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.