Some people in the development world argue that microlending has been oversold, and there has been a bit of a backlash against it lately  including a “no pago” movement here in Nicaragua. This “don’t pay” effort has been orchestrated by the leftist government of President Daniel Ortega.

I don’t agree with the criticisms of microloans, for I’ve seen how tiny loans can truly transform people’s lives by giving them the means to start small businesses. Even so, there’s evidence that the most powerful element of microfinance is microsavings, not microloans.

One of the ugly secrets of global poverty is that a good deal of suffering is caused not only by low incomes but also by bad spending decisions. Research suggests that the world’s poorest families (typically the men in those families) spend about 20 percent of their incomes on a combination of alcohol, cigarettes, prostitution, soft drinks and extravagant festivals.

In one village here in Nicaragua where children were having to drop out of elementary school because they couldn’t afford notebooks, a midwife, Andrea Machado Garcia, estimated to me that if a man earned $150 working in the mountains as a day laborer during the coffee harvest, he might spend $50 on alcohol and women and bring back $100 to support his family.

Image Nicaraguan villagers, members of a savings group organized by Catholic Relief Services, hold the lockbox containing their savings. Credit... Nicholas D. Kristof/The New York Times

One challenge is that those men don’t have a good, secure way to save money, and neither do poor people generally. It just sits around, itching to be spent. It’s also vulnerable to theft, covetous family members and demands for loans from relatives.

In West Africa, money collectors called susus operate informal banks but charge an annualized rate of 40 percent on deposits. Yes, you read that right. You pay a 40 percent interest rate on your savings!