Abstract

Poor access to affordable credit by especially poor Malawians has been a critical constraint to micro and small enterprises. Micro credit schemes were introduced to help provide small loans to low income households too poor to qualify for traditional bank loans under flexible and easy to understand terms and conditions. However, these schemes’ emphasis on credit provision has effectively screened out the very poor who are reluctant to take debts while at the same time other members fear that such people may not be able to repay the loans. Furthermore, their operations are limited to urban areas only. The critical constraint therefore, facing the poor is lack of appropriate savings services and institutions which can assist them to mobilize and accumulate their savings for investment and other purposes. This study sought to examine the role that micro credit schemes play in the promotion of savings among beneficiaries. Specifically the research aimed at establishing whether participation in micro credit schemes and participants socio-economic characteristics affect the level of savings. lt further aimed at establishing effects of institutional and organizational arrangements put in place by micro credit schemes on participants’ savings behaviour. A sample survey was conducted in Lilongwe focusing on two micro credit schemes. One scheme had external financial injection with a credit focus while at the same time encouraging its beneficiaries to save. The other scheme had a savings focus where the participants were mobilized to form savings groups and raise savings from which they could borrow locally. The research adopted both quantitative and qualitative methods of data collection and analysis for complementary purposes. Results show that participation in micro credit schemes increases the level of savings. Those who were participating in the micro credit schemes were making significantly higher savings than non participants. This means the availability of savings facilities provides a better option to saving at home where savings may be withdrawn to help relatives. neighbours or used on less pressing needs. The study also confirms that income is an important factor in as far as savings mobilization is concerned. Those who were saving in both schemes had higher average incomes compared to those who were not saving and those with higher incomes were making much more savings than those who had lower incomes. This means that to successfully improve savings from the poor communities there is need to improve their income earning capacities like supporting income generating activities. Micro credit schemes should therefore not only focus on credit provision and loan recoveries, but should ensure that the enterprises are profitable to sustain saving

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School	: School of Humanities and Social Sciences
Issued Date	: 2007

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