Paper short abstract:

Knowledge about how to manage economic resources is an important part of indigenous or local knowledge. The movement towards sustainable microfinance aims at integrating the poor into the financial sector by offering a variety of useful products. To do this, indigenous knowledge is essential.

Paper long abstract:

Knowledge about how to manage economic resources, including monetary resources, is an important part of indigenous or local knowledge - and a lack of knowledge about how people conceive of and practice such management is a major reason why development projects fail. While many projects try to facilitate market processes through the introduction of technology, training, or organizational change, a lack of resonance or coherence with indigenous economic reasoning leads to meager results.

Microfinance is a different approach, supplying capital directly for small-scale local market-based activities that are designed and controlled by the borrowers themselves, expanding economic activity within communities. As microfinance moves from being a 'movement' or poverty reduction 'strategy' towards becoming an integral part of the global financial market, there is an increased focus on the mobilization of savings - often referred to as 'the forgotten half of microfinance.' Savings can provide much more capital for on-lending than is available from donors, and are also important to development practitioners as they move money of the informal economy and into formal systems.

Collecting savings requires a different type of mobilization from microfinance organizations (MFIs) than offering credit, however. While MFIs scrutinize borrowers for trustworthiness, they must in turn prove their usefulness and worth to local communities in order to attract their savings, and may also be in competition with banks. Therefore, their success depends on the degree to which they are able to recognize and respond to local needs and offer the kinds of savings (and loan) products that mesh with the ways in which resources are managed. Indigenous knowledge thus becomes a vital ingredient in the success of these financial institutions.

This paper departs from research in Bosnia and Herzegovina, and discusses how knowledge about local savings practices became important to donors as they sought to reshape the country's financial sector, and to actors competing within the financial marketplace.