Thursday, December 31, 2009

Poverty and potential role of savings accounts

Nick Kristof has an interesting view reducing global poverty in today's NYTimes. Provide the people a way to save.

I'm a fan of microlender Kiva, and am often amazed at the loan shark-like market lending rates in third world countries (often 50-100%+ interest), but it turns out in many places that even with a savings account you have to pay the bank to simply hold your money!

In West Africa, money collectors called susus operate informal banks but charge an annualized rate of 40 percent on deposits. Yes, you read that right. You pay a 40 percent interest rate on your savings!

In Kenya, two economists conducted an experiment by paying the fees to open bank accounts for small peddlers. They found that the peddlers who took up the accounts, especially women, enjoyed remarkable gains. Within six months, they were investing 40 percent more in their businesses, typically by buying more goods to be resold.

Anyhow, this is an interesting market-based piece of the puzzle. Read more here.

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