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” . 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 . 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 .
- Survive independently. A panel study of 331 groups in 6 countries over 5 years indicates a 90% survival rate .
- 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.
What is the potential outcome? A randomized controlled trial and anthropological study of savings groups in Mali  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.
- Reaching the Excluded plenary session (17th Microcredit Summit)
- E-workshop Takeaways: “How to Build Savings Groups and Other Breakthroughs in Financial Inclusion”
- Jeff Ashe, In Their Own Hands: How Savings Groups are Revolutionizing Development. 2014
 Estelle Lahaye and Edlira Dashi, “Spotlight on International Funders’ Commitments to Financial Inclusion“. CGAP, 25 March 2014.
 David Roodman, Due Diligence: An Impertinent Inquiry into Microfinance. 2011
 SAVIX panel study of 331 randomly selected groups. http://savingsgroups.com/
 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.