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Godfrey Madigu, Navarra Center for International Development. Institute for Culture and Society. University of Navarra

Teaching the poorest to save

Fri, 14 Nov 2014 09:26:00 +0000 Published in El País

One of the challenges of the research of the Economics of development is to demonstrate the relevance of savings. There has long been a tendency to think that savings propensities determine the growth rate of communities.

This summer I had the opportunity to participate in a project of research in Mozambique on the role of technology in improving the savings capacity of small entrepreneurs, commissioned by its Central Bank and implemented by the Universidade Nova de Lisboa (Portugal). The interesting thing about this country is that it is the fastest growing sub-Saharan African nation without relying on oil: according to the World Bank, it has recorded an annual growth rate of about 7.2% over the last two decades. However, despite this astonishing figure, it has failed to create an inclusive society. More than half of the population lives on less than 50 euro cents a day and only 12% of adults make use of formal banking products or services. Of this percentage, 77% live in urban areas.

Mobile technology, which is prevalent in Africa - it has almost one billion users - has made it easy to extend banking services to the poor. According to programs of study, in sub-Saharan Africa less than one in five households has a bank account, but in Kenya, for example, mobile banking services have been extended in just over 5 years to 70% of the population through systems that allow bank accounts to be managed on the terminal.

We conducted the work field study of project in Maputo, a sprawling city with more than two million inhabitants, including the suburb of Matola. The goal was to measure the causes of changes in savings fees . Through a data collection methodology called Randomized Controlled Trial, we randomly selected microenterprises from the 23 open-air markets: beauty product stalls, rat poison stalls, food stalls..... We formed four groups with the following interventions: mobile banking, Education financial (teaching concepts such as direct costs, profits and losses), mobile banking and financial literacy, and a control group on which no intervention was made but which allowed comparisons to be made.

I especially remember one of the interviews we did: it was with a food vendor at the Xiquelene market. The team interviewer had explained some terms to her - purchases, costs, gross profit and net profit... -. With great simplicity, she wanted to show that she understood the explanations and exclaimed: "What I would like to know is how much money I made at the end of the day! We replied that this was possible in a specific period (weekly, fortnightly, monthly...): our answer satisfied her, but I am still trying to find a solution to the problem she posed.

Zimpeto's market is notable for its size: microentrepreneurs have larger businesses because they know the terrain. Interestingly, they asked us questions before we interviewed them. One of the most difficult was how our study could benefit their business .

One day, one of the researchers explained to a cereal saleswoman - after gaining her trust - that net profit could be decisive for the investments of a business. The woman stared at us and replied: "Look! There is no such thing as profit; there are only movements of money. Buy low and sell high, pay salaries, monthly rent and monthly market taxes. The same business feeds me and pays expenses for my two children, since I am a single mother.... What benefits are you talking about?

It made me realize that microentrepreneurs were not as ignorant as I had assumed. A finance student could not have given a better answer, even though the saleswoman had never set foot in a business school. She was right to refer to "movements": the term "profits" is a creation of accountants.

The results of the study, which will be published next year, will be one more step on the long road to understanding how to encourage savings in microenterprises and how this can be used to implement policies that ensure not only the economic growth of countries, but also the economic development of the poorest in Mozambique, throughout Africa and also in the rest of the world.