By Jeffrey Ashe, Director of Community Finance, Oxfam America
Financial Institutions cannot make money on a US$ 50 loan or managing US$ .25 savings deposits. Yet, tiny loans and savings deposits are the financial services that most villagers, especially poor rural women, need: a safe, convenient place to park their bits of spare change so they can grow to a useful sum or easier access to loans ranging from US$ 5 to US$ 100 that are useful for all purposes including—but not always—a business. It is too costly for microfinance institutions (MFIs) to reach this population.
This is not a criticism, just a reality.
Reaching villagers at appreciable scale, I believe, requires a fundamental shift from debt to savings and from building financial institutions to supporting freestanding savings and lending groups that are managed by member-leaders—not in a few villages but in villages by the thousands. Savings Groups are elegantly designed to provide tiny loans and a safe place to store savings. These groups are also profitable for members with all the profits returning to the members. At the end of the year-long savings cycle, each member receives what she saved plus her share of the interest on loans to members over the year.
I head up Oxfam America’s Saving for Change (SfC) Initiative. SfC has, since 2005, trained close to 600,000 savings group members. The most successful of these programs is our SfC program in Mali. Since it was started seven years ago, SfC in Mali (a joint venture of Oxfam America, Freedom from Hunger, and the Stromme Foundation) has grown to 460,000 women organized into 18,800 groups in nearly 5,000 villages. (Watch a video on Saving for Change produced by Oxfam America.)
But it is not only the size of SfC in Mali that is remarkable. SfC has achieved all that it has in Mali with a paid team of only 204 all-Malian staff. Furthermore, well over half of the SfC groups in Mali have been trained by unpaid, volunteer “replicating agents.” Ninety-five percent of the groups trained in 2005 and 2006 are still operating.
If the paid staff were to leave to tomorrow, most all of these groups would continue functioning as the replicating agents train new groups and other NGOs adopt and promote the methodology.
Saving for Change is not the only savings program to reach major scale. CARE is working in 34 countries with a total of 3.1 million group members, Catholic Relief Services is working in 35 countries with 1 million group members, and Plan International is working in 25 countries with 700,000 members.
Considering the combined outreach of all the Savings Group implementing agencies (with CARE, Catholic Relief Services, Oxfam America/Freedom from Hunger, Plan International, Aga Khan Foundation, World Vision, and Pact being the principal players), there are 271,000 Savings Groups now in place in 57 countries with more than 6.2 million members.
Let Us Proceed
To firmly establish Savings Groups as a tool for financial inclusion and for helping the Microcredit Summit Campaign to achieve its goal of helping 100 million of the world’s poorest lift themselves out of poverty, I propose investing US$ 15 million in Savings Groups each year over the next 7 years. This translates into programs that would train Savings Groups with 250,000 members each in 20 of the poorest countries in the poorest regions in the world—a total of 5 million new group members.
And that is just the first step. Savings Groups are an effective organizing platform for programs ranging from literacy to health to agriculture, from business training to human rights advocacy, activities in which these local organizations are already engaged.
To my MFI friends: Savings Groups may represent a future market. As their savings grow, at least some group members will take out loans from MFIs, some will open individual savings accounts, and groups may decide to deposit their excess savings in banks. As mobile money comes into place in more countries, taking loans, saving in institutions, and depositing group savings in banks will become easier.
I can visualize future Summit meetings where Savings Group, financial institutions, and mobile money practitioners enter into a grand alliance where each assumes their appropriate role in expanding financial services to the hundreds of millions, especially the poorest, who lack access to improved financial services.
Each of us working in our own silo is not going to achieve this.
Savings Groups will take the lead in reaching the poorest in rural areas and urban shantytowns and will create an effective platform for other development efforts. As the needs of the members of these groups evolve, they will begin to use financial institutions and mobile money. Savings Groups are often the first step in financial inclusion, but they are hardly the last.
To learn more, visit www.oxfamamerica.org.
Photos courtesy of Jeff Ashe.