A recent op-ed in the Boston Globe argues that microlending "doesn't actually do much to fight poverty" and that it may be time to "think macro rather than micro." Maybe the hype surrounding microcredit as a panacea for everything from poverty to discrimination is undeserved. But debunking the whole bottom-up, micro approach on the basis of two unpublished papers is not just premature, but dangerous. Macro, trickle-down development policies have rather effectively kept billions of people poor for decades. In comparison, the microfinance field is young, evolving, and ripe with innovation. Lending to the poor is just one facet of microfinance. And helping the poor save, before or along with providing credit, might be the missing piece to help solve the poverty puzzle.
Some argue that it is naive or even cruel to suggest that the poor should save. How can people living in destitution be asked to set money aside? It turns out that even very poor people can and do save if provided with the right opportunities. After two decades of providing microloans to the poor, Bangladesh's Nobel-winning Grameen Bank, for instance, started offering savings products to its clients in 1998. Just seven years later, Grameen's clients started saving more than they borrowed -- around $460 million.
Although most banks aren't interested in handling small nest eggs, poor people desperately need a safe way to save. Small-scale farmers, for example, often need to stretch out three months of income over an entire year. "During the time between harvests, my family still has needs, and we utilize everything we have in order to survive until the next harvest," explains Benito Ojeda Juárez. He and his family participate in a program set up one year ago by the World Council of Credit Unions, MatchSavings.org. It gives people in rural Mexico the opportunity to save for things like home improvements, business investment, health care, and education.
Such programs, which are becoming more common around the world, also provide a wonderful vehicle for charitably minded people who want to help the poor help themselves. MatchSavings.org provides a forum for potential donors to read participants' stories and choose a goal to support. This makes it possible for new savers, after making six monthly deposits to their account, to receive a matching donation. Juárez hopes that building his savings will prevent him from going deeper into debt. Maria Alejo, another participant of the program, used her matched amount on a long overdue visit to the dentist.
These people never had access to such financial services before. There is a credit union in their village, but neither Juárez nor Alejo could afford its membership fee. Now, with the MatchSavings program, they can build enough capital to join the credit union, allowing them to keep their savings accounts and gain access to microloans.
Such programs are also popping up -- and thriving -- in Africa and Asia. In Uganda, Stanbic (a large African banking company) partnered with the start-up Assets Africa to create a mobile bank for young women in rural areas. Each week, a van travels from village to village, taking deposits. Local committees help by selecting participants and coordinating with Assets Africa to make sure the program runs smoothly. Similarly, Oxfam's Saving for Change helps members save small amounts and pool them into a common fund, which disburses loans for various needs and investments. Initiated only four years ago, the program now reaches 250,000 in villages across Africa and Asia. Building a reserve of savings empowers the groups to make investments and have access to formal credit. Thus, creative microfinance programs clearly have the capacity to fill in gaps the financial world has not, despite what the Globe op-ed says.