Saving for Development: A Linkage Model for Informal and Formal Financial Markets

The policy of development through subsidized credit has largely failed. Development policy is presently being reoriented towards savings mobilization supplement by credit programs based on personal savings. Formal financial markets are ineffective in mobilizing savings in Third World countries as they reach but a small proportion of the population. Most of the rural and urban masses have only access to informal financial markets. The most prominent financial self-help organizations are savings and credit associations, which particularly widespread in West Africa: formal organizations on an informal market.The effectiveness of both formal and informal financial markets is greatly enhanced by linking savings and credit associations to formal financial institutions. The associations are formed into joint and several liability credit groups obtaining group credit for lending to members. After an initial phase of quanitiative growth, they offer consultancy and other services to their members, possibly with the assistance of an aid project, thus contributing to a qualitative development process.