Day 1 Mid day Summary by Madhurantika Moulick Dear All, The response to the forum makes me rethink is savings really forgotten half…..or are we all trying in different ways to deal with the various issues raised during the day. Many many thanks indeed. For those who are waking up to overflowing inbox, here is a list of the key issues and suggestions that were presented today. I am sure it in no way captures the very many details and the excellent examples that have been shared, but hope it will help you catch up….though by the time I post it, I know the discussion would have gone ahead. We would try to do this every few hours as Summary Day 1-A, Day 1-B and so on. I have selected three of the key threads of the day 1. Product Attributes for Savings 2. Lessons Learnt from Informal Savings Mechanisms 3. Savings limits as an instrument of exclusion 1. Product Attributes for Savings In response to one of my questions on how clients prioritise on the product attributes for savings, and on what basis they select their service provider, the discussion was around the attributes of security, liquidity, accessibility and returns. The discussion took an interesting turn when Lisa raised the issue of cash versus in-kind savings and if financial service intermediaries should try to change social practices and motivate savers to invest more in cash savings? In-kind savings was perceived to be more risk prone than monetary savings. However many viewed it as an opportunity to spread financial literacy - on savings investments (risk, return). Indivisibility of in-kind savings was seen as a hurdle but examples of how strong social capital can address that issue was shared from the hills of North East India. The client's decision to choose an in-kind or monetary form of savings is also a function of whether there is a facility for cash transaction at all. Many others viewed the debate as a question on the relative inefficiency/efficiency of the formal sector Vs the savings options that the informal sector provides. There have been instances where the formal financial sector had collapsed so the role of regulation becomes important too. Others still noted that inspite of regulators the problem of information asymmetry persists. 2. Lessons Learnt from Informal Savings Mechanisms The discussion started with the purposes for which people save and the absence of what makes the informal sector continue to be so vibrant. The informal mechanisms thrive because of the intimidating nature of the formal institutions, starting from basic requirements of account opening which have always been beyond the reach of poor clients. Kwaku mentioned that paperwork is a problem and Brett mentioned example from India where even the Regional Rural Banks, mandated to serve the poor, leave illiterate struggling to figure out how to fill in slips etc. In the informal sector, firstly such obligations are less and secondly, are usually helped by agents or staff. Flexibility, convenience and accessibility are the key attractions of informal mechanisms, for example the SUSU mechanism in Ghana. As informal mechanisms evolved from peoples needs they are usually better suited to people’s needs. Some of the constraints in savings product are related to the following: Angela Wambugu mentioned that understanding the savings behaviour, needs and preferences of their target (low income) market is key in designing the savings product. Tailoring the savings mechanism as per the social and economic context is absolutely critical. She also suggested administering a profiling questionnaire at the point of accessing products/services. The customers can then be clustered along selected parameters. This may require a good database management system. Concern was raised about the cost of formal services in comparison of informal mechanism. Especially for the rural and remote population there is a need to find a solution for much more affordable savings services. So while most people want safety and accessibility, there are many dimensions to these parameters. Hermann Messan and others have pointed out that some people want liquidity, while others want illiquidity to protect against their money being available for impulse spending, needy relatives. N.Srinivasan pointed out earlier that there might be segments interested in saving for old age. Brett Mathews also mentioned that in addition to in- kind savings mechanisms, an important component of this saving is investments in social networks. 3. Savings limits as an instrument of exclusion N Srinivasan raised a concern about the high weekly or monthly installments that are set which results in exclusion of the many in the targeted population. In response to his question of “What should the self help promoting institutions do to encourage savings in this context?” Brett Matthews suggested improved product design based on the seasonality of cash flows for the clients which would offer them flexibility. Also he suggested on forming groups of equal social status so that the risk is minimised. Hope this helps. Madhurantika.