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DEVELOPMENT
MICROFINANCE
Second Chances in Global Development: How savings and lending
groups can achieve what microcredit hasn’t By Jeffrey Ashe
MICROFINANCE
Second Chances in Global Development: How savings and lending
groups can achieve what microcredit hasn’t By Jeffrey Ashe
Original article:
Peter Burgess COMMENTARY
Peter Burgess
Second Chances in Global Development: How savings and lending groups can achieve what microcredit hasn’t By Jeffrey Ashe
Next Billion - Development Through Enterprise
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Monday, January 5, 2015
Second Chances in Global Development: How savings and lending groups can achieve what microcredit hasn’t
By Jeffrey Ashe
It might have turned out differently. In 1979 I led a team whose mandate was to learn how financial institutions lend to micro businesses. The PISCES Project, as it was called, was USAID’s first foray into microfinance, and it would become the spark for greater U.S. involvement in the nascent sector. Funding and personnel from USAID pushed seminal groups like Acción and Opportunity International further into microfinance, while helping initiate its transition from non-profit to for-profit models. Soon, other funding poured in and microfinance became a global development phenomenon.
But what if our mandate instead had been to learn how micro-businesses actually financed their businesses? Instead of assuming that institutional credit was what they needed, informal financial management tools including revolving and accumulating savings clubs[1] common in much of the developing world – not merely financial institutions – would have been central to our investigation. And perhaps these tools, rather than formal microcredit, would have captured the imagination of the global development community.
While microcredit was rapidly gaining momentum, in 1991, Moira Eknes, then a Norwegian CARE volunteer working in a remote corner of Niger, did what our research failed to do. By studying, the traditional savings clubs prevalent in the villages where she worked, Eknes and her coworkers refined them into a saving and borrowing model called Village Saving and Lending Associations (VSLAs). VSLAs were more flexible and transparent, and more immediately useful for villagers than the traditional alternatives.
Eknes never expected that her VSLAs would spread much beyond the small communities where she worked. How wrong she was. Today there are 10.5 million members of savings groups (most of them women) in some 65 countries participating in over half a million groups. The vast majority of these groups are in Africa, but savings group membership is rapidly spreading in Latin America and Asia even in countries where rotating savings and credit associations (ROSCAs) are not common showing the vast unmet need for a safe and convenient place to save and easy access to small loans.
Ten and a half million group members are our “proof of concept” but what if we scaled savings group membership to 100 million, or half the current outreach of microfinance? This would translate into savings groups in place in a million villages – that’s equivalent to every village in 66 countries the size of Mali – and in thousands of cities and towns. These groups would collectively mobilize and largely distribute $2.5 billion each year ($1,800 per group) of which $750 million (30 percent) would represent the groups’ profits from lending and fines. Group members, not financial institutions, would reap the benefits.
The total price tag spread over a decade would be less than the grant funding to microfinance in a single year ($2.56 billion according to a 2011 CGAP Focus Note).[2] And it could be much less than that. The cost of promoting savings groups is trending downward as the methodology is further simplified[3], more volunteers are training groups, and some groups are paying for their training.[4] What’s more, group training along with health education is now being delivered on cell phones[5], and a simple app is being perfected to automate record keeping[6].
I believe promoting savings groups at this scale could become a global development phenomena as profound as microfinance sparked three decades earlier. The difference is that while microfinance struggles to reach the very poor, savings and lending groups are expressly designed to meet their needs. Costs are so low because group members, not institutions, take on the tasks of lending, tracking payments and repayment – the major costs of financial institutions – and no funds external to the groups are required since the money lent is the money the members save. Savings groups prove that the poor are not too poor to save and that there is enough savings potential in a group of 20 to meet most members’ needs, which are as much about insuring there is food on the table and dealing with emergencies as business development.
In contrast to a typical microfinance institution, savings groups:
- ● Reach those that microfinance is not designed to reach profitably. Even the most motivated micro-lender cannot make money on $0.50 savings deposits and $30 loans.
- ● Require a fraction of the staff. Saving for Change in Mali, a joint venture of Oxfam America, Freedom from Hunger and the Stromme Foundation, reached 450,000 women organized into 19,000 groups with 209 trainers – one paid staffer for each 2,000 group members. To reach the same number a typical MFI would require a permanent staff of 1,500, one paid staff for each 300 users.[7] Only a handful of trainers are monitoring Saving for Change groups in Mali today, with few signs that the groups are faltering. (See video below for more details.)
- ● Can be promoted by local NGOs. Savings group promoters introduce a simple structure while the groups do the work of saving, lending, collecting and record-keeping.
- ● Virally self-replicate. The leaders of established groups train new ones at no additional cost. Hugh Allen, a VSLA pioneer and CEO of VSL Associates, found that after four years each group trained by staff had trained two more groups in Uganda.
- ● Are profitable for very poor people. When the fund is divided at the end of each cycle, members receive on average $1.38 for each dollar saved[8]. As one woman told me, “Why pay them when we can pay ourselves?”
- ● Survive independently. A panel study of 331 groups in 6 countries over 5 years indicates a 90% survival rate.[9]
- ● Serve as a platform for other development inputs. Members launch their own projects – teaching their children to form groups, buying grain when the price is low to better survive the “lean” season and launching collective enterprises. Disciplined groups with financial clout serve as platforms for government and NGO development initiatives and linkages to financial institutions.
- ● Have documented impact. A Gates Foundation-funded random control trial and anthropological study carried out in 500 villages in Mali showed a decrease in chronic hunger, increased savings, more assets – mainly as livestock that can be easily cashed in – and increased social capital. Crucially, these impacts were village-wide – not just limited to group members. The researchers also found that savings groups sprung up in the control villages in substantial numbers with no staff promotion or training.
- ● Can promote political change. In Guatemala, savings groups banded together to elect women mayors. In El Salvador, ex-trainers are assuming roles in municipal governments. Eknes told me that women in Niger who were part of the first VSLA initiative are organizing a national structure to make sure they fulfill the gender quota for the coming elections.[10]
More than two billion people worldwide need a better way to save and borrow with most of these living on two dollars or less of highly irregular income per day. Savings groups are the simplest and least expensive way to serve them. Savings groups, microfinance and mobile money taken together are addressing the need for quality financial services with each fulfilling a different need - savings and small loans, larger loans and savings and remittances, transfers and bill paying. They are the most recent additions to the “portfolios of the poor.”
Jeffrey Ashe is a fellow at the Carsey School for Public Policy at the University of New Hampshire, Research Fellow, Global Development And Environment Institute, Tufts University.
- [1] There are two types of savings clubs, ROSCAS (Revolving Savings and Credit Associations) where a fixed amount is paid into a fund each meeting and each member in turn receives a payout of the entire amount collected that meeting and ASCAS (Accumulating Savings and Credit Associations) where members deposit into a common pool and take out loans from that pool as needed.
- [2] “Cross Border Funding of Microfinance,” CGAP Focus note 70 (April 2011)
- [3] Jong-Hyon Shin of Fundación Capital has simplified training to a two hour simulation with two or three follow-up sessions
- [4] Catholic Relief Services through its Private Sector Provider model trains promoters to train groups as a business.
- [5] Freedom from Hunger has developed a curriculum for training groups and health education for cell phones.
- [6] Paul Rippey is testing this record keeping app. See: Savings-Revolution.org
- [7] David Roodman, “Due Dilligence: An Impertinent Inquiry into Microfinance”
- [8] Hugh Allen, VSL Associates.
- [9] SAVEX panel study of 331 randomly selected groups.
- [10] In Their Own Hands: How Savings Groups are Revolutionizing Development pp 106-107, pp 113-115
Hugh Sinclair • 3 months ago I have read this book and found it interesting and worth a read. Of particular interest is that the author, Jeffrey Ashe, is formerly of Accion, i.e. this is a rare case of someone from the definitive pro-commercial microfinance movement seeing the light and leaving to do something more constructive. Had more Accion staff had this insight we could have been spared the disgrace of Compartamos and the embarrasment of Smart Campaign!
The author suggests savings groups could excel where microfinance fails, mentioning their ability to reach poorer clients with smaller loans, be more cost effective and scalable etc. Possibly for political reasons the author avoids the most dangerous aspects of microfinance: would savings groups be less prone to the chronic over-indebtedness that MFIs seek to promote? How many suicides in AP would we have had if the women were self-managing their loans rather than aggressive male loan officers? Would we see the sorts of interest rates that the likes of Compartamos charge (e.g. 195%, and interest remains within the group)?
I speculate that there is a fundamental reason why microfinance was favoured over savings groups: they enable private ownership and profit extraction and fit neatly into the neo-liberal agenda of commercial capitalism. I suspect the likes of Accion, and even the IFC, find savings group a threat rather than an opportunity. How can savings group generate a huge dividend income to the likes of Accion?
But one question remains: to what extent are such savings groups merely a band-aid? Do they really address the underlying problem? Genuine economic development that produces jobs is what is utlimately required, and I wonder if savings groups offer this. Would a mass promotion of savings groups simply distract governments from the principal task of developing meaningful employment? And to what extent are we merely recyling surplus savings into un-productive activities rather than fuelling growth? Are they better than nothing? Yes. Are they better than most microfinance? Probably. Are they the solution to the underlying problem? That is the million dollar question, and if we learn one thing from the microfinance era, let it be this: let's not build-up hype and false promises to promote this movement. When people start promising that savings group will eradicate poverty, our grand-children will have to visit poverty museums, and ill-informed rock-stars and politicians enter the fray, that is when we should start worrying! 1 • Reply•Share ›
Avatar Bill Maddocks Hugh Sinclair • 3 months ago Hugh, I don't believe Jeff or anyone doing Savings Groups work today sees them as a singular way to 'address the underlying problem'. Does any actual or proposed methodology do that? Savings Groups are 'A' solution to financial shocks and provide a stabilizing tool in the uncertain lives of low-income families. I like to think of Savings Groups as little development engines and accelerators. People can learn this simple technology in a low cost and brief training period, can master it in a year or so, can replicate it shortly after that and then groups can use the social capital and community confidence generated to move on to bigger and more complex challenges, if they choose to do so. Ideally, governments should have little or nothing to do with SGs and most of the people SGs can reach have little possibility of a 'job' in the traditional northern sense. The trajectory of SGs members is towards greater financial security and that path can be very different depending on what local economic, social and political conditions exist. Fortunately Savings Groups appear to work in many diverse and challenging environments and therefore may have more universal appeal and efficacy to reach the billions who cannot participate in economic inclusion in meaningful ways.
While I hope Savings Groups will not be subjected to your usual jeremiad frequently heaped onto microfinance (often well deserved), I do agree that making sweeping claims of SGs ability to eradicate poverty and promoting it as more than 'A' tool in the struggle for economic justice would be counterproductive.
1 • Reply•Share › Avatar Hugh Sinclair Bill Maddocks • 3 months ago
Like I said, I found the book surprisingly interesting, and while the expression 'band-aid' might appear derrogatory, in fact we seem to agree - it is not THE solution, but it certainly helps. As does a band-aid. I imagine (note - speculation here) that SGs are less prone to the criticisms often levied at microfinance (over-indebtedness, extortion, bullying etc). Two things in particular impressed me: the longevity of the groups, and the contagion-effect (autonomous scalability). I was expecting the book to then promote the idea of leveraging such groups with outside capital, and was pleased to discover this was NOT on the agenda. Certainly on the basis of what I have seen so far no SG jeremiad is planned! To the extent that SGs can displace the dependence upon MFIs, and even be a competitive factor in the market simply by placing another option on the table for the poor, I think this is a promising avenue to explore. I also like the alternative take on 'self-regulation' - it is the groups themselves that determine the rules. This is clearly superior to profit maximising MFIs self-regulating themselves under the guidance of folk like Accion/Smart - that is a recipe for disaster. I totally agree in not over-hyping the idea, and the inability to profit from SGs would limit the usual folk jumping on this bandwagon.
This seems to be a step in the direction of the traditional co-ops, albeit at a small enough scale to avoid the need for central management. In light of this discussion on SGs, might we see a resurgence in co-ops in the financial sector? Theoretically (and ideally) the benefit of a co-op is that it could offer a safe means of saving, but also channel capital to more productive businesses capable of producing actual employment. Or is that simply dreaming?
• Reply•Share › Avatar Jeffrey Ashe Hugh Sinclair • 3 months ago Hugh Sinclair,
Thank you for your comments. I think the best path forward is to come up with a better alternative. Savings groups can simply outcompete Compartamos and similar high interest lenders. There is no impetus to reform if there are no alternatives. I would like to launch a savings group program in the indigenous communities in Mexico where Compartamos focuses its works. The marketing campaign would be simple:
Take your pick:
Form a group to guarantee your loan. Take out a Compartamos loan for $100 pay it back in a year and pay an extra $100 for the privilege of having your $100 right away. Take out another loan and repeat.
Form a group. Save $2 per week in your group. Take out small loans from the growing fund of your group as needed. At the end of the year when the fund is divided receive back all your savings plus a share of the interest proportionate to the amount saved over the year. With your lump sum of $100 plus another $20 or so of other income consider investing interest free in a business or take care of an emergency or pay school fees or buy animals as an investment or invest in vegetable production. Showing how excited you are about what you and your colleagues have done themselves go out and train another group so they can benefit as you have.
Makes you think doesn't it? 2 • Reply•Share ›
Avatar Jeffrey Ashe • 3 months ago
The day before this essay Hugh Allen provided me with critical updated information. The amount each group mobilizes on average is $1,500 not $500 and the return on savings is 36%, not 30%. The fourth line in the fifth paragraph should read: 'These groups would collectively mobilize and largely distribute $7.5 billion each year ($1,500 per group) of which $2.7 billion (36 percent) would represent the groups’ profits from lending and fines. Group members, not financial institutions, would reap the benefits.' The amount of money managed is roughly three times that indicated.
A few notes about costs. Consider that based on the Bill & Melinda Gates Funded study in Mali in 500 villages indicates that impact is community wide not just for those who join groups so after three years an investment of a dollar per villager, is translated less chronic hunger, more savings (a whopping 33%), more assets - mainly animals that can be cashed in when money is scarce and more social capital. I have observed that after three years more join groups, the groups save more and these groups increasingly initiate their own economic and social initiatives. At the other extreme the investment per villager for Sach's Millennium Villages is $1,800 per villager. Not that what savings groups and Sachs are doing the same but when there are scores of millions of villages and vast slums in the cities an approach that costs virtually nothing and nearly $2,000 has a lot more possibilities. And it’s a lot simpler. Savings groups are a smart edges model taping into the brainpower of all the members not the plans of outside experts.
For another dollar or investment per villager smallholder agricultural interventions and health and business and leadership training can be added. Actually this cost is less since by using this 'in their own hands' methodology the ideas introduced in one village spread virally to neighboring villages at no further cost to the program. I believe that ideas about savings groups only need to be introduced in every three villages and that with a three or four years there will be savings groups in place in all of them. Consider that ROSCAS and ASCAS spread in one form or another across much of the Global South without any of us development types, or before roads and mass communication for that matter showing how viral replication works so why should be surprised. What savings groups do is introduce an improved version of the traditional system that will spread in the same way.
We development types are uniquely capable of complicating what works in our effort to be helpful and thereby undercut what we hope to accomplish. The principles of 'in their own hands development' - simple is better than complex, build on what is already in place and widely understood, design for change that persists and that spreads on its own, give nothing away, insist on local control and build in learning and innovation is key. As I promoted microfinance around the world I never seriously asked those who we wanted to help what they were already doing. Since we knew how to do credit we did credit. Now I am asking immigrants in the USA how they are managing their finances and found that they have brought their ROSCAS with them and with enormous creativity are saving and achieving the American dream even though many of them are her illegally. How might they teach the rest of us? 1 • Reply•Share ›
Avatar Kenhubert • 3 months ago Dear Jeff, .
As you know from our conversation this last weekend, I read this with real interest, but I’d like to give you some numbers that show nearly double the average level of individual savings: you appear to be significantly under-estimating the amounts involved.
I went to the SAVIX website (www.thesavix.org) and filtered for groups that are 12 months old. The reason for doing that was that most groups share out in about 12 months. What I found was as follows:
- Total members 14,958 groups in 30 countries
- Average group savings $1,038
- Average total assets per group $1,416
- Net profit $378
- Return on assets 26.7%
- Return on savings 36.5%
- Cost per member assisted $22
If, we assume (as indicated by the 2013 Datu research from Uganda), that the average group created by a project spawns at least another group (Datu suggests 1.99), this means that the benefit cost ratio will be huge over a three year period, crudely to be estimated at better than 2:1. All of these benefits are only being measured at the level of the groups themselves and do not take into account household level impact. Certainly it goes a long way towards explaining why SGs are as sustainable as they are and why the formal sector has a long way to go before it can offer an equivalent deal (apart from enhanced security).
By any standards this is a spectacular development success story and the sooner the industry gets behind some serious support at a very large scale, the better. How many other development projects can demonstrate these extraordinary returns, and how many regulated institutions have either the motivation or means to do so?
But cost is also an obsession. We should stop trying to do this on the cheap. It really isn't necessary, if we have patience. My rough estimate is that we can reach 100 million people (a nice start) for about $1.2 billion, but only if we do a solid job with foundation groups. Instead of focussing to the exclusion of all else on project timeline costs per member, we ought, I believe, to be focussing on how to make sure that the foundation groups created are as good a quality as possible, such that replicated groups have a solid model to emulate. It is, I think a conservative proposition to suggest that long-term costs per member, when calculated a couple of years post-project, are likely to be less than $12, when implementation is managed by an INGO. When managed by a competent local NGO (and there are now many) the figure can be reduced a whole lot further
I would love to have us do at least two other country studies on the original Gates study cohort of 331 groups in 6 countries to see if the replication and solid performance of replicated groups that we found in Uganda happens in other countries where conditions differ significantly. If it does not, this should inform the strategies of both donors and practitioners.
Hugh Allen • Reply•Share ›
Avatar Jeffrey Ashe Kenhubert • 3 months ago
Hugh,
You have been at the business of savings group training and support since just after Moira Eknes trained her first groups in Niger back in the early 1990s and as one who has trained many of those currently active in the field.You are responsible for collecting the data that enables us to say that there are (at least) 10.5 million group members - a lot more if viral replication is counted so you. know of what you speak. While a good case can be made to lend to viable micro enterprises that can repay a loan with interest and still come out ahead (a minority of microfinance clients) those at the bottom are better served by saving rather than debt - true of most all of us I suppose.
Since institutions don't serve the poorest, savings groups are the best available option. Those in the groups who need larger loans can always as individuals go to an MFI or a bank. Loans to a group from a financial institution all too often put the group at risk and undercut the motivation of the group to save more - a bit of patience and discipline pays off handsomely. We need to think a lot more about what actually serves the poor than institutional profits.
Consider that 44 billion in foreign assistance a year is poured into the world's 54 poorest countries (much to most of it to little avail), let's say a little less than half a trillion dollars over ten years. A percent or two of that total would bring a better way to save and borrow for most of those living in these countries. Another percent or so would bring health education, agroecological farming and other benefits to this same population. With a solid structure of scores of millions of groups with economic clout and management capacity in place with empowered members launching their own initiatives and seeking out others who knows what the next decades could bring.
Recent estimates show that most all of the word's increase in population will occur in the world's poorest countries where population pressure is undermining water and land resources with these countries bearing the brunt of climate change (thanks to rich countries). We don't have time to squander resources on approaches to assisting the poor that are costly and ineffective. 1 • Reply•Share ›
Avatar Kenhubert • 3 months ago Dear Jeff,
As you know from our conversation, I read this with real interest, but I’d like to give you some numbers that show about double the average level of individual savings that you have quoted
I went to the SAVIX website (www.thesavix.org) and filtered for groups that are 12 months old. The reason for doing that was that most groups share out in about 12 months. What I found was as follows:
- Total number of members 317666 in 14,958 groups (about a 10% sample of SAVIX groups)
- Average group savings $1,037
- Average individual savings $48.90
- Average group total assets $$1,416
- Average Net profit/group $378.30
- Return on assets 26.7%
- Return on savings 36.5% = $17.82 per average member
- Cost per member assisted $22
Regarding costs, these findings have implications for the field. Instead of focussing to the exclusion of all else on project timeline costs per member, we ought, I believe, to be focussing on how to make sure that foundation groups created by a project are as good a quality as possible, such that spontaneously replicated groups have a solid model to copy. It is, I think a conservative proposition to suggest that long-term costs per member under this scenario are likely to be less than $10, when implementation is managed by an INGO. When managed by a competent local NGO (and there are now many) the figure can be reduced a whole lot further
I would love to have us do at least two other country studies on the original Gates study cohort of 331groups in 6 countries to see if what we found in the Datu follow-up study in Uganda happens in other countries where conditions differ ignificantly. If it does not, this should inform the strategies of both donors and practitioners. In all cases, however, this type of microfinance is due for a significant increase in donor attention.
Hugh Allen see more • Reply•Share ›
Avatar Bryan Stinchfield • 3 months ago
Savings groups have been studied in depth since the 1940s not only for the economic advantages but also for their cultural ties to ethnic groups. Geertz (1962) and Ardener (1964) began their seminal pieces on community savings programs in well document anthropological studies across Asia, Africa, and Europe. It’s a shame that this literature didn’t cross paths with development practitioners around the time of USAID’s PICES project.
The author, Jeffery Ashe, isn’t idle pondering ‘what if’ savings groups had taken off, but is relentlessly finding new ways to incorporate the low cost, high returns model of savings groups. Today, while millions still sit on the sidelines of the formal financial sector Jeffery sees saving groups continue to thrive abroad and domestically here in the United States. Most recently, Jeffery is analyzing the effects of immigrant groups in America that are disenfranchised by the formal credit system, often relying on their cultural and economic roots in savings groups to function within the modern U.S. economy. 1 • Reply•Share ›
Avatar john Gitau • 3 months ago
Mr Ashe, I admire your honesty. Your past sins are forgiven. We understand that you were just a midwife being directed by the obstetrician to carry out a cesarean where normal delivery was not only possible but the common practice. Fortunately, although the baby did not turn out to be a genius, it wasn't a moron either.
Even before we go into details, you mention two major mistakes that can easily be repeated: Failure to ask the right questions and assumptions based on ignorance. No development initiative is immune to there two possible mistakes.
Thank you for opening the year with such an important and informative post.
2 • Reply•Share ›
Avatar Jeffrey Ashe john Gitau • 3 months ago John,
Thanks. Interesting metaphor. I have learned that the best starting point is to thoroughly understand how those you propose to help are already addressing these problems themselves and then ask them for their suggestions of what better would look like. Then with minimal inputs and support encourage the 'positive deviants' to share and then spread what they have learned. Savings groups and financial institutions have their role as does mobile money and taken together all can (often/usually?) be helpful. But all these efforts are in addition to ROSCAS and ASCAS, informal lending between families and friends, savings in animals, grain and jewelry, money guards and the like which which doubtlessly have a larger role than all these interventions taken together.
Savings groups since they are the closest to what people are already doing for themselves and are based on their own creativity and problem solving capacity are likely to be the most robust and are most likely to spread on their own. The skills and social capital created while creating and managing their groups and spreading what they have learned open the door to further change. As many told me in Mali, 'life is much less stressful now'. With a safe and convenient place to save and easy access to loans'. If income has not increased much overall at least the peaks and valleys of income volatility have been smoothed out. As books such as 'Scarcity' have shown if your focus is largely on surviving the next day often the only options are bad ones - doing without food, selling even productive assets and selling crops at a fraction of their value - which makes it extremely difficult to move forward. Savings groups can help break this downward spiral. 1 • Reply•Share ›
Avatar john • 3 months ago
Here is an interesting perspective from one great advocate of Savings Groups:http://savings-revolution.org/... Paul's perspective is in line with what they say that when one person opines and everybody else agrees, then only that person is thinking. • Reply•Share ›
Avatar Jeffrey Ashe • 3 months ago
John,
I agree. Banks smart center, dumb edges. Savings groups dumb center (we provide a simple structure) and smart edges. The groups do all the work - organize, save, lend, hold each other accountable, learn - and by doing so become smarter. For more wise insights I agree with you visit Paul Rippey's Savings Revolution site. • Reply•Share ›
Avatar john Gitau • 3 months ago
Lest some gem remain buried in the prose, let me tease out one of them that goes ' Loans to a group from a financial institution all too often put the group at risk and undercuts the motivation of the group to save more. A bit of patience and discipline pays off handsomely'. Indeed, Mr Ashe, we know what happens to seemingly successful but heavily geared corporates. Like dominos, they collapse faster at the whiff of an economic downturn compared to those which painstakingly plough back their residues with patience and discipline. They become solid mega corporates with huge reserves and deep rooted stability. So, in the business of the poor, it is not that we lack examples, rather it is our poor handling of it by being meddlesome while thinking we are doing good for our egos.
Mr. Hugh Allen, we would like to hear more from you. To me, you are the uncelebrated grandmaster of SG model. You have thought, packaged, executed and shown the way, in your humblest way that does not seek accolades. We who genuinely aspire for a better life for the poor celebrate you. As for Moira Eknes, I can only say she was inspired by the highest holder of power. She is the messiah of the poor. Mr. Ashe, here you are, so stereo in your explanation, bringing into live the SG model in a way we can all understand. Your inspiration comes from elsewhere. And I don't mean to place anybody on a pedestal, a seedbed from which ego germinates. Many have succumbed to the illusion of self importance, shouting from the mountain tops how they have salvaged the poor from their wretchedness.
I wanted to mention Paul Rippey's perspective early enough so that nobody gets a chance to pour cold water on the achievements of savings groups. Paul wanted to let us know early that they have their own challenges but for all measures, they would serve the poor better once the concerns are addressed.
But, I don't suppose we are condemning microfinance institutions in total. Much as they are not suited to serve the poor directly, they can play an indirect and supportive role in poverty eradication by providing cooperatives with wholesale funds for members to borrow when need be and for the cooperatives to fund their income generating projects. Microfinance, as Mr. Bateman and Mr. Sinclair have extensively written, can be helpful in financing small and medium enterprises, the potential engines for employment creation. Microfinance institutions are closer to SMEs than banks are and can understand their needs better. SMEs are also the aspirational levels for cooperatives and we shouldn't rule out cooperatives creating SMEs as their investment vehicle, thus enhancing income for their poor members. Cooperatives shield the poor from exploitation as they understand their capabilities and potential. • Reply•Share ›
Avatar Jeffrey Ashe john Gitau • 3 months ago
John,
Thank you for your comment. The heros of saving group work are the field staff but especially the volunteers who train and support groups and spread the world. It is hard work and frustrating especially at first when it might be necessary to go to a village up to eight times to convince the first group to come together. They are suspicious of outsiders as they should since them have been scammed and exploited so often. It is not as if we created their desire to serve their communities. As I carried out interviews with promotoras and voluntarias in El Salvador and Guatemala what struck me is that every woman I interviewed had been a community activist since the age of 13 or 14, sometimes as a catechist, or a literacy teacher, or a guerilla fighter - running a clandestine radio station, running messages, tending to the wounded or even fighting. Their doing the almost always unpaid work of promoting these groups in addition to all the rest they do with passion and conviction is humbling. These volunteers are encouraging others coming up in the groups - often adults but sometimes children to follow in their footsteps of serving the community. • Reply•Share ›
Avatar Jong-Hyon Shin • 3 months ago
In 2010, I was in development field already for 14 years and was getting more and more disillusioned by the negative impact that aid often produces. The ill-guided development money was being largely wasted to generate opportunists and dependent people. I often thought that it would be far better to work in a private sector which can generate employment so that people can learn work ethic, and plan for their future on their own. It was an eye opening experience, therefore, to meet a woman in a savings group (SGs) in Colombia who said that “I am no longer poor” because she has friends who can lend her money whenever the need arises, can improve her kitchen and help her children’s further education.
After this initial contact with SGs, I started thinking what to do to help this fabulous idea to spread fast. I carefully read Hugh Allen’s fantastic VSLA manual. Money matters, but I somehow could not imagine people who can meet diligently to receive trainings for several days in a row. People in developing countries are often quite busy and are not patient enough to attend a meeting without particular motivation. I needed a methodology that can make people learn by doing.
Prof. Jeff Ashe was my professor and adviser in Brandeis University who encouraged me to think further on this. After a one year of course work, I came to the Dominican Republic to put my idea into practice and found a way to train a group in 2 hours. For the last 3 years, together with volunteers, I built about 250 groups of over 5,000 people based on this idea. Since last July, I have been working with the Dominican government to plant savings groups among population receiving government conditional cash transfers to eventually link them with banks.
What did I learn?
It is possible to build a group in a 2 hour simulation. I have a group who managed to save about 18,000 USD at the end of their second cycle. This group, who had no savings culture before, is the product of a 1.5 hour training and has never been visited until it was 16-month old (Prof. Ashe was there with me). But this is a rare case. Most groups require more than 3-5 visits to really learn about how to organize groups and sometimes groups who received numerous visits somehow do not work. I started thinking why some work well and some don’t.
I agree with Hugh Allen that spending good money to ensure the quality of the foundation group eventually pays off and probably is the best way to save money. For this to happen, ideally I want to see every country to house a good umbrella organization providing a quality technical assistance and monitoring for SGs. This organization can be a focal point to spread good practices and warn against bad practices as well as providing trainings. That said, we know that not every country has the privilege of the presence of these organizations yet. In the meantime, I think there are ways to create quality groups with simple training by being choosy:
- 1. Train only groups enthusiastic in saving.
- 2. Train only a group with a good, respected leader.
- 3. Make the groups compete and give reward to those who excel.
Avatar john Gitau • 3 months ago
Your last paragraph Mr. Shin is spot on and carries very important insights given that you are talking from experience. Your third idea of introducing competition is great and in my opinion workable. On the need for an umbrella organisation to oversee the groups, It is a good idea. The only concern would be cost of running it, complete with competent staff. What would its structure be like? I was looking at Nuru International's corporate structure and it is quite elaborate and I assume expensive, though they have many projects to manage. If they were to scale their projects to more districts in a country, I would imagine their main office would be an expensive behemoth, not unless they introduce volunteerism. What of the more elaborate SG operations, it is difficult to imagine the size of the umbrella organisation in terms of staff and administration( assuming an officer being in-charge of village leaders overseeing many SGs). I would like to hear Mr. Hugh Allan thoughts on this idea. Perhaps its already being done and others can learn( cut and paste perhaps?) • Reply•Share ›
Avatar Jeffrey Ashe john Gitau • 3 months ago John,
The essence of this methodology is how few staff are required and how low cost it is. In Mali one staff person was responsible for introducing Saving for Change to 30 villages with a combined population of 30,000. Over three years 80 groups were formed with 1,600 to 2,000 members. After that the staff went on to new villages.
Jeff • Reply•Share ›
Avatar john Gitau • 3 months ago
So, from your experience, such an umbrella or apex organization as suggested by Mr. Shin's is somehow superfluous? I see your point that it is better to think horizontal expansion through groups outreach than vertical hierarchy for oversight- that is, help establish as many groups as possible, working on them to stability and leaving them to grow without supervision. I suppose Mr. Shin could have been thinking of an organization that would monitor the expansion( groups formation), evaluate success, maintain standards and finally measure impact? Is overruling the need for an umbrella organization precipitated by the desire to avoid costs or is it because the roles that would be performed by such an organization are already being performed by the local leaders or staff doing the groups formation? • Reply•Share ›
Avatar Jeffrey Ashe john Gitau • 3 months ago John,
Interesting question and one we don't have a clear answer to. It may just be that once the groups are well trained they will continue to operate, change and spread largely on their own. In Ecuador it was found that the groups trained a decade or more earlier and were then left on their own multiplied in number several fold. After all ROSCAS spread on their own without any outside help. This is a matter of smart people taking responsibility for their own development. Our role is transitory and short term. These groups, if they are indeed serving a purpose, will launch their own projects and reach out to other development practitioners or establish links with financial institutions. With that said I believe some outside support would be good to encourage the spread of peer to peer learning and to introduce new inputs as Freedom from Hunger has done with introducing health education. What we need is research to see what really occurs over the long run to determine the long-term benefits and cost effectiveness of this approach. If you want to learn more contact me at jeffaashe@gmail.com • Reply•Share ›
Avatar john Gitau • 3 months ago
This statement is worrying---and reach out to other development practitioners or establish links with financial institutions. Are you suggesting that SG phase one will catapult the poor groups members to a reliable financial capability level with clear competence to make financial choices especially on borrowing? If that is the case, then it appears that SG model behavior change transformational ability is near military in precision. Be that as it may, it is not a bad idea to start thinking of SG phase two perhaps to refer it to Enterprise Groups(EG) as the transitional next level to entrench the faith of the converted to a safety threshold where they, as the economically liberated convertees are able to out-smart poverty inducing temptations such as borrowing from external financial institutions which their mother(SG model) always warned them against as they grew up.
I will sure follow you up Mr. Ashe to learn more behind the scene. • Reply•Share ›
Avatar sirajul_islam_1 • 2 months ago
New York Times, quoting the journal Nature reported on 7th January 2015 that “An unusual method for producing antibiotics” to treat infections that resist treatment with commonly used drugs, and the lack of new antibiotics to replace ones that no longer work, have been discovered. The method is to extracting drugs from bacteria that live in dirt. In the comments section, many industry people altogether some doctors backbitten the report saying, this new drug may not pass in “clinical trials”, or may not many pharmaceutical companies show interest to develop and “patent” any drug that is so “natural”… The same may be true in this case.
Saving-lending groups exist, and they do business informally in many societies, and borrowers prefer them even if they charge higher interests (like local moneylenders) because their terms are flexible, they can have the loan whenever they need it, and there is no bureaucracy. Microfinance organizations are “loath” to this concept because it not only dispossesses them of “savings” that they usually collect from their group members (often women) and hold but also rob them of potential clients to do business with.
As localized and small, these saving-lending groups are beauty. They may face impediment if they want to be institutionalized, intertied, and becomes a movement. 4 • Reply•Share ›
Avatar john Gitau • 2 months ago
You make an important point Sirajul in your second paragraph. I hadn't thought of the potential reaction of the microfinance players to the SG movement that indeed denies them deposits. I would like to seek an answer from Mr. Ashe. Would we, by supporting the SG movement, be acknowledging the need or existence of a second tier financial inclusion? Mr. Ashe, do you visualize a need for SGs to transition to seeking financial services from MFIs or even banks or you think if they work to alleviate poverty, they may have their own SG type financial institutions?
That leads to Siral's third concern in the last paragraph. He is wondering if institutionalization will tamper with the model. I have the same question but mine is on the next level SGs are expected to grow into. Can the MFI leadership throw pokes to the SG's wheel in fear that they may upset their apple-carts. 2 • Reply•Share ›
Avatar Jeffrey Ashe john Gitau • 2 months ago
John,
Savings groups (or some means of automatically saving for the better off) should be the bedrock of financial services with banks and MFIs making loans when they make sense - but not for putting the poor in debt and mobile money for remittances and moving money around. All have their role but the mistake - I believe - was to assume that the poor could borrow their way out of poverty.
I remember a village I visited in where eight MFIs were fighting for market share but with 8 Saving for Change groups serving for savings and small loans with MFIs used only when the needs for credit - rice farming - were large. The MFIs cried foul but they simply did not have a useful product for the poor.
Jeff 2 • Reply•Share ›
Avatar john Gitau • 2 months ago
Your example reminds me of an intervention TechnoServe International designed for poor banana farmers in a village in central Kenya. The poor farmers had always been exploited by brokers. TechnoServe organized them to set up a village cooperative market. Brokers got starved of their exploitation and because they still needed bananas to sell in Cities, they had to buy at dictated prices. They cried foul then, got used to the system and the farmers are much better financially four years later, with the model being replicated in other villages. Just like SG is a savings and borrowing intervention, TechnoServe's was a marketing intervention that brought more money into the pockets of the poor for the same products they had always sold. They didn't ask the farmers to do new things or start exporting their bananas.
Saving for Change and the Saving Groups model is an independent intervention just like TechnoServes banana one. The poor get to better themselves and avoid indebtedness inflicted by insensitive external lenders. So, it is upon the external lenders to devise products that resonate with the poor or concentrate in serving those doing business and have the necessary literacy levels. Now one can see how illogical income smoothing argument was, as a precipitate justification.
Something is getting clear in this discussion. That it is not about getting the poor to use formal financial services in financial inclusion paradigm but devising support mechanisms that would help the poor leverage what they are already doing. So, Savings Groups handles savings and lending. How can other livelihood interventions be incorporated? Can social capital as a form of insurance be productivised? Can micro-insurance players design a product that Savings Groups with affordable premiums pegged to savings and interest on loans? I always used to admire the group insurance concept for employees. It was so affordable. Likewise, Savings Groups insurance packages per village can be a good idea because it is easy to evaluate and mitigate risk in a village or region. If micro-insurance companies, just like MFIs find that cumbersome, promoters of SG model need to start thinking of a home grown insurance component as a leverage on social capital. • Reply•Share ›