings. Even small amounts of money can make a major difference in a crisis situation, but it’s very hard for poor people to save money. Any savings tend to be eaten away by minor mishaps, like a relative in need of a loan. (For more on the topic, I strongly recommend reading The Poor and Their Money.) A formal savings opportunity can be – literally – a lifesaver.
Melinda French Gates agrees with me. She mentioned microsavings in a recent interview with Smithsonian magazine. She said that “At the Gates Foundation, we are particularly interested in the potential of small-scale savings accounts to improve poor people’s lives. When people have reliable access to savings, they don’t risk total destitution if there’s a death in the family or a bad crop.” She goes on to say that she visited villages served by the Opportunity International Bank of Malawi, and “I saw people waiting in an hour-long line to make an average deposit of about 200 Kwacha, or $1.40. That’s how much demand there is for savings in poor communities!”