Poverty

Child Savings Accounts: Fad or Phenomenon at the Bottom of the Pyramid?

Jamie Zimmerman — Wed, 03 Sep 2008 22:00:00 -0400

In the United States and many developed nations, banks offering savings to children as a means of social and economic inclusion and empowerment may seem tired tradition of the thrift era that has long passed. Gone are the days of widespread school banking programs once so common in the US. And in the very few developed nations where efforts to provide children social and/or economic opportunity through financial inclusion exist, they typically come in the form of social policy (UK's Child Trust Fund, Singapore's Baby Bonus, USA's ASPIRE Act). In developing nations, however, we're witnessing a wholly different phenomenon: financial institutions are, out of their own volition and with no push from the government, choosing to target the child market segment.

This week, East Africa Business Week newspaper published an interview with Stephen Mkweli, managing director of PostBank Uganda, to discuss the focus annual meeting of the Association of Savings Banks of East Africa (ABSEA) - Child Savings. Mr. Mkweli spends his interview extolling the virtues and benefits of child savings and inculcating a culture of savings among children at an early age. He states that, "The benefits of savings include the fact that the customer is assured of a brighter future since he/she can...own future by planning for it. It instills the discipline of financial planning ahead of time...and also increases the deposit base of the institutions and therefore avails the money for government to borrow for its developmental programmes." ABSEA banks plan to capture this special market segment by holding contests, offering piggybanks, and working with networks to expand the reach of the accounts.

By our account, ABSEA is not alone in its efforts to expand access to savings accounts for children. In 2007, the Global Assets Project researched dozens of financial institutions and non-profits who are offering specialized savings accounts targeted toward financially excluded and/or economically disadvantaged children (we call them Child Savings, Accounts, or CSAs). But with the likelihood of small and inconsistent deposits from such a population, the question remains: why?

In our recently released white paper, "Child Savings Accounts: Global Trends in Design and Practice," we review various reasons why different institutions are choosing to offer CSAs, as well as a variety of common features chosen in designing such products. While there is great variation in design based on the institutions purpose for offering the accounts, among the financial institutions we interviewed for this paper, there are some common threads for establishing a business case for CSAs. First, in the rush to "bank" the bottom of the pyramid, the child segment is seen as an important market niche. Not only is this a largely untapped market, but if retained, these children will likely become long-term clients of the financial institutions. Second, the financial competence they gain by early exposure to and habit of using savings services will make them more savvy users of the banks other products. The child's savings account may be a loss for the bank today, but does it mean greater market share and a more lucrative relationship with the client tomorrow?

To be sure, there are numerous other purposes beyond making a profit that institutions (though not necessarily commercial banks) give for offering such accounts, including economic opportunity, poverty reduction and social inclusion. And interestingly enough, Fred Ssewamala's research on specialized and targeted savings accounts toward poor and vulnerable children in Uganda has shown significant improvements in health and education outcomes, particularly in relation to an improved future orientation. The children with accounts have an outlook on life that children without savings don't (and likely can't) share. But this is a special kind of products, with features that most any bank could not reasonably offer without outside support or government subsidy.

So, whether this interest in child savings in developing countries is simply part of the gold rush to capture the bottom of the pyramid or is a sincere effort to provide, earlier in life, financial inclusion and opportunity to the excluded and vulnerable around the world, I watch this trend with interest and a cautious optimism. If they can get the product right, CSAs could be a new phenomenon in poverty reduction thru financial services. We need serious inquiry to find out if this is the case.

[More information on Child Savings Accounts and/or the research of Fred Ssewamala can be found on the Global Assets Project website]

The Next Big Thing in Microfinance: Savings

Jamie Zimmerman — Wed, 06 Aug 2008 16:18:00 -0400

Last month, I argued that USAID inaptly named a three-day virtual conference on savings as "The Forgotten Half of Microfinance." Instead, I posited:

"As someone working on asset building and financial inclusion for the poor (and/or their cross-fertilization in the development field), I would contend that the hosts got it wrong when chose the title for this event. Indeed, "savings" is not "forgotten" at all. Though perhaps traditionally underemphasized, I would argue that, on the contrary, savings is the in fact the "next big thing" in financial interventions."

Looks like I got this one right.

Probably to the surprise of the organizers, the USAID/Microlinks Speaker's Corner on savings was overwhelmingly active, with 324 participants from 53 countries. For those who didn't attend this virtual, email-based conversation, you missed out on the experience of 72 full hours of non-stop emails (we're talking hundreds) from both the novice and the seasoned, from non-profit, public and private sectors, all eager share their many ideas and experiences and learn from others how to expand opportunities for savings for the poor, marginalized and excluded around the globe. It was an inspiring and educational experience. You can access the entire forum at www.microlinks.org/sc/savings. Or you can download the compilation document, which contains all postings from the forum. Its 200 pages long.

Not only is savings indeed not forgotten, but a recent article in the Wall Street Journal confirms my contention this is in fact "the next big thing." On July 31, the WSJ published Robert A Guth's piece, "Giving a lot for savings a little," which announced the Bill and Melinda Gates Foundation intention to "donate hundreds of millions over the next few years to programs to spur savings in poor countries." In the article, Bob Christen, Director of the Financial Services for the Poor division of the Foundation, says the foundation intends to invest heavily to get savings back on the world agenda. So, if it's not already there (as I claimed it to be), then it will be soon-and in a big way.

The Global Assets Project is working inform this new movement towards savings and financial inclusion by promoting savings products, policies and programs that facilitate asset building and wealth creation for these populations. Indeed, the WSJ article was printed one day after the Global Asset Project's launch of its newest report: Global Savings, Assets and Financial Inclusion: Lessons, Challenges and Directions. The report addresses emerging global trends, opportunities and collaborations across the fields of asset building, microfinance, policy and financial education. It describes lessons, challenges and opportunities for thinking about how the poor, in developed and developing countries, can build their assets and wealth. Finally, it includes possible next steps that the diverse range of actors working within these fields should take to move this emerging body of work forward.

As this next big thing grows ever bigger, my hope is that the insights, challenges and recommendations in this report can help inform those policymakers, funders and practitioners in the drivers seat.

Do Good Lives Have to Cost the Earth?

Kristina Haddad — Wed, 07 May 2008 18:18:00 -0400

The question in the headline was the theme of a conference I attended last month that suggested strongly that no they should not. The conference hosted by the New Economics Foundation, a UK-based "think and do tank" provided statistics, charts and graphs to show us explicitly that indeed happiness is not necessarily linked with material wealth and increased consumption. We all nodded and agreed -- yes we certainly understood that of course a good life does not have to cost the earth. I mean, who wouldn't prefer a meal cooked from a home garden to a meal cooked at a five-star steak house? And then the challenge was put to us -- so how do you convince everyone else of this so as to lower our collective footprint and begin to heal the earth?

Many discussions were had with some of the best thinkers on the topics of economics, sustainability, and climate change among other areas of expertise to contemplate this basic yet in some ways complex question. And all the while I kept struggling with this question. One that I often struggle with: Why should people care? Why should people care about the earth? And more pointedly, because of the work I do, why should people care about climate change? After all, climate change is this somewhat amorphous concept -- I'm not experiencing anything profoundly life-threatening because of climate change. (Or at least that's what it feels like. . .)

It's easy for us to rally around issues that have affected us personally -- an aunt with cancer, a city left in ruins by natural disaster. And then farther away from home there is the image of an impoverished child sleeping on a shred of cloth, jammed up against other impoverished children. Though we don't know the child, we feel a deep sense that we must do something to help. We feel a human connection. One of our own is in dire need and we must help.

But climate change? Why should I care?

What if we realized that that the plight of the impoverished child will be exacerbated many -fold as temperatures rise from climate change. What if we realized that the health of our niece or nephew, our daughter or son could be affected by climate change?

According to a report by the Organization for Economic Co-operation and Development:

Currently over 1 billion people -- two thirds of them women -- live in extreme poverty on less than US$1 a day. This figure rises to 2.8 billion if a standard of US$2 a day is used (OECD 2001).Climate change will compound existing poverty. Its adverse impacts will be most striking in the developing nations because of their geographical and climatic conditions, their high dependence on natural resources, and their limited capacity to adapt to a changing climate. Within these countries, the poorest, who have the least resources and the least capacity to adapt, are the most vulnerable (IPCC 2001a). Projected changes in the incidence, frequency, intensity, and duration of climate extremes (for example, heat waves, heavy precipitation, and drought), as well as more gradual changes in the average climate, will notably threaten their livelihoods - further increasing inequities between the developing and developed worlds. Climate change is therefore a serious threat to poverty eradication.

And more close to home according to the Asthma and Allergy Foundation of America climate change is increasingly impacting people who have allergic asthma:

Increasing temperatures (global warming) have stimulated the growth of for mold, pollen, and other allergens
Global warming has extended the growing season for such airborne allergens
Research suggests that these changes might be contributing to an increased incidence and severity of asthma and asthma symptoms.
For the first time, new asthma treatment guidelines released during the summer encourage health professionals to seek out environmental influences on asthma control.

So what if we realized that war, poverty, economic strife and inequity are all linked together by the causes of climate change? Greenhouse gas emissions created by the burning of fossil fuels and the struggle over fossil fuels is a driver for all of these things. And now let us return to the questions of why should we care about the earth, why should we care about climate change and do good lives have to cost the earth?

Perhaps in looking for the answers to these questions we can think of those we love and those we love from afar and we can reconsider our choices. Perhaps we can think of it this way -- more home grown-meals and more switched-out light bulbs might just save someone's life.

The Cellphone as Asset Builder? Maybe One Day

Jamie Zimmerman — Wed, 07 May 2008 17:05:00 -0400

I consider my cell phone an asset. With all those hi-tech capabilities packed into a little handset, it keeps me simultaneously connected, productive, on-time, en route, entertained and informed. And I'm not alone - more than 3 billion people around the world (almost half of the global population) have a cell phone. But what if this gadget that seems capable of reaching almost anybody and doing almost anything could also provide a mechanism for savings and asset building for individuals around the world? Despite seemingly limitless potential and enthusiasm for such an innovation, it will unfortunately be some time before this is a reality.

I've been following developments in mobile banking for some time. For years, excitement has been brewing about its potential to bank the unbanked, reach the unreachable. I've been to the events, the conferences, read the blogs and become a believer that this technology will one day help every person on the planet have a bank account, a financial identity, and an opportunity for wealth creation through access to low-cost, simple financial services. Sound hopelessly optimistic? Just check out the April 13 New York Times article "Can the Cellphone Help End Global Poverty?" or the CGAP announcement of its most recent focus note "Mobile Banking to Transform Microfinance." Pretty exciting stuff.

But after reading the CGAP report "the Early Experience with Branchless Banking," I see that the hype doesn't exactly match reality. Some disheartening observations discussed in this excellent report show that mobile banking is:

Mainly used for payments, not savings or credit;
Not actually used by or targeted to the poor, the unbanked, or those lacking access (geographic or otherwise) to the extent expected or hoped (less than 10% of all branchless banking customers);
Offered to Bottom of the Pyramid (BOP) markets primarily as a result of competition among mobile operators, not by initiatives led by banks or governments;
For regulatory, cost or other reasons, largely exclusive of MFIs (which are most capable of reaching the poorest of the poor), and;
Because of strict Know Your Customer regulations (which require specific documentation for opening accounts), is unlikely to reach the poorest and most remote customers in the developing world, particularly those without any proof of identity.

Given all the promise and excitement around mobile banking, imagine my disappointment to read that it has "yet to demonstrate pro-poor, pro-growth impacts for households, communities and national economies."

Nonetheless, my enthusiasm for the potential of asset building via mobile phone is not tempered by these new findings. By most accounts, the capabilities are there, and so is the interest of financial institutions, governments and the development community. And the potential (and the need, and in some cases the demand) outweighs the obstacles. Eighty percent of the global population falls within range of a cell phone network and 68% of cell phone subscribers are in the developing world, but just a fraction of either of those populations have any sort of effective access to banking services. And the industry is slowly but surely finding creative ways to overcome certain obstacles. The CGAP report highlights numerous interesting examples of this, such as how South Africa's Exemption 17 from the Know Your Customer (KYC) requirements resulted in a gangbusters expansion of their mobile-banking poster child, Wizzit. And to be fair, in many cases, outcomes of mobile banking launches have largely surpassed expectations. According to the NYT article, for example, Kenya's m-pesa mobile banking program "aimed to add 200,000 new customers in the first year, but got them within one month." Now, m-pesa has over 2 million customers.

So I realize there is a ways to go before the cell phone can be used to effectively achieve financial inclusion of the poor and excluded, particularly in the developing world, much less facilitate simple, low-cost opportunities for savings and asset building. But my sense is still a hopeful one of not if but when. I encourage the asset-building field to seize upon the opportunities created by momentum around mobile banking to think deeper and more creatively about how to innovate within this space.