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Development in Practice.
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Introduction
The recent shift in terminologyfrom microcreditto microfinancereflects the acknowledgment
that savings services-and not just loans-can help improve the well-being of the poor in
general and of women in particular(Zeller and Sharma 2000; MacIsaac 1997; Morris and
Meyer 1993). Although microfinance often targets women and although women often use
microfinance, Johnson (1999) notes that product design rarely addresses gender-specific
aspects of the use of financial services. Indeed, despite the pervasive belief that microfinance
helps women, few programmeshave developed concreteways to meet the distinctdemandsof
poor women for savings services.
How can savings services best serve poor women?A place to startlooking and drawlessons
from are the informal savings mechanismsthat poor women alreadyuse all over the world:
door-to-doordeposit collectors, RotatingSavings and CreditAssociations,andAnnualSavings
Clubs. Examples of practicalapplicationsof these lessons are the creation of the Safe Save
organisationin Bangladesh (Rutherford2000) and the design of savings products at Bank
RakyatIndonesia(Robinson 1994). These efforts are not genderspecific, but they do combine
some of the strengthsof informaland formal savings mechanisms.
This paperderives lessons from informalfinance for the design of formal savings services
thatrespondto women's responsibilitiesfor marketproductionand for householdreproduction
and thatalso addressissues of culturalpatriarchyand domestic violence. Two specific services
are discussed. The first-safe-deposit boxes-allows women to maintain independent
savings. This boosts their freedom and bargainingpower within the household and cushions
the shock of divorce or abandonment.The second-matched-savings accounts-structures
saving, promotes peer support among women savers, and subsidises savings targeted to
women-specific concerns such as healthcareor school fees.
Microfinance, microsavings
microcredit,
Interest in micro savings-beyond just microcredit-has grown just as microfinance
practitionershave come to understandthat small loans are not always appropriatefor poor
women (Kabeer2001; Rahman1999). After all, a loan becomes debt, and the poor are exposed
to crisis if expected sources of funds for repaymentevaporate(Rogaly 1996).
Thus, borrowingis often riskier than saving. For example, a woman could save or borrow
to buy a sewing machine.If a child falls ill, savings could be tappedinto to pay for medicine;
debt repayment,on the other hand, might precludemedical treatment.Furthermore,although
not all people are credit-worthyor want debt, all people are deposit-worthyand want assets.
Of course, saving requires current sacrifice, and with saving-unlike borrowing-the
sacrifice precedesthe reward.On the otherhand, saving offers flexibility, and while borrowers
pay interest, savers earn it. Also, the choice to save is voluntary;once indebted,repaymentis
mandatory.Both savings and loans have a place, but saving is often a better choice for poor
women. As stated by Johnson and Kidder (1999:6), not all poor people are 'budding
entrepreneurs.... [F]orpeople living in poverty,perhapsit is access to a savings account ...
that needs to be the core service on offer.'
A wealth of evidence now suggests that many ostensible micro-enterpriseloans are in fact
used for consumption(or at least not directly invested in business assets) and are repaid out
of existing income sources (e.g. Sinha and Matin 1998; Johnson 1998). Thus, the poor have
a strong demand not just for micro-enterpriseloans but also for financial services that help
them manage liquidity in the household.
StuartRutherford(2000) suggests thatthe poor (like the non-poor)use financial services to
turnsmall, frequentcash inflows (from daily milk sales, for example) into usefully large sums
(perhapsto buy a cow or land).They may also use financialservices to turnlargeinflows (such
as monthly salariesor proceeds from the sale of a cow) into small, frequentoutflows (such as
daily food purchases).
Accumulatedsavings can also buffer expected or unexpectedspikes in household expenses
due to childbirth,school fees, home repairs,life-cycle celebrations,or widowhood (by death,
divorce, or abandonment).Savings may also cushion familial risks due to illness, theft, or job
loss, as well as structuralrisks due to war, floods, or fire. Finally, savings allow people to take
advantageof unexpectedinvestmentopportunities.As storedresources,savings are useful for
a wide range of purposes.
In his path-breakingwork, The Poor and their Money, Rutherford(2000) describes two
types of 'basic personal financial intermediation'used by the poor, namely saving up and
saving down. In common usage, saving up is just called saving:the poor turna trickleof small
cash inflows into an accumulatedbalancethatat some point becomes a large cash outflow (for
an emergency,a big-ticketitem, or a life-cycle event). In common usage, saving down is called
borrowing.Rutherford'snew terminology highlights that, whether saving or borrowing,the
poor turna trickleof many small cash inflows into a large, one-time cash outflow.With saving
up the cash outflow comes last, whereas with saving down it comes first. Much of the
microcreditmovement focuses on saving down and removing the main constraintagainst it
(lack of permanent,reasonably priced lenders). This paper, on the other hand, focuses on
saving up and removing the main constraintagainst it (lack of a safe place).
that poor women want to save, and work very hardto do so (Rogaly 1996). For the purposes
of this paper,formal finance relies on public, institutionalisedmeans, such as police or courts,
for contract enforcement. In contrast, informal finance relies on social or personal ties for
contractenforcement.
This section explores the strengthsand weaknessesof common informalmechanisms.It also
discusses what formalmechanismsmight learnfrom its informalcounterparts,as well as what
they might contributeto them. Comparedwith informalsavings mechanisms,formal savings
services offer greater safety, higher rates of return, quicker access to funds, and greater
anonymity.
Door-to-doordeposit collectors Poor people often pay others to collect and to keep their
savings. Deposit collectors visit men and women daily-often at their doorstep or at their
marketstall-to pick up a small, fixed amount.In Ghana,for example, marketwomen make
30 small deposits per month (a trickle). After a month, they get back 28 times their daily
deposit (a lump). Duringthe month,the collector usually keeps the deposits in a bankor lends
them out informally.Poor people are willing to pay to save because deposit collectors almost
eliminate transactioncosts. Exchanges take a few seconds and occur where savers live or
work. Furthermore,the presence of the collector may promptthe saver to find a way to save
something, even when it is difficult or inconvenient. The saver willingly submits to this
pressurebecause she knows that withoutit she would sometimes take the easy way out in the
short term, without thinkingabout the long term.
pool are savers, and members who have alreadyreceived the pool are debtors.Like deposit
collectors, RoSCAs are common among poor women because they offer low transactioncosts
and exert pressureto save regularly(Ardenerand Busman 1995). Transactioncosts are low
because RoSCAs are formed among people who know and trusteach other and who already
meet regularlyor live or work close to each other.Thereis pressureto save because failureto
do so reduces the pool for other members.
In-kind storage Probably the most common form of informal savings for poor women is
the in-kind storage of small, high-value items that can be sold for cash in an emergency.
Examples include jewellery, cutlery, radios, bricks, steel reinforcementbars, cattle, goats,
chickens, extra sets of clothes or shoes, bottles of alcoholic beverages, and sacks of rice,
corn, or concrete. Cash under the mattress is also a form of in-kind storage. Transaction
costs are low; 'deposits' just requirepurchasesof small, high-value items. The temptationto
'withdraw'is low because sales usually fetch low prices and requiretime and effort to find
a buyer.
Returns Savers must pay deposit collectors to save, which is a negative retum. RoSCAs do
not pay interestto savers.Annual Savings Clubs do typically pay intereston savings because
they lend some accumulatedbalancesout. Most types of in-kindstoragedepreciateand so have
negative returns.In contrast,formaldeposit accountsalways offer positive interestrates.After
accountingfor inflationand fees, the effective ratemay be negative,but the typical total return
still exceeds that of most informal mechanisms.
Access to funds Financialemergenciesare a fact of life for poor women, so they want quick
access to their savings. Informalsavings, however, either do not allow quick access or do so
only throughdeposit-guaranteedloans. For example, savers with deposit collectors can get a
quick loan based on their historyof regulardeposits and their currentbalance,but they cannot
get their savings back until the end of the month. Likewise, a RoSCA member who
unexpectedlyneeds funds can move to the head of the line in the next meeting (providedshe
has not yet received the pool), but she cannot simply withdraw her accumulatedsavings.
Membersof an Annual Savings Club can also get emergencyloans but cannot withdrawtheir
own savings. Finally,in-kindstorageitems can be liquidated,but distresssales fetch low prices
and have high transactioncosts. In contrast, withdrawalsfrom bank accounts in banks are
possible any working day.
Anonymity If family or friends know that a poor woman has savings, then they may assert a
claim on them. Anonymity mattersespecially because the secret accumulationof assets might
strengthena woman's fallback position and allow her to bargainmore effectively within the
household. (In the context of the UK, Kempson (1996:49) notes that, among men in poor
households, 'domestic violence and withholding money seemed often to go hand-in-hand'.)
Deposit collectors do not hide savings; anyone can see the collector every day on the doorstep
or at the marketstall. Likewise, RoSCAs and Annual Savings Clubs are, by definition, social.
In-kind storage is often not only non-anonymousbut also conspicuous. Bank accounts, in
contrast,can, at least in principle,be hiddenfrom neighboursand perhapseven from spouses.
(Some countries, however, still requirea male co-signer when a woman opens an account.)
SafeSave One attemptto combine the best of the formal and informal savings services is
SafeSave in Dhaka,Bangladesh(Rutherford2000). The centralinnovationwas to hire door-to-
door collectors to visit clients daily. This keeps transactionscosts low but adds the safety and
positive returns of a formal savings institution. Clients may make deposits of any size
(includingnone at all) or requesta withdrawal,to be deliveredthe next day. SafeSave does not,
however,provide much social assistancewith saving discipline, nor are its savershiddenfrom
public view.
Bank Rakyat Indonesia After careful analysis of informal savings, Bank Rakyat Indonesia
developed passbook accountswith a positive rate of interest,no minimumbalance,and instant
access to withdrawals(Robinson 1994). Transactioncosts are low because small, inexpensive
bank branchescan be placed at the village level. Althoughthere is no social pressureto make
deposits, balances are implicitly insured by the government, and accounts may be kept
secret.
Formal RoSCAs Some formal savings products have design features like RoSCAs. For
example, banks in Ghana and Mexico offer contracts with financial incentives for regular,
fixed deposits (or disincentives for irregular deposits). Compared with their informal
models, formal RoSCAs are safer (the organiser bears the risk of dropouts), allow
withdrawalsbefore the pool is received, and may pay interest. Formal RoSCAs, however,
lack social pressure to save.
Originsof sexism
This sub-section offers a simple theory as a starting point for thinking about how formal
financialservices might improvethe well-being of women. Of course, the theoryis essentialist
in that it assumes a universaltemplatefor the oppressionof women by men, a templatethat
rarely fits perfectly. For the purposes of this paper,however, a simple theory is adequate.
Jackson(2001) provides an excellent contextualisationto frame gender analysis. Inequality
benefits some people, so societies may oppress some groups. To distinguish the oppressed
from the oppressorsrequiresindelible marks, usually visible physical features such as skin
colour, age, or sex. Womendiffer visibly from men. On average,they are also smaller.Visible
differences,combinedwith differencesin physical strength,have traditionallyallowed men to
use violence to impose their will on women. With time, a structureof male privilege became
so embedded that-even without threats of violence-subjugation of women became
routinely accepted by both sexes. Within a household, violence or its threat is often still a
central way by which individualmen assert authorityover individualwomen.
A central privilege of husbands is to make wives do difficult, boring, unrewarding,or
unglamorouswork.Thus, poor women in developing countriescarrywater,gatherwood, cook,
clean, and care for children.Even if women are not naturallyinclined to care more for their
children than men, the greatertime they spend in childcareprobablytends to lead to greater
affection and responsibility.
For women who might resist drudgework and domestic violence, a series of penalties and
impediments may make no marriage worse than a bad marriage. For example, in some
countries,the assets of a couple are legally the propertyof the husband.Girls typically receive
less educationthan boys. If a woman leaves a marriageor never enters one, then she may be
at a severe disadvantagein the labourmarket.In short, women are systematicallystrippedof
humancapitaland otherassets, and this discouragesresistanceto unpleasanttasks or exit from
bad marriages.
Microfinanceand sexism
What can microfinancedo? Its success so far has been to supply productionloans to women
who run tiny businesses. Holding everythingelse constant,this decreases the disadvantageof
women in the marketand so increases their bargainingpower in the household.
Of course, not all else is constant. The mere receipt of loans need not empower women
financially or socially (Johnson and Kidder 1999). Some research suggests that 'expanding
women's access to economic opportunitiesand resources does not always make them less
vulnerable to domestic violence' (Schuler et al. 1998:5). Kantor (2000) and Dunn and
Arbuckle(2001) also find that increasedsuccess in business due to microfinancemay reduce
a women's say in some household decisions.
Some authorssuggest thatwomen can acquiremicro loans to cover householdreproductive
expenses (such as healthcareor school fees). But this is unlikely. Loans must be repaid,and
unless a woman has a business or a job to provide cash for debt service, lenders are unlikely
to risk loans for reproductivepurposes.
Savings, however, can finance household reproduction.Furthermore,savings can provide
resourcesto resist (and perhapsleave) a bad relationship-if a woman can keep savings under
her control. The next section describes proposalsfor two types of savings services. The first
allows women to accumulate assets safely outside the household. The second subsidises
savings for some elements of household reproductionthat are often tasked to women.
What are the advantagesof safe-deposit boxes? Transactioncosts are high; a deposit or
withdrawalrequiresa trip to the depositoryand time to pass throughsecurity.The boxes also
do not create pressureto maintainsavings discipline. The rate of returndepends on inflation
and on asset prices and so may be low, negative, and/orhighly variable.Safe-depositboxes do
offer reasonableaccess to assets, and they excel both in safety and in anonymity.
Beyond safety, anonymity,and access to funds for their users, safe-deposit boxes may be
attractiveto microfinanceorganisationsas a way to offer a basic savings service even if an
organisationlacks the capacity(or the regulatorypermission)to managea fully fledged deposit
product.With safe-deposit boxes, women who do not use borrowedfunds immediatelyneed
not take the funds home and subject them to the demandsof husbands,relatives, and social
networks. Of course, safe-deposit boxes must be safe, and this is no small matter. Few
tragediescould be worse than the loss of the savings of poor women due to mismanagement
by a trustedmicrofinanceorganisation.
Matched-savings accounts
Basic mechanics of matched savings Women open individualpassbook savings accounts
in banks. Like all passbook savings accounts, the accounts provide safety, pay interest, and
allow unrestrictedwithdrawals.Both the saver and the implementing organisationreceive
periodic account statements.
If a woman saves a minimumamount(e.g. $5) in each of a minimumnumberof consecutive
or non-consecutive months (e.g. five months), then she can make a matched withdrawal.
Governmentor donors supplymatchedfunds and determinethe matchrate (which could range
from 0.5:1 to 2:1 or higher). Women are free to deposit more than the minimum,but donors
may limit their matches.
Women are also always free to withdrawtheir savings, but only withdrawalsthat coincide
with childbirthor the startof a school year are matched.For example, if a woman saves $5 for
six months, has a baby, and then applies for a matchedwithdrawal,she would receive (with
a 1:1 match) both her $30 savings and a $30 match.Likewise, if a woman saves $7 for seven
months and then makes a withdrawalin the month that school starts,she would receive (with
a 2:1 match) both her $49 savings and a $98 match.Matchedfunds would be disbursedto the
woman with an explicit exhortationfor use in healthcareor school fees. Cost considerations
dictate that use not be monitoredotherwise.
The basic outline of this match-savingsproposalis quite simple. Women save in passbook
savings accounts, and they get matches if they save enough, if they save often enough, and if
they make withdrawalsat the right time. Risk is negligible for the women, participationand
deposits are voluntary, and unmatched withdrawals of accumulated savings are always
possible.
Education linked with savings The suppliers of matched funds or the implementing
organisationmay (or may not) choose to link education with matched savings. For example,
a health promotermight offer access to matched savings for expectant mothers enrolled in
health classes. Or an NGO might provide financialeducationto women alreadyin a matched-
savings programme.Matches may or may not be tied to attendance.To reduce transaction
costs, deposits might be collected at classes (much like Annual Savings Clubs), althoughcare
is requiredto ensure that couriersdo not 'get robbed' on the way to the bank.
Conclusion
Informalsavings mechanismsthroughoutthe world show that poor women save and that they
value low transaction costs and external support for deposit discipline. Formal savings
mechanisms might complement these strengthswith safety, positive returns,quick access to
funds, and anonymity.
Sexism has put a large part of the household reproductive load on women. Asset
accumulationmay help empowerwomen to resist oppressionthrougha betterfallbackposition
outside marriage.
This paperproposes two savings services-safe-deposit boxes and matchedsavings-that
address important gender issues, that are feasible in developing countries, and that are
attractiveto donors. Safe-deposit boxes offer safety, access to funds, and anonymityto help
women accumulateassets outside the household. Matched-savingsprogrammesoffer safety,
quick access to funds, and very high returns.If coupled with savings clubs and run through
schools or clinics where women already meet, matched savings could also offer low
transactioncosts and externalpressure(and peer support)for saving discipline.
Althoughthis paperpromotessavings and asset accumulationfor long-termdevelopment,it
does not dismiss the importanceof the immediatesubsistenceneeds of poor women and their
children.At times, relief is necessary and appropriate.Nor does the papersuggest that women
save regardlessof the sacrifice. Safe-depositboxes and matchedsavings are no panacea,but
they may complementother efforts targetedtowardspoor women. The poor do save, and the
formal savings services proposedhere may help women accumulateassets and thus become
more empowered to fulfil their gender-specific responsibilities and to resist cultural
patriarchy.
Acknowledgements
We are gratefulfor supportand commentsfrom Michael Sherraden,AmandaMoore, and Kara
Fecht, for researchsupportfrom Carlos Hernandezand the employees of Proyecto Genesis of
Tegucigalpa,Honduras,and for funding from the Division of Asset Building and Community
Development of the Ford Foundation.
References
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analysis of real markets', IDS Bulletin 29(4):21-30.
Johnson, Susan (1999) 'Gender and microfinance: guidelines for good practice', manu-
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Johnson, Susan and Thalia Kidder (1999) 'Globalization and gender-dilemmas for
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The authors
Rebecca M. Vonderlack is a graduate student at the George Warren Brown School of
Social Work at WashingtonUniversity in St. Louis, a research assistant at the Center for
Social Development, and a Fulbrightscholar in Tegucigalpa,Honduras.Mark Schreineris
Research Director at the Center for Social Development, George WarrenBrown School of
Social Work, Washington University in St. Louis. He works to help poor people in the
USA and the Third World to build assets through improved access to small loans and
saving services. Contact details: Center for Social Development, George WarrenBrown
School of Social Work,WashingtonUniversity in St. Louis, One Brookings Drive, Campus
Box 1196, St. Louis, MO 63130-4899, USA. <csd@gwbmail.wustl.edu>.