MEDA works behind the scenes to help the poor save their money
How do you help the poor find a safe place to stash their cash?
While affordable micro-loans are a proven financial aid, global agencies are increasingly seeing savings (or “deposit mobilization”) as a next rung on the ladder out of poverty, says Julie Redfern, vice-president of financial services with Mennonite Economic Development Associates (MEDA).
While it may seem odd that people who earn less than $2 a day need a place to save money safely, even pennies a day can add up to an emergency fund for a child starting school or to cope with sudden illness, she says.
But that can be more difficult than it sounds for villagers who have no access to a bank and have to resort to hiding their money under a mattress or putting it in a tin and burying it.
MEDA, a microfinance pioneer, has been broadening its scope as the whole area of “informal” savings gains momentum in Africa and elsewhere.
“Just like everyone else, poor people need a wide range of financial services that are convenient, flexible and reasonably priced,” says Redfern. “Access to savings, money transfers and insurance are all needed.”
She notes that various “new” methods, such as mobile banks, are not much beyond a “cash box” approach that has been around for many years. “While the global demand is very high, the quality and usefulness of current savings products for the poor is still questionable,” says Redfern.
MEDA has avoided highly visible products, choosing to work behind-the-scenes to improve the regulatory environment in national banking systems.
That approach isn’t as jazzy, says Redfern, but she believes much can be gained by working more formally to introduce savings products and lodging them within mainstream institutions.
“I am a stickler for wanting savings to be intermediated by organizations that are regulated and authorized to provide this service,” she says.
Up to now, a major obstacle has been outmoded or nonexistent national standards, says Redfern. But this is starting to change as more countries see the value of shifting regulatory requirements for the benefit of small savers. “This is opening the door to real opportunities to partner with large microfinance institutions (MFIs) who reach hundreds of thousands of clients in a number of countries,” she says.
Several of these large institutions have turned to MEDA to help them develop savings products and begin the process of transforming themselves into banks.
“There aren’t a lot of people out there who know how to do this, so we have a big opportunity in this area,” Redfern says.
Former MEDA staffer Joyce Lehman, who now works in microfinance for the Bill and Melinda Gates Foundation, says most of the world’s 2.5 billion people who live on less than $2 a day are “unbanked,” meaning they have no access to even basic financial services.
“Contrary to what we might think, the poor have just as much need to manage their financial lives as we do,” she told a seminar at a recent MEDA convention. “Can you imagine how smart you have to be to manage living on an average of $2 per day?” – MEDA News Service