The savings of the poor: improving financial services in Bangladesh

The capacity of the poor of Bangladesh to save is surprizingly large-surprizing to observers, and surprizing to the poor themselves. This capacity has long been used, with modest success, as the basis for self-help savings-and-loan devices that the poor (like others) have used in the absence of formal banking services. But over the last twenty years an innovative form of financial service provision has been developed in Bangladesh by 'micro-credit institutions' (MCIs) such as the Grameen Bank, BRAC and ASA which has exploited this capacity to save, to the benefit of millions of rural people, and at the same time brought profits to the MCIs. Splendid though this development has been, it could be more splendid. For under the systems adopted by the MCIs-who are fundamentally lenders rather than financial intermediaries-the poor can exploit their capacity to save only by going into debt. This paper argues that a shift in approach would allow the MCIs to offer a much better service to a broader range of customers (including the very poor), and bring surprizing benefits to themselves as well. © 1998 John Wiley & Sons, Ltd.