Asia fighting poverty by helping poor to save

From The Straits Times

Asia fighting poverty by helping poor to save

Microfinancing schemes can be useful in reducing income inequality, says NUS professor

By Shefali Rekhi, Assistant Foreign Editor

SMALL loans to help the little people have been taking off in Asia as a way to help tackle poverty in the region.

Microfinancing, as a financial tool, began when Bangladeshi economist Muhammad Yunus started an experiment in 1974, during a famine in his home country, to give the poor small loans.

That proved immensely successful and, through the Grameen Bank that he founded in 1983, he managed to change the lives of more than 6.61 million people.

Today, bringing the 'unbanked' within the formal financial system has become the mantra in financial circles, with the phenomenon fairly widespread in Asia, and many involved in India, China, Thailand, the Philippines, Vietnam and elsewhere.

According to Washington University's Centre for Social Development director, Mr Michael Sherraden, the potential is enormous, with nearly half the people in the world not having access to secure and low-cost financial services.

Consequently, banking and financial institutions have been widening their reach to add a social dimension to their regular businesses as a way to tap into the untapped cashflow and contribute to reducing income inequality.

In China - where millions live in rural areas under poor living conditions - a local government initiative called the Hu Du Bi project in a county in western China has been attracting the central government's attention. It allows farmers to withdraw money from their social insurance accounts as loans for investments in agriculture.

According to Professor Yang Tuan of the Institute of Sociology at the Chinese Academy of Social Sciences in Beijing, the default rate has been zero in the past eight years of the scheme, and thousands have benefited.

In India, where close to a quarter of the people live below the poverty line, Basix, founded in 1996, has supported the livelihoods of more than a million rural poor households through microcredit, savings and insurance services.

But the task is by no means easy.

Said British researcher Stuart Rutherford, who heads a non-governmental organisation in Bangladesh: 'When poor people save, sometimes they have a goal, and sometimes not. It >really depends on whether they view it as risk management or are thinking of it (the savings) in terms of a lump sum.'

Accordingly, banking and financial institutions need to devise suitable tools. Mr Rutherford's Safesave Bangladesh has been working to introduce the poor to simple banking services.

The method of financing might also be applied to relatively more affluent Singapore, said Associate Professor Ngiam Tee Liang, head of the Department of Social Work at the National University of Singapore (NUS).

He argued that with globalisation, all countries, including Singapore, need to consider financial inclusion of all sections of society.

'With economic growth, you do not want the economic divide to widen, and you have to understand - how do you empower the low-income poor with facilities to motivate them to save?'

Prof Ngiam was speaking to The Straits Times on the sidelines of a global symposium - Savings, Assets and Financial Inclusion - organised by the NUS, together with Washington University in St Louis, the New America Foundation and the New York University, with Citi Foundation as its lead sponsor.

The three-day event, attended by delegates from across the world, ended yesterday.

Microfinancing follows from a belief that the poor can also save when encouraged to do so.

Many banks and financial institutions have been developing affordable schemes for the poor to do so, and Prof Ngiam said that Singapore could adapt some of the schemes to address the needs of the low-income groups here.

'The notion of saving and the purpose of saving may not be the same for all. We need to understand the dynamics of how people make choices,' he said. 'You cannot have policies for the middle class and just trim them down to the basic model for the poor.'

shefali@sph.com.sg



--------------------------------------------------------------------------------


EMPOWERING THE POOR

'With economic growth, you do not want to widen the economic divide, and you have to understand - how do you empower the low-income poor with facilities to motivate them to save?'
ASSOCIATE PROF NGIAM TEE LIANG, who says microfinancing could help reduce income inequality in Singapore