By Tamsin Harriman

The microfinance movement is beginning to move beyond only offering credit. As previously mentioned on this blog, many MFIs are expanding their range of services to include savings accounts (microsavings), insurance products (microinsurance), and even skills training.

Though these services are new for microfinance, they are not necessarily new services for the poor. Savings groups for the poor, especially, have existed for some time. For example, ROSCAs are savings & loan groups in which poor people pool together their savings and loan them out to each member of the group, one at a time. In a way, these can even offer a form of insurance, as they provide a place to keep savings for relatively easy access in case of emergency. In addition, poor people have long grouped together to share expertise and skills regarding farming, animal husbandry, etc. What MFIs offer is a more formalized version of these services. For example, savings accounts are more secure, borrowers don't have to wait their turn to access loans (like they would with a ROSCA), and they have access to expert support and training. They also have access to training in a wider range of subjects, such as business or computer skills, than they would be able to provide themselves.

Access to secure savings is very important to the poor, as evidenced by self-organized groups like ROSCAs. However, though they may be highly motivated, the poor do not always possess a secure place for their savings, or (if they form a savings group) the skills necessary to, for example, calculate interest on savings or solve complex accounting problems. Therefore, many MFIs are providing savings accounts as well as loans - sometimes even making savings mandatory for borrowers. In the Village Banking methodology, for example, savings are perhaps even more important than loans, much like in ROSCAs. Village Bank members pool their savings and mobilize them to make loans, and the Village Bank only takes out a loan from its parent MFI if necessary. Only those saving with the Village Bank are eligible to take out loans. In addition, the Village Bank pays out a portion of its profits as dividends to savers, depending how much they have saved, and for how long. In addition to providing a secure place to keep savings, MFIs also help with accounting. Common Interest, a Village Banking MFI in Chiang Mai, Thailand, trains each Village Bank's president, vice president, and treasurer so that they can do their work efficiently and correctly. Common Interest also helps with accounting and calculates the yearly dividends payed to the Village Banks' members. All this support makes for a much more efficiently run organization in each village with transparent accounting practices and fewer mistakes, ensuring that members' savings are in good hands.

Although one may not immediately think so, access to insurance is also very important to the poor. As Richard Leftley and Shadreck Mapfumo put it in their paper Effective Micro-Insurance Programs to Reduce Vulnerability, "one only has to imagine the range of risks that an individual with poor nutrition, reduced access to healthcare and informal housing (often located in risky areas) has to face to imagine why the poor may want to have access to insurance as well as other forms of risk mitigation." Some of the most popular microinsurance programs are crop or livestock insurance, as these are very risky sources of income, but many poor people depend on them. Other popular type of microinsurance include life insurance, which helps the borrower's family pay for (often very expensive) funeral costs and cope with the loss of income from the borrower's death, and disability insurance. Insurance payments, which are usually very small, are often collected at the same time as loan repayments or savings deposits. Some MFIs make their microinsurance programs mandatory for borrowers, since it is cheaper and prevents the situation of only sick people taking out health insurance, etc. Some borrowers, of course, do not like having to pay for insurance that they think they will not use. The risks inherent in a poor person's life, however, mean that at some point, he or she is likely to need some form of insurance. Therefore the benefits of having access to microinsurance outweigh the possible cost of such programs being mandatory.

One relatively uncommon, but important, service provided by some MFIs is skills and vocational training for borrowers. This may include business skills, computer skills, or tips for taking good care of livestock, for example. Here in Thailand, the Khom Loy Foundation offers vocational training to Hill Tribe young adults for restaurant work. Training in these or other areas can greatly increase poor people's earning potential, as well as their confidence. This is an important service that complements microcredit very well, as it can help borrowers run their microbusinesses more effectively, and thus to more quickly raise themselves out of poverty. If MFIs add skills & vocational training to their menu of programs, it could greatly improve their effectiveness in helping the poor.

Access to credit is a very important service for the poor. However, it is not a panacea for poverty alleviation. In combination with microsavings, microinsurance, training, and other services that the poor need, microcredit can do far more for the poor than it could alone.