It Is Expensive to Be Poor: Losses Suffered by People Saving in Uganda
The paper states that in the interest of securely maintaining savers' deposits, it is the moral obligation of the central bank to keep user-owned and managed MFIs closed until such a time when the central bank has sufficient resources to fulfill the supervisory function. It examines:
- The experience of poor people saving in formal, semi-formal and informal sectors and examines how they perceive the options they have for saving and the losses they experience in the various mechanisms they chose to use;
- Focuses on their comparative risk and describes functional issues only as they influence the relative safety of the users' money and offers a range of suggestions drawn from discussions with clients and microfinance practitioners.
The findings indicate that community-based MFIs, though undeniably risky, are relatively less risky than the informal sector options remaining to the poor in the absence of these institutions.
The paper concludes that the poor suffer huge losses in the informal sector and understanding the dynamics of their risk environment is a crucial consideration for developing appropriate policies and regulations governing financial services for the poor to avoid driving the poor into riskier options, cautioning that failure to do so could mean that well-intentioned regulations will trap poor people in the relatively high risk informal sector and prove once again that 'it is expensive to be poor'. Recommends how both regulatory bodies and donor agencies reduce risk exposure of poor depositors.
