Loading...
Informal saving practices in developing countries
Sawani, Mustafa Patterson, Seymour
Sawani, Mustafa
Patterson, Seymour
Author(s)
Author(s) (Additional)
Illustrator(s)
Producer(s)
Contributor(s)
Contributor(s) (Other)
Editor(s)
Advisor(s)
Contact(s)
Data Collector(s)
Keywords
GE Subjects
Collections
Files
Loading...
n09200.pdf
Adobe PDF, 100.68 KB
Research Projects
Organizational Units
Journal Issue
Online Access
Abstract
This paper is concerned with the paucity of financial intermediates in developing countries and the alternatives to formal financial institutions as a source of funds. Low income besets developing countries and disparate financial practices affect saving, consumption, and the income multiplier. Informal and formal “financial intermediaries” are a means for allocating funds with and without the use of interest payments.Informal systems consist of interest and non-interest generating practices. Examples of informal systems are the Esusu in West Africa and the Iddir in Ethiopia in which interest does not play a role. An example of a formal system is Islamic banking in which interest is eschewed. By contrast, Western banking practices depend strongly on the intervention of interest as an allocative mechanism between savers and dissavers or present consumers. In the paper it is shown that under Islamic banking rules, saving is lower than consumption and the income multiplier is higher. In presence of Islamic banking, disposable income is siphoned off as transfers to God and to the poor. Thus, Islamic saving practices tend to exacerbate the gap between saving and investment, while encouraging higher levels of consumption. The paper implies that, under very restrictive assumptions, transfers of income from the West to Islamic countries in Africa would increase income by more than it would reduce it. That would be the case since the income multiplier in Western banking countries is lower than the income multiplier of Islamic banking countries.
Note(s)
Topic
Type
Article
Date
2010-02
Identifier
ISBN
DOI
Copyright/License
With permission of the license/copyright holder