I have argued for many years that saving is the most important financial need for people living at the base of the pyramid who are seeking to escape poverty. Although it might seem that those with low incomes have less capacity to save, the reality is that the more precarious their economic situation, the greater their need to save, and the more common the practice becomes.
However, saving is a financial operation that is poorly understood and has multiple cultural and psychological nuances. This makes it difficult to understand, especially from the perspective of formal banking.
In this article, I will focus on the various ways in which this crucial financial need for the base of the pyramid is expressed in daily practice. As we have noted in previous installments, "at the base of the pyramid, saving and credit are intertwined."
The most common forms of informal saving include the "hidden pot," where women save money in the home for emergencies; the "vault," where money is given to a trusted person; "collectors," who collect daily savings and charge a fee for their services; gold and silver jewelry, which are used to maintain the value of excess funds; "layaway, which involves regular payments toward the purchase of a good or service until the total value is reached; and the widely-used "rotating credit and savings associations," also known in Latin-American as Tandas, Cadenas, Bolsos, Natilleras, Pasanakus, Pollas, San y Susu, Vacas, or Juntas, depending on the country. These associations are informal groups in which members save collectively and receive a rotating loan based on a pre-agreed system. These informal saving practices can be highly effective for people with low incomes, as they provide an accessible and reliable means of saving and borrowing.
In Latin America, 2 out of 3 people save informally. Understanding these practices and recognizing the cultural and psychological elements that accompany saving at the base of the pyramid is essential for designing formal financial instruments that are attractive and useful for this population.