Innovating Savings Products for Rural People - Lessons from Market Research

The debate whether the poor can save or not has become obsolete. In the new micro-financial service area, the large scale success of self-help group (SHG) or Joint Liability Group (JLG) methodology has proved the ability of the poor to save. Accordingly, there are significant opportunities to broaden and deepen the range of financial services (credit, savings, insurance and money transfer) to the poor. The importance of financial services, especially savings to allow rural people to reallocate expenditure across time has been emphatically conceptualised by Rutherford (2000). Using three different approaches, namely, ‘Saving up’, ‘Saving down’, and ‘Saving through’, the author has demonstrated that savings are the basis of all financial services that the poor require to finance different expenditures when there is wide mismatch between the inflow of income and outflow of expenditures in their household economy. Millions of people in rural India remain without access to high quality, appropriate saving services from formal financial institutions. They have now very limited access to saving services through compulsory or mandatory savings in SHGs/JLGs. There is ample potential to tap the savings from rural people. The potential for savings arises from those very factors due to which poor households remain generally excluded from existing formal financial institutions’ schemes. First, the formal institutions have not attempted much to reach out to those segments that are outside the mainstream formal economy. This reason is related to the viability of introducing low volume saving products in an environment characterised by imperfect information and high transaction costs. Under micro-finance programme (like micro-credit), groups and associations of households can be used to gather information and reduce transaction costs and make micro clients more attractive to financial institutions. Secondly, poor people lack the empowerment and capacity to access formal financial institutions. This reason holds out promise that, in addition to better enabling clients to manage their income and expenditures, savings can help empower individuals, groups and associations which help them access to other benefits. If the formal or informal financial institutions have to develop the required saving products for rural clients with least transaction cost, additional, practice-focused research is required to better understand the needs and preferences of the poor for saving services. There is also a pressing need to test market-led, alternative and