Savings as a Ticket out of Poverty

January 12, 2011

YouthSave, a consortium of youth and microfinance-focused NGOs led by Save the Children and funded through a grant from the MasterCard Foundation has a new Web site it hopes will advance savings products for the young. Partner organizations include: the Center for Social Development at Washington University in St. Louis, the New America Foundation and CGAP.

There's been a lot written lately about the need for savings programs that target the world's poor and financially underserved. Now there's a new program - called the YouthSave Project - focused on developing and testing savings products for low-income youth in developing countries. Four countries in particular are the focus of its work presently: Columbia, Ghana, Kenya and Nepal.

"Financial institutions - as well as governments, donors and NGOs that can assist in serving low-income youth - need access to better information on the development and commercial impacts of youth savings accounts," Jamie Zimmerman, Director of the Global Assets Project at the New America Foundation, said in a statement announcing the new YouthSave Web site.

Financial products that allow disadvantaged youth in developing countries to accumulate savings and assets early in life are believed to be an important determinent for access to education and better economic opportunities. The challenges financial institutions offering micro-savings accounts face include cost of delivery and product development challenges. The YouthSave Web offers help on this count by providing ongoing accounts of the project and its research, and information detailing other, similar projects.

Reeta Roy, President and CEO of the MasterCard Foundation, described the new Web site as a way for "practitioners around the globe to share learnings and insights into how, together, we can help to provide youth living in poverty with equal opportunities to earn, save and succeed."

Discourse on Savings

Nearly everyone agrees that microfinance needs to be about more than just small-dollar loans. This is especially true in developing countries, where the committment to stash away a little cash can mean the difference between abject poverty and the ability to educate their kids.

As the financial world, MFIs, NGOs and funding organizations grapple with concerns about over-lending, a slow economic recovery, and government criticism of some MFI operations and profit motives, the case for savings products that can meet the unique needs of MFIs and their constituents has garnered even more attention.

In October, CGAP released a draft technical guide titled "Advancing Savings Services: Resource Guide for Funders" for public comment. It's intended to help funders determine how best to support the development and implementation of savings products. Copies are available for download at the CGAP Web site.

"Savings is a critical component of poor people's economic well-being and can have a direct impact on poverty reduction," the CGAP draft document explains. Many poor families already use informal savings instruments - from piggy banks to hiding cash under a mattress to savings clubs.

There are still vast expanses where there are no formal mechanisms for savings, especially across Sub-Saharan Africa. Institutional-level constraints, inadequate infrastructure and regulatory barriers stand out as "three of the primary deterrents," the CGAP report notes.

250 microfinance institutions made loans to Americans in 2007.