Saving
The culture of saving is more developed in Eastern European countries than in the rest of the ECA region. In Ukraine and Romania 50-60% of households save (although the majority of households save rarely or very rarely). Conversely, households some countries of the Caucasus with saving habits constitute less than 20% of the population, while in the other and in Central Asia as many as 40% of the households declare saving periodically.
Share of households with saving habits
Source: MFC database
In all six countries households that save were more often those with regular jobs, living on higher incomes and where household heads had a higher level of education.
Savings are usually kept at home as cash, gold (jewelry), other valuables (carpets, handicrafts), invested in cattle or loaned to other people on interest. Banks are often listed as the last place to keep savings for two reasons. Firstly, people prefer to have unlimited access to their savings. Secondly, people prefer to keep savings at hand, often because they do not trust banks.
Savings as a coping mechanism
The use of savings is the most important coping mechanism for risks. It is the most often source of income for unexpected expenses and also regarded as most effective.
Risk mitigation mechanisms in Armenia
Source: ‘Market for Microinsurance in Armenia. Low-Income Households Needs and Market Development Projections’, Justyna Pytkowska, Alison Collier, MFC 2009
Low-income people less frequently use savings and more often rely on interest-free loans from friends and family. The effectiveness of using savings to cover the financial loss of the risk is higher for better-off households, as they were more likely to have larger savings.
Demand for Savings in Tajikistan
In 2010 a GIZ-funded study assessing the demand for deposit services of microcredit deposit institutions (MDOs) was conducted in Tajikistan.
The study revealed that less than half of the households in Tajikistan (40%) save and, in most cases, save irregularly, only when there is any money left after covering everyday living expenses. Microfinance borrowers have better saving habits compared to the general population – 73% of them saves and many of them save regularly, not only for family celebrations but also to invest in business.
Only 11% of saving households keep their deposits with a financial institution, which means that in overall less than 5% of households entrust their savings with a bank or an MDO. The engagement of MDOs in the deposit market is negligible. Savings are usually kept at home (84% of the households) or invested in goods for later use in the household or business, livestock or valuables.
The interest in using deposit products depends on the product features. Product concept testing showed that higher appreciation was given to a semi-liquid deposit account denominated in TJS with an option to make additional payments, but also offering the opportunity to withdraw some funds once a month. In general, households in Tajikistan are very price-sensitive with high expectations for the deposit interest rate. While most of the short-term deposit accounts offered by banks and MDOs earn 5-18% annually on both the local and foreign currencies the expectations are much higher (20% or more).
All in all, 21% (230 thousand) of the households in Tajikistan could be reached with a semi-liquid TJS-denominated deposit account and the total value of savings collected from these households could be estimated at 175 million TJS per year (USD 39 million).
The size of the market for USD term deposit is lower – only 13% (140 thousand) of the households were interested in using it but the total value of deposits declared by respondents would reach 250 million TJS (USD 57 million).
Full report from the study: The market for MDO deposit services in Tajikistan. Justyna Pytkowska, Piotr Koryński, November 2010
