Savings: A Neglected Need of the Poor

Recognizing the importance of inculcating the habit of saving, and experimenting with a simple and effective way of doing so within SHGs and the individual homes seems to have struck a chord of resonance in the village women, who are now beginning to exercise autonomy and choice in how much and where they want to save

M ore than half the world’s adults, according to estimates, do not have a bank account. Nearly three out of four adults in developing and middle-income countries, and about 90 per cent of the 2.5 billion people, living on less than $2 per day in the developing world, do not have a bank account (Financial Access Initiative and McKinsey & Co. 2009). Indeed, the Global Financial Inclusion Database, Demirguc-Kunt and Klapper (2012) shows that account penetration is nearly universal in high-income economies but only 41 per cent of the adults in developing economies report having an accountat a formal financial institution. Furthermore, there are large differences in account ownership in developing economies. Whereas 46 per cent of the men have formal accounts, only 37 per cent of the women have accounts, and adults in the richest quintile are more than twice as likely as those in the poorest quintile to have a formal account.

In one of the seminal papers, Burgess and Pande (2005) show that access to formal finance in rural India has had a positive effect on poverty alleviation and economic growth. However, there exists a striking difference between the large take-up rate and the low use of formal bank accounts by the rural poor. It is estimated that 67.3 per cent of the accounts are lying dormant. Demirguc-Kunt and Klapper (2012) find that women are less likely to have bank accounts, due to which they have less experience in using formal banking facilities.