Building resilience for the world’s poor: The $1.50 challenge

Jeff Ashe_savings group women count money

Savings group women count money
Photo courtesy of Jeffrey Ashe

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Pathway

Savings groups (aka village savings and loans associations)


>> Authored by Jeffrey Ashe, Fellow, Carsey school of Public Policy, University of New Hampshire; Research Fellow: Global Development and the Environment, Tufts University

I read the recent World Bank News Flash entitled “International Funding for Financial Inclusion” [1]. In 2013 a total of $31 billion was invested in financial institution building, but what if just the grant proportion if this amount, $2.9 billion, was invested in training savings groups?

  • 200 million of the world’s poor (equal to all the microfinance borrowers today) would have a safe and convenient place to save and easy access to small loans (@$15 per group member).
  • There would be 10 million new savings groups in place in 2 million villages and many thousands of slum communities (@ 4 groups with 80 savings group members per village of 1,000 inhabitants).
  • These groups would mobilize and largely distribute $10 billion every year of which 30 percent ($3 billion) would be the profits from lending to members (@ $1,000 distributed per group of 20 per year) without outside funding.

This is possible since savings groups are able to:

  • 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 Stromme Foundation, reached 450,000 women organized into 19,000 groups with 209 trainers. To reach the same number, a typical microfinance institution (MFI) would require a permanent staff of 1,500 [2]. Only a handful of trainers are monitoring Saving for Change groups in Mali today, with few signs that the groups are faltering.
  • Be promoted by local NGOs. Savings group promoters introduce a simple structure while the groups do the creative work of saving, lending, collecting, and record-keeping.
  • Virally self-replicate. The leaders of established groups train new ones at no additional cost.
  • Be 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 [3].
  • Survive independently. A panel study of 331 groups in 6 countries over 5 years indicates a 90% survival rate [4].
  • Serve as a platform for other development inputs. Members launch their own projects, and disciplined groups with financial clout serve as platforms for government and NGO development initiatives and linkages to financial institutions.
  • Promote societal change. In Guatemala, savings groups banded together to elect women mayors. In El Salvador, ex-trainers are assuming roles in municipal governments.

Jeff Ashe_In their Own Hands_book coverWhat is the potential outcome? A randomized controlled trial and anthropological study of savings groups in Mali [5] funded by the Bill & Melinda Gates Foundation found that when only 40 percent of the eligible women had joined groups, there was a village wide (not only group member) effect. The findings included the following:

  • Reduction in chronic hunger with the greatest reduction among the poorest.
  • Increased assets, largely in the form of livestock that could be cashed in when money is scarce.
  • A one-third increase in savings from all sources, including traditional savings clubs (ROSCAS).
  • The substantial word-of-mouth spread of the methodology at no cost to the program.
  • Increased social capital.

Simply stated, the grant funding from a single year of financing financial inclusion could be translated into a modest increase in resilience for 2 billion of the world’s poorest at a cost of one dollar per villager: 2 million villages @ 1,000 inhabitants per village.

Savings groups work because they catalyze the capacity of the poor to achieve their own financial inclusion when provided a simple structure and a bit of training to do so. They represent a crucial component of a strategy for financial inclusion that also includes savings, credit, insurance through institutions, programs targeting the ultra-poor, and conditional cash transfers. This, in addition to the informal means the poor have long used to manage their finances.

Related resources


Sources

[1] Estelle Lahaye and Edlira Dashi, “Spotlight on International Funders’ Commitments to Financial Inclusion“. CGAP, 25 March 2014.

[2] David Roodman, Due Diligence: An Impertinent Inquiry into Microfinance. 2011

[3] SAVIX panel study of 331 randomly selected groups. http://savingsgroups.com/

[4] Ibid.

[5] Karlan, Dean, Jonathan Morduch, Mamadou Baro. “Final Impact Evaluation of the Saving for Change Program in Mali, 2009-2012“. Innovations in Poverty Action, Bureau for Applied Research in Anthropology (BARA), University of Arizona, April 2013.

Six learning opportunities for the “Six Pathways”

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>>Authored by William Maddocks, director of the Sustainable Microfinance and Development Program (SMDP) at the University of New Hampshire’s Carsey School of Public Policy

New scrutiny has focused on what microfinance can’t do, and the evidence is growing that microfinance, de-linked from a social change paradigm, is simply another way to provide basic financial services to people historically excluded by the market. The new theme for the Microcredit Summit Campaign for 2015 of “financial inclusion to end extreme poverty” and the Six Pathways show promise in getting us there and can succeed in challenging extreme poverty if social change and equity are embedded as core values by those who fund, design, and implement these strategies.

These six pathways promoted by the Microcredit Summit Campaign touch on many of areas of the Carsey School of Public Policy’s current work. Using each pathway as a prompt, we will take a brief look at these themes and how you can get involved and learn more.

The Six Pathways

1) Mobile money linked with agent networks in low-income communities and other technological innovations

The SMDP New Hampshire Certificate 2015 in June will feature a session facilitated by Joyce Lehman, formerly with the Bill & Melinda Gates Foundation on branchless banking and the Digital Revolution. If the infographic from Kenya tells us anything (below), it’s that digital financial services are growing exponentially beyond just transfers and remittances to group savings & loans, agricultural inputs insurance, water services, off-grid lighting, and more. Come to New Hampshire, USA, this summer to learn about this exciting frontier of financial inclusion from the unique perspective of a former donor who worked on the ground floor of paving the digital finance highway.

Infographic: Kenya's journey to digital financial inclusion

Kenya’s journey to digital financial inclusion (by Simone di Castri and Lara Gidvani – July 2013)
Source: GSMA

2) Ultra-poor graduation programs

Jan Maes, who has worked in designing graduation programs with Trickle Up and other organizations, will present findings during the SMDP New Hampshire Certificate on the effectiveness and challenges of using these strategies to move the ultra-poor into self-sufficiency.

3) Microfinance savings and/or borrowing groups linked with health education, health financing, and health product delivery

Kathleen Stack, vice president of programs for Freedom from Hunger, will make a virtual presentation at the SMDP NH on Microfinance and Health Protection (MAHP) initiatives that they are implementing with our friends, CARD MRI in the Philippines and the Microcredit Summit Campaign, and in other locations. Read more about the project, Healthy Mothers, Healthy Babies, and how these three organizations, with the support of Johnson & Johnson, are helping address maternal and child health needs.

Photo courtesy of the Carsey School of Public Policy

Photo courtesy of the Carsey School of Public Policy

4) Agricultural value chains that reach to small-scale producers

Understanding markets is more than just knowing about products. The field of inclusive market development is moving from the linear value chain approach, to applying a systems approach that looks for, and adapts to, feedback from the system. Carsey has just launched SMDP Online and one of our first courses, “Understanding and Adapting to Complex Markets” will help practitioners understand complex adaptive systems and apply these concepts to their current work. SMDP Online course facilitator Mary Morgan, with more than 20 years of experience in development, promises a challenging and very practical learning experience for market development professionals.

5) Savings groups (aka village savings and loans associations)

One of the most promising strategies for reaching people that commercial microfinance has failed to reach are savings groups (SGs). Today more than 10 million people use SGs for saving, lending, building financial security, and social capital. Carsey has been a leader in savings groups training and learning events for several years and continues to expand opportunities to learn about this growing area of financial inclusion.

The SMDP Online will offer a blended course, “Savings Groups: Building Scale and Impact through Adaptation and Experimentation,” facilitated by Nanci Lee. This course will meet online for several months and then face-to-face in Lusaka, Zambia, during the SMDP Zambia, which occurs right before the next global gathering of SG practitioners, donors, researchers, and others at the SG 2015 conference also in Lusaka from November 10 to 12.

The lock box of a savings group in Africa

The lock box of a savings group in Africa
Photo courtesy of the Carsey School of Public Policy

6) Conditional cash transfers (CCTs) linked with mobile delivery and asset building

Reaching as many as 129 million people worldwide, CCTs work at a scale that few other anti-poverty programs can reach. Governments working with visionary partners like Fundación Capital can roll out programs that provide support, change social norms, and make a measurable impact on improving the lives of poor families. In the Dominican Republic, Fundación Capital has partnered with the Government’s ProSoli program and Banco ADOPEM and Banco Pyme BHD to connect savings groups with a CCT voucher program and bank linkages.

You can learn about this exciting pilot program by watching Jong Hyon Shin, Fundación Capital’s country project coordinator for the Dominican Republic, and her former professor (and Carsey Fellow) Jeffrey Ashe. (Watch the SEEP Network’s Taking Savings Groups on the Road Webinar Series.)

Relevant resources

Deep Outreach Financial Inclusion

Gallery

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Savings Groups for Those Microfinance Cannot Reach 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 … Continue reading