ISLAMABAD March 28: Ninety-four per cent of the urban poor in Pakistan keep cash at home or invest it in ‘chit-funds’, informal rotating credit-savings associations known as ‘committees’.

According to a study funded by the United States Agency for International Development (USAID) under a $5million project, the poor distrusted banks and considered their staff disrespectful and unhelpful and felt that financial institutions were meant for the rich.

The study urged banks in Pakistan to simplify the procedure for opening savings accounts and other bank transactions.

The study, titled ‘Mobilising savings from the urban poor in Pakistan: an initial enquiry’, was conducted by ShoreBank International (SBI), an international consultancy firm working with financial institutions in more than 40 countries. The study is authored by Hussan Bano Burki and Shama Mohammed.

It observed that low-income savers used cash, prize bonds, gold and land for their short- and long-term requirements. According to the study, savings in ‘committees’ ranged between Rs2 a week to Rs15, 000 a month.

The report said that while microfinance institutions had provided credit to individuals without prior formal access, they lagged behind in providing access to savings opportunities to potential low-income savers.

With only 7,494 bank branches, the infrastructural access for formal savings in Pakistan remained at a low 4.8 branches per 100,000 people in June 2006 against 6.3 in India and 8.6 in Indonesia (2004 figure), said the report.

The study provides guidelines to banks about savings products, marketing strategies and distribution channels they should offer to the poor.

The report is aimed at understanding the behaviour, preferences and attitudes of low-income potential savers in Pakistan and draws implications for commercial banks and microfinance banks regarding the design, marketing and delivery of the products that appeal to the low-income savers and, at the same time, are viable for the financial institutions to offer.

The report suggested that banks might be able to mobilise savings from the urban poor by offering products that replicated features of informal saving methods popular among the poor and improved upon the disadvantages of these informal mechanisms.

It urged the microfinance sector to prepare to turn to savings as an alternative source of funds for growth and said that the sector’s active borrowers were likely to increase more than double by 2010.