Asset-Building for Microenterprise through Matched Savings in Low-Income Countries

Can Individual Development Accounts help the self-employed poor in low-income countries build assets? IDAs provide matches for savings used for microenterprise and other asset-building purposes and are being tested in several high-income countries. In the United States,microentrepreneurs have indeed used IDAs to build assets. IDAs are also a promising innovation for low-income countries. For politicians and donors, IDAs are popular. For programs, IDAs are simple to target and —compared with loans— IDAs can reach more people and poorer people. For poor people who are willing and able to save, IDAs provide not only a “hand out” (matches) but also a “hand up” (structured assistance with saving). Matches help motivate participation and also turn small amounts of savings into larger amounts of assets. This paper recommends that matched savings for microenterprise in low-income countries take the form of high-interest savings accounts labeled for microenterprise. Of course, matched savings are not a cureall, and not all poor people are in a position to save, but access to highly rewarding savings structure should improve the long-term well-being of many poor people.

[Author's Abstract]