Compulsory savings accounts are not unknown in microfinance – GiveWell reports 29% of lenders have them. The net effect of the compulsory savings account systems used by LAPO and the Microloan Foundation appears to be to raise the effective interest rate of the loan.

In addition to bundling loans with savings, another option could be a stand alone Kiva savings product. For example, Kiva lenders could match a borrower’s savings dollar for dollar in an interest barring account over a period of time. Once the loan matures then lenders get their principle back while the borrower keeps the interest. Kiva’s MFI partners could cover their costs and risks if Kiva shares donations from lenders.

With this product you could reach clients who may not already be borrowing from an MFI.

Maybe call it a ‘savings multiplier’ loan. Any thoughts?

This is another excellent idea that requires that one take 5 steps – or 10 steps – backward to implement. David is correct that KIVA has little to do with the savings piece. It requires the local partners to adopt a business model that they may not be ready, or able, to undertake. You wouldn’t want them to do this quickly and haphazardly. It needs to be a thoughtful process. Whether the organization or a bank handles the savings accounts, it takes some time to jump through legal and operational hoops. Perhaps KIVA could figure out how to help these small organizations make the leap.

I agree strongly with the idea of pointing Kiva and others to microsavings with two caveats:

1) The data we have on microsavings thus far is pretty spotty and still preliminary since its only just being tried. Happily the Gates Foundation has just announced funding to replicate Pascaline Dupas’ savings study in 4 locations.

2) The Kiva Fellows are certainly not the army to spread microsavings. Most fellows are young volunteers with little practical experience in the developing world, much less in financial services. This isn’t to knock them but just to say that they’re not the right group.

As you’ve noted savings is pretty complicated and so we need to make sure that as the idea spreads we do have knowledgeable, experienced people at the forefront.

Thanks for the excellent post and insightful recommendation. As a former Kiva Fellow and now the founder of SaveTogether, an organization offering an online matched savings program for low-wage workers, I think your analysis is dead on.

While we have launched here in the U.S. to take advantage of the existing matched savings infrastructure, we are interested in understanding the appetite of online donors for this kind of solution. As we see the response from donors to our platform, we will consider opportunities to expand the concept internationally. And, as Kiva continues to be an important inspiration for us, I can think of no better way to expand internationally, then to find ways to work with Kiva, its field partners, and its community to complement its lending services with a savings product.

In addition to the concern that David raises in his comment, I think Kiva would have to be concerned about their donations if they were to implement your plan. While many lenders do want to help the borrowers, will they donate to Kiva’s operating expenses AND give to the savings matching fund? I think it more likely that most lenders would choose one or the other, and that would make it more difficult for Kiva to keep their donations rate up.