microsavings:

rethinking microfinance through behavioral design

Sophia Tareen C'17

Nadia Tareen W, C'15

April 2015

Why access to finance matters

Credit

Allows smoothing of consumption

Savings

Long-term asset accumulation

Insurance

Helps manage risk

But banks lack an incentive to work with the poor.

Low-income individuals have volatile income & little to no collateral

Frequent, small transactions are costly for banks

microcredit:

Provides non-collateralized loans

with a focus on micro-entrepreneurs

microcredit theory:

"Accountability, mutual trust, creativity and participation"

-Grameen Bank, Bangladesh

Microcredit primarily targets these 2 Millennium Development Goals

Not all investments are

"golden-egg-laying geese"

Microcredit is not always as transformative

as portrayed in the media.

Leads to business creation

But not an increase in household income

Borrowers want funds for everyday consumption

microsavings

Case Study: SEED Program

Green Bank of Caraga

Commitment Savings

Clients specify savings goal

Restricts withdrawal access until goal is reached

Deposits are made physically or automatically from checkings account

Philippines

Moderate economic growth

Only 26% use formal financial services

80% have no deposit savings account

Save,

Earn,

Enjoy

Deposits

SEED program yielded

318% increase in savings

Simply offering the option: 82% increase in balance in one year

Benefits of Commitment Savings

Counteracts "present bias" by preventing temptation spending

Less risky compared to informal saving methods

More inclusive approach to eliminating poverty

Personalization and ownership over experience

Obstacles

Conventional wisdom

Distrust in banks

Microsavings programs are a liability for MFIs and are not permitted in some countries

Solutions

Evidence-based design

Understand cultural context

Introduce regulation and possibly incentives for banks and MFIs