Helping the Poor Save More

10-Apr-2012    Helping people save their way out of poverty can be much cheaper and less risky than helping people borrow their way out of poverty. Borrowing has its place, but now is the time to focus on saving.

The poor are just like everyone else: They do not save as much as they would like. Yet unlike their richer counterparts, poor people do not receive the cleverly marketed, carefully tested financial products that could help them reach their savings goals more easily. To enrich the bottttom of the pyramid, bankers to the poor should make saving money easier by using the latest findings from economics and psychology.

This paper by Dean Karlan, published in the Stanford Social Innovation Review in 2010, argues that while financial institutions in rich countries spend large amounts of money designing and testing products, Micro Finance Institutions (MFIs) should put similar care into designing products for the poor. MFIs should use both received insights about household decision making and carefully constructed randomized trials to test ideas. Meanwhile, nonprofits such as IPA and university labs such as the Jameel Poverty Action Lab at MIT are undertaking careful studies of what works best in banking the poor. With these findings, MFIs can develop clear prescriptions for improving the quality, and thus quantity, of access to financial products for the poor.


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