Paper

Easing Poverty through Thrift

Advocating savings as a poverty alleviation tool
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This article summarizes the benefits of savings and deposits for individuals, financial intermediaries and the economy in general. It states that thrift can help alleviate poverty and decrease risk more than the debt.

Cultures that encouraged thrift and discouraged debt have given way to a trend that views debt as a poverty alleviation tool. Recent examples, however, demonstrate that poor people can and will save if given proper opportunities and incentives. The paper states that:

  • Saving is less expensive and less risky than borrowing;
  • Savings are liquid, divisible, earn nominal returns for savers and can be used as a ladder out of poverty;
  • Financial institutions that fund most of their lending through deposits are more insulated from capricious politicians and are more able to realize economies of scope and scale;
  • Savings help financial markets fulfil their capital formation role.

The paper concludes that poor people would benefit if more emphasis was placed on deposits. It recommends that leaders in the microfinance industry should encourage savings, large segments of the industry should be weaned from outside funding and consolidations in the microfinance sector should enable regulation and supervision by central banking authorities.