NOTE 2: ON SAVINGS MOBILIZATION (Continued)
At risk of being
called tiresome due to the insistence in savings and Microsavings, because I am
not talking about Microloans, which is what usually interest everyone; be
patient, the moment will come. I am going to comment in this Note on savings at
World’s level and in the next Note I will aboard savings at MFI sector, in
order to cover the most necessary and immediate aspects on the issue, due to
the actual difficulties to get funds, because of the global lack of liquidity.
I devoted myself to
evaluate the rank of the World’s countries on their savings; the data came from
the World Bank and used the Gross Savings (%) of the GDP, in order to learn the
relative weight of savings in the GDP. To be surer, I used the income per
capita based on the GDP-PPA and included the poverty line. With this data I
ranked the 142 countries that were the available data for savings and from this
total of countries, I selected to my best criteria, 10 rich countries and 10 poor
countries, to see what could happen.
This exercise does not pretend to be a rigours academic research; it is
only done to see the issue from far. As you can appreciate, each group in the
table has been ranked by the position on savings at world’s level (C2), leaving
the other world ranks with its original values (In all the cases, the lowest
number is the first place and the highest is the last). I will only work with
columns C2, C4, and C6. I used the GDP-PPA (Gross Domestic Product – GDP –
Purchasing Power Parity - PPP) per capita to balance better the rich and poor
countries; I will identify in the text the world’s position of each country
placing before the number of the position or place the letter “P”. Le us
analyze the rich countries: We can see in C2 that only South Korea (P16),
Germany (P43), Belgium (P45) and Finland (P65) show the highest amounts of
savings, representing 30% of all the countries in their group, the rest of the
countries in the group show less savings. Observing the GDP-PPP per capita in
C4, the four first countries with more savings, rank in income P26, P28, P32
and P40 respectively, while the countries that rank the first four places in
income: United States (P11), Canada (P20), Ireland (P23) and Germany (P26),
show a ranking on savings of P119, P77, P108 and P43 respectively, with lesser
savings although their citizens are enjoying of the highest income. Only
Germany shows a better place in savings (P43), although it has the last place
of income (P26) with the three other countries. ¿Does higher income tends to
kill the savings discipline?, I do not know, but it places an interesting
question. Related to poverty C6, we can see that the first four countries with
the highest income of their habitants (C4): United States (P11), Canada (P20),
Ireland (P23) and Germany (P26), show different places in poverty the P122,
P139, P152 and P119, but all show little poverty. Let us now analyse the poor
countries: The first thing that draws attention is the average income in C3,
were the income in the poorer countries represent 9.8% of the income in the
richer countries. But Surprise!, we can see in C2 that China (P1), Algiers
(P3), Bangladesh (P8), India (P13), Bolivia (P35), Burkina Faso (P46), Haiti
(P52) and Pakistan (60) show the highest amount of savings, representing 80,0%
of the countries in the group and all are in savings over Finland (P65). The
last two countries of the group in savings: Nicaragua (P79) and Cambodia
(P114), rank P170 and P186 in income, over Haiti (P205) that exceeds them in
savings (P52) being the poorest country in the group (1).
A simple statistical approximation show lower figures
of less than 0.5 in Pearson’s correlation and P values, in al the country
ranked data; both in savings and in GDP-PPP per capita and poverty, that seems
not to be a clear relation between these variables. I leave this issue in the
hands of the academic community for study. What seems to be clear is that the
poorer countries save one and half times more that the richer countries. This
brings and unavoidable question: What are the reasons for this higher savings
in the poorer countries?, there can be many causes; maybe the less access to
consumer credit than in richer countries, or the low or nil social protection
of the citizens by the State could be another one, in such a way that savings
becomes the “B” plan of family protection. It seems that savings is, in the
first place, a cultural fact and I think that the motivation to confront
emergencies, which has been present in the results of the surveys I did for
many years, could also be an important motivation.
But is
not enough to see savings punctually in time, the evolution of these has to be
also observed: Do people save less now than before?, would be an appropriate
question. In general the savings in the World has drop from a 22.52% in 1998 to
20.46% in 2010, a reduction of 2.06% in 12 years, 0,17% yearly; it reminds me
of the stability
The
savings have raised much in East Asia and dropped in North America, in Europe
and Central Asia, in Latin America these have raised moderately. In relation to
who save more according to their income, the highest level of income has
fallen, prevailing more the medium and low incomes. This comes to dismiss the
idea that the poor people cannot save, my practical experience of many years in
the field, is that the lower levels of income and the medium class are the ones
that demand more the savings services, because they are also the ones that most
need family protection and to assure the future of their daughters and sons. My
experience in many cases is that they look more for security and liquidity than
profitability for their money. Is a matter of scale that compels to offer the
savings at Microsavings level, because although this segments saves small
amounts is huge representing a very important mass of money and their needs
keep a proportionality with their income. This type of atomized savings account
guarantees the average stability of the of the savings portfolio, that permits
this money to be used to give medium term Microloans.
If the services, motivation and education on savings
are not offered to the segments that have not raised their savings, the World
will loose a very important asset. If the developed countries, that are the
ones with less savings, had kept and motivated their citizens to save, I ask
myself: Maybe the crisis would have been les traumatic for their citizens? and:
Would the savings could have helped the financial institutions to reduce the
negative impact?, maybe; otherwise, these would not be desperately trying to
promote and mobilize savings, as they are doing today, due to the dry up of the
traditional sources of funds. Could this happen to the MFIs?. What I observed
in the richer countries is the damage of their social protection due to the
crisis, that has force them to reduce the existing protection: Demanding extra
payments for health services and an increase in the retirement age, getting
nearer tot USA, with the Private Health Insurances and in Latin America, with
the Private Pension Funds, which in both cases this are more limited that the
public systems.
In my
next note I will aboard the issue of the savings in the MFI sector, that will
take them to play the Robin Hood, attracting money from those who only want to
invest well their liquidity, at an attractive rate of interest and besides
support the more needed, instead the MFIs are today mainly basing their funding
in expensive financial sources.
No matter how efficient be the administration of
an MFI, the only way to lower the interest rates of the Microloans is getting
funds at a lower interest, which is not the case of the loans, but it is the
case of the deposits, that include savings. Remember that the interest rates of
the loans are higher because the investor stops being the owner of the money,
passing to be of the debtor when it is given away, it does not happen the same
thing with deposits, as these are always in the ownership of the investor, but
in both cases there is the same risk of loosing the money if the MFI goes broke
due to the lack of sustainability. Then, why not accessing lower cost money to
lower the loans rates of interest, keeping the same margin of profit (ROA) (By
the way, non profits must also produce profit, the difference is in the way
this profit is used by the institution).
Jose Linares Fontela
