Microfinance Horizon

Author: Shawn Musgrave

Abstract:

Microfinance has become one of the touted development initiatives among the international donor community, garnering a UN honorific “Year of Microcredit” in 2005 and a Nobel Prize for microfinance practitioner and proponent Muhammad Yunus in 2006. Critics of the microfinance movement suggest, however, that an emphasis on credit for the global poor is misplaced, and that true financial independence requires access to safe and effective means of accumulating savings as well. The following paper constitutes a literature review and critical examination of global microfinance institution (MFI) practice regarding deposit collection among the global poor, as well as of the theoretical obstacles that individuals below the poverty line might face in saving on their own. Results (largely anecdotal or theoretical, but bolstered by a growing number of empirical studies) suggest that the global poor not only are capable of accumulating considerable savings relative to income, but in many cases are incredibly eager to adopt innovative savings products that facilitate such accumulation through various restriction mechanisms to combat time inconsistency and self-control dilemmas. As such, MFIs should note this largely untapped stakeholder demand for savings products as a complement to microcredit as an additional tool toward development.

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