What savings products do people want?

Project Guide: Sendhil Mullainathan (Harvard)
CMF Research Associate: Elizabeth Koshy
Partner Organization: Microcredit Foundation of India
Timeline: Project completed in September 2006

In a country where a large majority of the poor do not have access to formal banking, the design of innovative financial products that enable and encourage the poorest of poor to participate in the formal market is a priority for both practitioners and theorists. Micro-credit products have proliferated throughout India and thousands of women have been able to collectively fight for better opportunities. However, relatively little attention has been paid to complementary microfinance services, most salient of which is savings.

Lack of proper incentives and legal boundaries have forced the poor to save through informal and low-yielding instruments, excluding them from formal banking. This short study is set within the context of the Reserve Bank of India’s (RBI) decision to allow banks to introduce savings products in regions where they have no physical presence, exploiting the networks of other institutions like MFIs.

The project had two main objectives: first, it focused on the supply side of micro-saving, surveying the market to identify current formal and informal savings options that poor people have access to. These savings options range from indigenous chit funds to deposits collected at the doorstep to saving in gold. Second, the project looked at the issue of micro-savings from the demand side, using qualitative analysis to assess what kind of savings products people want, need, and are willing to use.

This case study provides detailed documentation on various inventive ways the poor use to save. It also gives valuable information on the extent to which the poor save and highlights some limitations of these savings mechanisms. It can therefore be useful for organizations willing to develop savings products for the poor.

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