Savings Groups: What are They?

8/8/2019 Savings Groups: What are They?

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o v e r v i e w

The SEEP NetworkSavings-Led Financial Services Working Groupby Hugh Allen and David Panetta

Savings Groups:What Are They?


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Copyright (c) 2010 The SEEP Network

Sections o this publication may be copied or adapted to meet local needs without the permis-sion rom The SEEP Network, provided that the parts copied are distributed or ree or at costnot or pro t.

Please credit The SEEP Network and Savings Groups: What Are They? or those sections ex-cerpted.

For any commercial reproduction, please obtain permission rom

The SEEP Network 1875 Connecticut Avenue, NW, Suite 414Washington, DC 20009-5721 Tel.: 1 202-534-1400 Fax: 1 202-534-1433

The publication o this document is made possible by the generous support rom The Master-Card Foundation and the Aga Khan Foundation.


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Acknowledgments

We at the SEEP Network would like to thank, rst and oremost, The MasterCard Foundation orits support o this product. We had a shared vision or a document that would provide a suc-cinct, yet comprehensive, introduction to savings groups or a broad range o practitioners anddonors. The MasterCard Foundation knows this nascent eld well enough to see the need at thistime or such a publication and the SEEPs Savings-Led Financial Services Working Group (SLWG)is ortunate to have its support.

SEEP is also grate ul to one o its member agencies, the Aga Khan Foundation, or the additionalsupport it lent to the project, enabling more thorough background research than would haveotherwise been possible.

The authors, Hugh Allen and David Panetta, combine vast experience and knowledge o sav-ings groups with a disciplined approach to detail. Few practitioners have contributed more tothe development and dissemination o savings groups than Hugh Allen. His passion or thisapproach and hands-on experience assisting most o the agencies pro led here in orm the pre-sentation o a simple model made more complex by its growing popularity, requent adapta-tion, and rapid expansion.

A SEEP product is rarely the result o work by one or two individuals. This document was theinspiration o Savings-Led Financial Services Working Group members; it bene tted rom care-

ul review by many o them and by detailed comments on multiple versions rom others. Forthis we owe a debt o gratitude to Joanna Ledgerwood, Paul Rippey, Je Ashe, Vinod Parmesh-

war, Janina Matuszeski, Eloisa Devietti, Guy Vanmeenan, Marc Bavois, John Schiller, and KristinEckert. Another subset o working members devoted an entire a ternoon to going through thepaper page by page in a very ruit ul, i painstaking, process. Heart elt thanks are extended toMelita Sawyer, Abbey Laugtug, Wendy Wellman, Molly Ornati, Marc Bavois, and Eloisa Devietti.

Candace NelsonEditor and SLWG Co- acilitator

June 2010


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Table o Contents

Acknowledgments iii

Acronyms viiTerms Used in This Paper viiiIntroduction 1

How Savings Groups Complement Micro nance 1Origins and Growth o Savings Groups 3Why Write This Paper? 5

1. Description o the Basic Model 71.1 Facilitating Agencies and Their Partners 91.2 How the Savings Group Model Is Distinct rom Other Forms o Micro nance 9

1.3 Where It Works 121.4 Group Sustainability 13

2. Variations in the Basic Savings Group Methodology 152.1 Record Keeping 152.2 Distribution and Share-Out 182.3 Social Fund 192.4 Security 19

3. Sustainable Service Delivery 213.1 Village Agents 21

3.2 Replication through Village Agents: Facilitating Agency Strategies 223.3 Lessons or Replication 24

4. Plat orms and Linkages 264.1 Savings Groups and Non- nancial Services 264.2 Linkages to External Sources o Savings and Credit 284.3 Linkage to Insurance Providers 304.4 Summary 30

5. Per ormance Measurement 325.1 The SEEP Ratios 33

5.2 Web-Based Reporting 336. Conclusion 36Annexes

Annex 1: Why Sel -Help Group Programs Are Not Included in This Analysis 37Annex 2: Savings Group Outreach: Major Facilitating Agencies 39Annex 3: Di erent Approaches to Record Keeping 41Annex 4: Village Agents and How Facilitating Agencies Make Use o This Model 42


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Annex 5: Linking Savings Groups to External Sources o Finance 44Annex 6: Per ormance Ratios 45Annex 7: Current Research on Savings Groups 47

Bibliography 51

List o Tables Table 1: Financial Access Strands in Tanzania, Uganda, and Zambia 2 Table 2: Savings Group Program by Facilitating Agency 34 Table 3: Financial Implications 12 Table 4: Hypothetical Match o Client to Financial Service Provider 13 Table 5: Match o Record-Keeping Methodology to Literacy Levels and Environment 17

List o FiguresFigure 1: Sample Savings and Loan Pages in Passbook 16


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Acronyms

AKF Aga Khan FoundationASCA accumulating savings and credit associationCARE Cooperative or Assistance and Relie EverywhereCBSG community-based savings groups (Aga Khan Foundation)CBT community-based trainerCMMF community-managed micro nance (also called savings-led micro nance)CRS Catholic Relie ServicesFA acilitating agencyFFH Freedom rom HungerFO eld o cerFSA nancial services associationGSLA group savings and loan associationINGO international non-governmental organizationMIS management in ormation systemMIX Micro nance In ormation ExchangeMFI micro nance institutionNGO non-governmental organizationOx am Ox ord Committee or Famine Relie Pact Private Agencies Cooperating TogetherPlan Plan International (UK)PSP private service providerROSCA rotating savings and credit associationSEEP The Small Enterprise Education and Promotion Network SG savings groupSHG sel -help groupSILC savings and internal lending community (Catholic Relie Services)S C Saving or Change (Ox am)UWESO Uganda Womens E ort to Save OrphansVA village agentVSLA village saving and loan association (CARE)WEP Womens Empowerment Program (Pact-WORTH)


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Terms Used in This Paper

Facilitating agency

Most savings group (SG) programs are implemented by non-governmental agencies (NGOs). They promote savings groups and usually derive revenue rom donor- unded programs. Thereis no cost recovery in an SG program, so we use the term acilitating agency (FA) throughoutthis paper to describe agencies that are responsible or creating savings groups, either directlyor through partners. 1

ProjectsFacilitating agencies either directly implement SG promotion projects or do so through localpartners. We re er to these as projects throughout this paper.

Field o cerEach agency uses di erent terminology or paid eld agents. 2 Ox am/FFH use animator, CAREcalls them eld o cers, and CRS re ers to eld agents. 3 To avoid con usion, we use the term eld o cer (FO) throughout this paper, except in the comparison tables where we have re-tained the original nomenclature.

Village agentCommunity-based trainers are re erred to as village agents by CARE, Plan, and AKF; privateservice providers by CRS; and replicator agents by Ox am/FFH. Throughout the paper (exceptin the tables), we use the term, village agent (VA).

1. This distinguishes them from providers, which are able to generate revenue from the direct provisionof nancial services.

2. Nearly all SG training activities are carried out either by paid eld staff or by community-based train-ers, who are not employees of a project, but who may (or may not) receive payment from the savingsgroups that they train and supervise.

3. CRS eld agents are not paid staff, but are community-based facilitators. They receive a stipend whilethey are trained and supervised, but derive private income from fees paid by savings groups after theyare certi ed by CRS. At this point, they are referred to as private service providers (PSPs). See section3, Sustainable Service Delivery, for a more detailed discussion of village agents.


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Introduction

For the last 30 years, the micro nance industry has been responsible or a massive growth inpro-poor nancial services and is estimated to reach more than 150 million people worldwide.Recently, however, a deeper understanding o how the market is segmented has begun to infu-ence the products, methodologies, and delivery channels employed, and engage a wider rangeo organizations. Many o these organizations do not specialize in micro nance, but ocus on serv-ing the very poorusually those living in remote areas and distressed economic circumstances.

How Savings Groups Complement Micro nance

Micro nance institutions (MFIs) and banks have proven highly e ective in reaching the nearpoor, mainly in urban areas, and they per orm best when supplying credit to small businesses,whose owners work more or less ull-time in their enterprises and are keen to see them grow.It remains true, however, that the least well-served people live in remote areas (and tend to in-vest in seasonal income-generating activities) or in urban slums. Both o these target groupswhose greatest need is access to use ul lump sums to manage household cash-fowusuallyhave no ormal providers able or willing to supply entry-level nancial services.

Institutional orms o micro nance have ound it hard to meet this need or several reasons:

The costs o reaching the poor are high because they o ten live in places that are expen-

sive to reach.

The debt-capacity o the poor is heavily constrained (as well as highly seasonal) and

cannot support large average loan sizes.

These market segments appear to pre er savings over credit, a pre erence that most

MFIs are unable to satis y because their business models require a strong revenue lineand credit products are best adapted to meet this need.

Evidence rom several FinScope studies 4 in A rica suggests that less than hal the populationhas access to any orm o nancial services, whether ormal or in ormal. O the rest, those thathave access to banks and MFIs are mainly ound in urban and peri-urban areas, or high-densityrural areas that are usually served by a unctioning road in rastructure. The rural poor, as a result,are disproportionately denied access. Table 1 below shows ndings rom studies in Tanzania,

Uganda, and Zambia.

4. FinScope studies were commissioned by DFID and carried out in Kenya, Uganda, and Tanzania byFinMark (South Africa) and the Steadman Group. See DFID Financial Sector Deepening Trust, 2007,FinScope E-Book (Dar-es-Salaam, Tanzania: FSDT) www. sdt.or.tz ; Carol Nkatha, 2006, Understand-ing Kenyas Financial Landscape: The FinAccess Survey Results (Nairobi, Kenya: Steadman Group);and Steadman Group Ltd. 2007, Results of a National Survey on Access to Financial Services inUganda (Kampala, Uganda: Financial Sector Deepening Project Uganda,), www. sdu.or.ug .
http://www.fsdt.or.tz/http://www.fsdu.or.ug/http://www.fsdu.or.ug/http://www.fsdt.or.tz/


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Table 1 Financial Access Strands in Tanzania, Uganda and Zambia

Country Bank Semi- ormal nancial services In ormal nancial services only Excluded

Tanzania 11.0% 3.0% 35.0% 54.0%

Uganda 18.0% 3.0% 17.0% 62.0%

Zambia 14.0% 7.6% 11.0% 66.0%Average 14.3% 4.5% 21.0% 60.7%

Source: Finscope, Finmark Trust.

In response to this picture o widespread nancial exclusion, an alternative, highly decentralized,non-institutional savings-led approach to micro nance shows great promise. It is an emergingmovement, where members o savings groups save together, lend their savings to each otherwith interest, and share the pro ts. Like tiny local credit unions, savings group (SG) projectshave evolved speci c technologies in which members provide their own savings and credit ser-vices at negligible cost, while retaining earnings and capital in their own communities. They are

simple, transparent, and autonomous. In some places, savings groups complement the existingservices o regulated ormal nancial institutions. In others, they reach people who have beencompletely excluded rom access to any nancial service, ormal or in ormal.

Savings groups are not only a viable alternative or the vast number o people unlikely to beserved by brick-and-mortar nancial institutions, they are the catalyst or enhanced social capital,improved gender relations, womens leadership, and community social and economic develop-ment. In the last 20 years, these pioneering projects have demonstrated the power o saving overand over again. Now they are achieving very rapid growth, increasing in number and scale.

This paper seeks to explore and explain the nature o savings groups and the varying approachesused by the most experienced acilitating agencies (FAs) and projects, which mainly work in A rica.

A Long-Standing Saving Tradition

ROSCAs in A rica go by many names: tontines, susus, merry-go-rounds, xitiques, etc. A ROSCA is a smallgroup with members who all contribute a xed amount at agreed-upon intervals. The amount collectedeach interval is paid to one member in turn, until every member has received the pot.

Very common throughout A rica, ROSCAs are popular because they are simple, transparent, easy to man-age, accessible, and tailored to the nancial realities o the members. Yet, they have limitations. Money is o -ten not available when needed or in the amount needed. And, they are not or everyone. In many countries,ROSCAs tend to attract people who have a steady source o income. The SG model improves on a ROSCAsessential strengths, introducing greater fexibility and access or the more vulnerable.


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Origins and Growth o Savings Groups

In the early 1990s, CARE Niger took up the challenge o providing nancial services in remoterural areas in the Pre ecture o Maradi. Through an intelligent appreciation o traditional tontines (ROSCAs), it evolved an accumulating savings and credit association (ASCA) model that used

member savings as a source o capital to provide one-month loans. It had these distinguishingcharacteristics:

The model was time-bound: people got their savings back at the end o an annual cycle,

including interest earned on loans.

The training system emphasized democratic governance and transparent procedures,

all o which were carried out in ront o the membership.

The system was managed by its member owners, who kept the pro ts. 5

Over time, the savings component proved to be the most in demand. 6

Perhaps the most pertinent discovery was that by keeping systems simple and sticking to atime-bound approach, groups could be ully independent in about a year and would enjoy asurvival rate, over the long term, above 90 percent. This autonomy, combined with ease o ac-cess, good security, fexible savings and repayment amounts, and peer review, appears to be

undamental to the long-term success o savings groups.

Although the model took time to develop, it spread steadily. Today in Niger, approximately197,000 women belong to these groups. Variations have been adopted by other large interna-tional non-governmental organizations (INGOs), most notably Ox am/Freedom rom Hunger(FFH), Plan, Catholic Relie Services (CRS), and Pact-WORTH. The current Aga Khan Foundation(AKF) program is small, but driven by strategies that promise large-scale project growth. In total,these agencies currently reach almost 2.3 million people, mostly in A rica. Table 2 indicates thescale at which the largest SG programs are operating at this time.

5. Moira Eknes of CARE Niger deserves special mention. She evolved this methodology without anyformal knowledge of micro nance and in the face of considerable skepticism from experts.

6. The data found at http://www.savingsgroups.com/en/projects/search (restricted website) indicates thatthe ratio of savings to loans averages 1.28:1. This data is derived from 70 projects in Africa and 3 inCambodia.
http://www.savingsgroups.com/en/projects/searchhttp://www.savingsgroups.com/en/projects/search


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Table 2 SG Programs by Facilitating Agency (as o July 2010)

Continent Aga Khan CARE CRS Ox am PACT Plan Totals

Asia 24,343 17,078 0 66,162 131,600 0 239,183

Latin America 0 2,656 0 5,339 0 0 7,995

A rica 0 1,197,787 271,630 300,269 7 57,200 222,562 2,049,448Totals

No. o members 24,343 1,217,521 271,630 371,770 188,880 222,562 2,296,626

No. o countries 3 26 26 5 10 18 41

Average per country 8,114 46,828 10,447 74,354 188,880 12,365 56,015

Note : See annex 2 or more details on the outreach and scale o largest SG programs worldwide.

CARE uses the term, village saving and loan associations (VSLA) or the model it pioneered andhas replicated in 26 countries worldwide (22 are in A rica) since 1992. Initially, CAREs SG projectsspread in ormally, mainly through personal contact between practitioners, and the VSLA modelevolved through trial and error. Now, having standardized its technical approach, CARE has em-barked on a major SG expansion under its Access A rica program, which aspires to provide abroad range o nancial services to 30 million people in A rica within 10 years.

Most other acilitating agencies initiated their SG programs a ter 2004, with the exception o Pact-WORTH, which started work in Nepal in 1999:

Catholic Relie Services calls its SG program saving and internal lending communi-ties (SILC) and is expanding this proprietary, technical approach through multi-countrygrowth.

Plan

uses CAREs VSLA methodology, but has been very aggressive in exploring thepotential o expansion using village agents (VAs). It is also expanding its program intomultiple countries.

Ox am/FFH implement their Saving or Change (S C) program in ewer countries (Mali,Senegal, Cambodia, El Salvador), but operate on a large scale in Mali. Saving or Changewas developed jointly by Ox am America, Freedom rom Hunger, and the StrmmeFoundation.

PACT s model is known as WORTH and has roots in Nepal, where it launched the Wom-ens Empowerment Program in 1999. Two years later, the project had reached an esti-mated 125,000 women members. PACT is replicating its WORTH approach on a some-what smaller scale in 10 countries in A rica.

The Aga Khan Foundation (AKF) is a relative newcomer to SG promotion. Its commu-nity based savings groups (CBSGs) are modeled a ter CAREs VSLAs. AKF has committeditsel to large-scale projects in Pakistan, Tajikistan, A ghanistan, India, Kenya, Mali, Mo-zambique, Madagascar, and Tanzania.

7. In Mali, Oxfam operates the Saving for Change program in partnership with Freedom from Hunger.


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While the six organizations eatured in this paper currently have the largest savings group pro-grams, a host o others have adopted the model, using many o the same tools developed bythe larger INGOs. Non-specialist organizations have been able to standardize proven trainingand supervision techniques. Other SEEP members that implement SG programs include WorldVision (over 21,000 members across ve countries in A rica), World Relie (358 savings groups

with 7,583 members in Burundi, Rwanda, and Kenya), and Trickle Up (1,725 groups in Mali, Gua-temala, and India). Increasingly, southern non-governmental organizations (NGOs) are adopt-ing the model, and the Peace Corps has created a large-scale program in Ecuador, reaching32,000 people in more than 1,200 groups. Although the exact outreach o these organizations isnot available, their collective outreach is estimated at a ew hundred thousand.

Sel -help groups (SHGs) in India developed at much the same time as savings groups and sharemany o the same characteristics, but evolved independently. (See annex 1 or a discussion o the di erence between savings groups and sel -help groups.)

Why Write This Paper?Savings groups have proven to be extremely popular and durable. They provide extraordinaryreturns on member investments, have high retention and survival rates, are accessible in thecommunities that they serve, and can grow to large nancial scale. A ter only a ew years, it isnot uncommon or rural savings groups to mobilize and manage between US$ 2 and $10,000.Yet, the nancial results only tell part o the story. Livelihoods o households and entire commu-nities have been trans ormed by the power o members knowing that at any time they can callon savings, credit, and insurance bene ts in a manner that is fexible, appropriate to their situa-tion, and set in an administrative and social culture where they eel understood and valued. Thestories that accompany this paper only hint at this trans ormational e ect, but it is undamentalto the methodology and the main reason why acilitating agencies and support organizationshave been drawn to it.

Because there is so much interest in this model and so much experimentation, the SEEP Net-works Savings-Led Financial Services Working Group commissioned this paper to:

describe the basic approach;

explore the variations in the methodology that have evolved;

describe the methods used to ensure the sustainability o the mobilization, training,

and support needed to launch savings groups;

present nascent e orts to link savings groups to other development interventions and

integrate them more closely into nancial markets;

discuss how per ormance is measured and promote the ongoing cooperation to com-

pare approaches or e ciency and develop per ormance standards;

contribute to the urther growth o SG projects; and

acilitate exchange o in ormation about savings groups.


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We wrote this paper to address the interests o a broad range o development advocates, allo whom are revising their perceptions about the potential and place o savings groups in themission o bringing nancial services to poor people everywhere. Current practitioners wantto know in more detail what other agencies are doing. Agencies want to determine i savingsgroups are relevant to their programs and interests. The micro nance industry is becoming in-

creasingly aware o savings groups and that it needs to understand them better rom a practicaland theoretical perspective. Donor agencies are interested in deepening nancial sectors andachieving signi cant rural outreach at an acceptable cost.

With just over 2 million people using variants o the SG model worldwide, there is no longermuch doubt that it is here to stay. However, it is not without controversy. There are theoreticaldebates about how long and under what circumstances savings groups are needed. Peopledebate the economic legitimacy o a nancial model that ocuses on household cash manage-ment rather than enterprise growth. That savings groups are presently unregulated and operatein isolation rom national nancial markets causes concern or some. Yet, until means are ound

that o er a better set o products at the right price and that are conveniently located close tothe membership, it is clear that low-cost, high-return, sel -managed savings groups will enjoystrong support rom communities where alternatives are lackingand in many cases, wherethey are not.


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1 Description o the Basic Model

The basic model or savings groups, originating in Niger, was simple: groups made up o impov-erished women met weekly, everyone saved thesame amount, one-month loans were approvedby the members, and all o the groups money wasshared out equally at the end o an agreed-uponcycle (612 months a ter start-up). The share-outwas usually timed to coincide with a period in theyear when there was a predictable need or cash.Records were mainly based on memorization, alltransactions were carried out in ront o the mem-bers, and all o the groups surplus cash and writ-ten records (i any) were held in a three-lock box. The members o the management committeewere elected annually and all groups had a consti-tution, which was usually written down and keptin the box.

Today, there are many variations. Some groupskeep ledgers, some still use memorization, andsome use passbooks. Some allow members to savedi erent amounts and some allow members to withdraw their savings on demand. Some allowlonger-term loans and fexible reimbursement. All o these variations have emerged throughexperience, usually because the operating conditions dictate or permit di erent approaches.Overall, the trend has been toward greater simplicity o management and record-keeping sys-tems, combined with greater fexibility o products on o er. Yet, even today, SG projects sharecommon principles: 8

Groups are made up o sel -selected individuals and range in size rom 5 to 30 members,

with an average o about 22 members. 9

Members decide who joins the group.

Groups elect their own management committee and money counters. No one else

touches the groups money.

Groups use lockable cash boxes to keep surplus cash and records. The cash box o ten

8. This list covers most of the programs promoted by AKF, CARE, CRS, Oxfam/FFH, Pact-WORTH, andPlan (mainly in Africa), and suggests the norms and variations that are most signi cant. This is not todiminish the role of a growing number of smaller organizations (north and south), which are becomingincreasingly important players; it merely re ects our limited ability to research the sector in depth.

9. This is the average number from all of the CARE, CRS, and Oxfam/FFH projects in Africa, funded bythe Bill & Melinda Gates Foundation, drawn from 27,210 groups. See http://www.savingsgroups.com/ en/projects/search (restricted website).


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has multiple locks, the keys to which are held by separate members. Key holders areusually appointed rom among the membership.

Groups develop a set o rules, based on a template:

It mandates regular elections, at least annually.

It de nes the role and authority o the management committee.It describes the services that the group o ers to its members, including termsand conditions o savings, lending, and insurance.

Members save regularly at a requency determined by the group, sometimes the same

amount or everyone, sometimes di erent amounts. The amount saved ranges between$0.10 and $5.00. Some savings groups set the minimum amount to be saved as a sharevalue and allow members to save more than one share at each meeting, up to a speci-

ed maximum (e.g., ve shares).

I the groups rules permit members to withdraw their savings, they are normally with-

drawn at ace value; interest earned is retained by the savings group.Savings are used to capitalize a loan und rom which members can borrow.

The loan conditions are set by the group; usually loan terms do not exceed three months.

Monthly interest rates range 510 percent, but can be as low as 1 percent or as high as20 percent.

The loan und usually provides loans to individual members, but can also be used to

und group-based investments, such as grain trading or livestock rearing, so long as allo the members agree.

Most groups share out all their money among the members, in proportion to the amount

that each has saved, at intervals that are decided by the group, usually between 6 and 12months. Some groups choose to roll over a proportion o their unds to the next cycle.

Nearly all interest paid on loans (except or minor expenses) is returned to the member

at the share-out. Returns on savings and assets (o ten the same thing) are in the 3550percent range. 10

Groups may choose to contribute to a social und, which is a simple orm o insurance to

cover the costs o small emergencies.

Members are ree to leave the group at any time, under terms that are decided by the

group.

Records are kept, using one o three basic approaches:

Memorization (usually e ective with groups whose literacy level is very low)

Passbooks and recording o ending und balances only

Central ledgers to track nancial activity through the group secretary

10. See http://www.savingsgroups.com/en/projects/search (restricted website).


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1.1 Facilitating Agencies and Their Partners

In this basic model, the role o acilitating agencies (or their local partners) is to train the savingsgroups to carry out their transactions independently. Training covers all aspects o group unc-tions, rom developing a group constitution and electing group o cers to establishing meet-ing procedures and rules governing saving, lending, and record keeping. Initial training takesbetween one week and two months and, a terwards, acilitating agencies supervise routineoperations over a period o 9 to 12 months. Where other types o training (especially literacy)are provided, the training period can be as long as two years. Facilitating agencies consider sav-ings groups to be independent when they are able to run an organized, disciplined meeting;maintain accurate records; and manage their own share-out or dividend distribution. Facilitat-ing agencies use a wide variety o models to orm, train and supervise savings groups. Section3 examines these variations.

Facilitating agencies do not generate any revenue rom the groups. Donor unds subsidize the organi-zation and training o savings groups, similar to subsidies required to develop the capacity o MFIscreated by acilitating agencies. Once independent, savings groups operate on a sustainable basis.

1.2 How the Savings Group Model Is Distinct rom Other Forms o Micro nance

The poor need nancial services or the same reasons as anyone else: to manage risk (e.g., healthemergencies, crop ailures, etc.), build assets, invest in productive activities, manage cash fows,and smooth incomes. Savings, credit, insurance, and money trans ers can help poor people do all

these things, but to date such services have been largely inaccessible to the rural poor. They needa sa e way to save and borrow that is convenient, fexible, and available in their villages. Traditionalmicro nance has not, or the most part, been able to provide such services because it is too expen-sive to reach into remote rural areas (although cell phone technology is showing promise).

A Variation on the Basic Model

There are some di erences in savings groups promoted by Pact-WORTH:

The m oney is handled by the treasurer.

The management committee holds the keys.

Members ca n borrow or up to six months.

There is no share-out: members are paid dividends.

Financial management is a shared committee responsibility.


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In the last decade, however, experimentation and research have proven that there are enoughsavings in villages to meet small credit needs (loans between $5 and $500) without external

nance and to provide small amounts o insurance or uneral costs or health emergencies. Sav-ings groups have ocused on mobilizing this local capital to meet local needs and have devel-oped techniques that allow sel -management at low cost.

Costs

Savings group projects use an extremely low-cost model that enables the creation o ully sus-tainable institutions rom the start. It requires conscious intention and speci c techniques onthe part o acilitating agencies and their partners to de-institutionalize the delivery o nan-cial services.

The reasons or MFIs cost barriers are simple:

MFIs are o ten obliged to bring services to the clients. The poor o ten cannot bear the cost

and time involved in travelling long distances to access services in alien surroundings.

Local Credit or Local Needs

I nancial institutions are only available outside a village, women in villages with Saving or Changegroups are unlikely to use them. Women also tend to avoid institutions that require initial ees or mem-

bership and guarantees or their loans. Women are particularly intimidated by the threat o debt collec-tors seizing their goods in case o non-reimbursement. Other ormal institutions used by men have beenseen as beyond womens economic scale, loaning larger amounts and requiring larger minimum savingsthan women can a ord.

The ability to receive loans or both income generation and household consumption is an essential ben-e t o an SG program. The most valued consumption-based loans are those used to cover medical costs,especially or common illnesses, such as malaria, respiratory in ections, and diarrheal diseases; and thoseused to provide ood during the soudure .* Women also cite S Cs advantages in terms o the education o their children, and their access to the material goods necessary to properly celebrate annual estivals andother ceremonies important to the household. Many women in S C groups also point to their ability toacquire livestock or increase livestock holdings as evidence o the economic impact o S C on their lives.

* Soudure or priod de soudure is the time prior to the harvest when household money and ood routinelyrun low.

Source : BARA (Bureau o Applied Research in Anthropology), 2010, Baseline Study o Saving or Change inMali: Results rom the Segou Expansion Zone and Existing S C Sites, University o Arizona, Tucson, March2010.


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MFIs and banks operating costs associated with sta , eld operations, and acquisition

o xed assets must be covered by interest income.

The limited debt capacity o the poorest people generally results in smaller loan port-

olios.

As a result, MFIs need to seek the lowest-cost client who o ers the maximum revenue, hence,the tendency to ocus on credit, encourage larger loans, and target clients who are, or the mostpart, engaged in ull-time economic activity. For these same reasons, MFIs are sensitive to thecosts o mobilizing savings.

The challenge o providing nancial services to the rural poor cannot be met with a convention-al institutional model. The micro nance industry is addressing this issue by looking closely attechnologies, such as mobile phones and group-based systems, to drive down costs. However,it has not seriously considered the proposition that de-institutionalization may be the simplestmeans o squaring the circle. Yet, this is the main reason why savings groups work. A greater will-

ingness to embrace the ambiguities o in ormality is essential i signi cant deepening o the nancial sector is to occur in poor countries.

The various SG methodologies embrace low-cost operations at both the group and acilitatingagency levels. The acilitating agency neither provides loan capital nor invests in other assets,although it does bear the costs o group identi cation, training, and supervision. However, overtime, savings groups absorb these costs as training is shi ted rom paid eld o cers (FOs) tocommunity-based village agents (VAs), who are paid by the groups. Facilitating agencies have

ound creative ways to drive down costs o SG ormation and introduce sel - nancing modelsthat can be replicated success ully. Experience to date in A rica indicates that some o the bestlocal agencies can deliver good quality savings groups at a per capita cost o $11$12. Facilitat-ing agencies, working to train and supervise local project partners, have average per-capitacosts that range rom $18 to $48. 11

11. See http://www.savingsgroups.com/en/projects/search (restricted website).

Beyond Monetary Returns

A 2007 evaluation o savings and lending community programs in Kenya and Uganda ound that SILCtraining has imparted certain spiritual principles into member behavior towards one anothere.g., hu-mility, trust, loyalty, assistance to the vulnerable, support to each other at times o need, and renewedbelie in group activities by group members. SILC membership has led to the creation o new riendships

and bonds among community members. This strengthened social cohesion helps to address social injus-tices, especially discrimination against women, and common conficts in the community.

Source: G. Odera and G. Muruka, Savings and Internal Lending Communities (SILC) in Kenya (Nairobi,Kenya: MicroSave), 15.


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The savings group relies on volunteers to ll administrative, management, and en orcementunctions. The simplicity o its systems is tailored to management talent that may be limited in

both availability and skills. The small size o the group and the periodic nature o its short meet-ings (11.5 hours per week) enable it to operate without xed premises or transportand with-out salaries. In this model, the community becomes the service provider because the groups are

small, meetings are periodic, and administrative unctions are voluntary.

Summary o Advantages and Disadvantages

Table 3 presents the main nancial implications o using this approach. While it summarizes thenancial advantages and disadvantages o the SG model, it should be noted that its main non-nancial bene t is the accrual o social capital to group members and leaders. While building

social capital is a bene t common to many types o groups, the element o ownership that dis-tinguishes the SG model rom other orms o micro nance accentuates and enhances it. Manystudies highlight the social cohesion, solidarity, and mutual aid that the savings groups engen-der. As members o savings groups, women report eeling less vulnerable and isolated. Theyown the program and they are accountable to each other. As their economic situation improves,they are o ten emboldened to undertake collective action to address community needs.

Table 3 Financial Implications

Positive consequences Negative consequences

High returns on member savings (better

thought o as invested capital), since costs arenegligible

Accessible nancial services because it all hap-

pens in the community

Product fexibility, particularly with respect to

loan reimbursement schedules

High degree o transparency because all trans-

actions are witnessed by the entire member-ship

Accountability

Tolerance or a large number o very small sav-

ings and loan transactions

Small scale limits the capital base o the sav-

ings group, (Yet, groups spontaneously splitinto smaller groups when they reach morethan 30 members to limit the length o themeeting and maintain simplicity o manage-ment.)

Loan sizes are limited by the small pool into

which savings and loan interest income isdeposited.

Limited bene ts are payable by group-based

insurance systems (i.e., the social und).

There is some risk o elite capture, although no

compelling evidence indicates that this occurs

on a signi cant scale.

1.3 Where It Works

The ollowing schematic is a theoretical hypothesis that suggests where savings groups are ableto operate success ully, relative to other types o nancial service providers. A partially shadedbox ( or some o the categories listed) suggests that the provider may struggle to be viable insuch places.


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Table 4 Hypothetical Match o Client to Financial Service Provider

Source o serviceUrbanhighincome

Urbanlow income

Peri-urbanmiddleincome

Peri-urban low income

Highincomerural

Low incomerural

Banks

MFIs

SGs and ASCAs

ROSCAs

Family and riends

Shopkeepers

Table 4 suggests that savings groups have been able to attract members across a broader socialand geographical spectrum than other types o service providers (except ROSCAs) and excludevery ew people, except the destitute, or whom livelihood provisioning is a more appropri-

ate intervention. The experience o organizations with the longest track records in promotingthis approach con rms this suggestion. 12 Most large, multi-sectoral NGOs that promote savingsgroups do so because they o er the best blend o fexible, broad-based nancial services, con-sistent with being able to reach the rural and urban poor through sel - nancing services.

1.4 Group Sustainability

One o the more attractive eatures o savings groups is that they quickly become independentand able to sustain themselves. Unsubstantiated claims have been made or a long-term surviv-al rate better than 90 percent, but very ew studies or long-term MIS (management in ormationsystem) results have been able to veri y such assertions. In addition to subjective assessmentsregarding survival, drop-out rates rom groups (and the possibility that they may downscaleover time) have also never been studied in depth. There are a ew exceptions, such as the key

ndings o a DFID study o CAREs VSLA program in Zanzibar:13

All o the original groups that were six years old at the time o the study survived with

no contact with the acilitating agency or our years.

12. CAREs experience in Niger (the poorest country in the world, according to UN statistics) suggests thatsavings groups can work even when savings capacity is as little as $0.10 per week. Few organizationswork at the poorest end of the spectrum, but it is becoming clear that the urban market for savingsgroups may be very large.

13. DFID Financial Sector Deepening Project for Uganda, 2007, Village Savings and Loan Associations inZanzibar: Anyango, Esipisu, Opoku, Johnson, Malkamaki and Musoke (London: DFID).

CARE helped us get started and then let us take over. They kept coming back to assist us or a while, likea parent supports a child until the child can walk.

-SG member in Malawi


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Member dropout was 12 people out o 1,500 over our years.

Simple return on assets was 53 percent.

The average savings group shared out $4,000 at the end o a one-year cycle.

Another exception is Pacts Womens Empowerment Program in Nepal. 14 A 2006 Pact study o the program indicated that, despite operating in territory controlled by Maoist rebels, 64 per-cent o groups survived unaided or ve years and 25 percent o the groups had sel -replicated. The total number o members was greater than when Pact le t Nepal.

14. Valley Research Group and L. Mayoux, 2008, Women Ending Poverty: The WORTH Program inNepalEmpowerment through Literacy, Banking, and Business 19992007 (Washington, DC: Pact).


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2 Variations in the Basic Savings Group Methodology

Two important strengths o the basic savings group model are its simplicity and fexibility. Therst makes replication easy. As the movement grows and savings groups spread rom region to

region, both spontaneously and under the guidance o acilitating agencies, the model is prov-ing fexible enough to accommodate the adaptations that inevitably accompany expansion.Important variations currently practiced with respect to record keeping, end-o -cycle distribu-tions, the social und and security are discussed below.

2.1 Record Keeping

The biggest challenge or SG projects has been record keeping, especially keeping accuratetrack o member loan balances. To ensure that groups quickly become independent, projectsta want them to master record keeping in as short a time as possible., There ore, nancial sys-tems must be simple and robust. This eature, consistent across all acilitating agencies, distin-guishes savings groups rom other community-based systems, such as sel -help groups (SHGs) 15 and nancial service associations (FSAs), 16 where record keeping is mainly an external unctioncarried out by specialized technical agencies or parent NGOs.

The approaches to record keeping chosen by most o the participating acilitating agencies are

largely based on a shared belie that nancial tools need to be unctional in a broad range o operating environments and maintain the maximum fexibility o product o ering.

15. Widespread in India, self-help groups are a form of savings groups. They differ from African savingsgroups in that most are linked to banks to access external credit.

16. A nancial service association is similar in size and appearance to a savings group, but offers abroader range of nancial services. It maintains a comprehensive accounting system and, as a result, itusually has its records maintained by an external agency, which is paid a fee.

Oral Record Keeping System

In 2006, Saving or Change created a system o oral accounting to serve illiterate women in Mali and Sen-egal. It requires that members sit in the same order at every meeting. Each member has to remember vesimple acts: 1) the amount o money in the box at the end o the meeting, 2) whether she owes a savingspayment, 3) the amount and due date o her loans, 4) whether the person sitting to her le t owes a savingspayment, and 5) the amount and due date o the loans o that woman. The ability to recall this data is soimportant that some groups impose nes on members who do not remember the in ormation.

This system overcomes the hurdle o written records, which o ten depend on a literate outsider to main-tain them and thus limits program expansion. Oral accounting has been a success ul mechanism to assuretransparency or all members and allows the group to manage its nances, even when more complexsystems, such as multiple shares, are introduced.


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Because everyone in the savings group meets at the same time and place, there is a substitu-tion o transaction record keeping or a process o witnessing that nails down individual assets,liabilities, and balance sheet values only at the end o a meeting. This tracks the current statuso assets and loans, and de ers returns analysis to the end-o -cycle share-out. Because thesesystems (based substantially on visual and oral indicators) are inherently compelling, they are

widely accepted and represent a de acto meeting-by-meeting nancial audit. There is little ap-petite or more complex, ormal, and standardized nancial systems, which are expressed in avocabulary that is esotericand meaningless to most SG members.

Nevertheless, acilitation agencies have adopted di erent methods o keeping SG records,broadly classi ed as ollows:

Memorization: All nancial records are maintained only by the group witnessing whathappens and individual memorization. This applies to savings, loans outstanding, cashbalances, payables, and receivables. Implemented by Ox am/FFH in Mali, where literacylevels are among the lowest in the world, memory-based record keeping limits mem-

bers to saving the same amount at each meeting. However, Saving or Change is intro-ducing a multiple share mechanism or mature groups.

Passbooks : All savings and loan transactions are maintained in member passbooks, andcash balances, payables, and receivables are written in a notebook. Members savings arerecorded in individual passbooks, using stamps or the number o shares saved. (In thissystem, shares bought are the same as shares saved.) At the back o the passbook is astatement o loan liability (see gure 1). The only records centrally maintained are cashbalances in the loan und and the social und. CARE, Plan, and AKF use this method.

Figure 1 Sample Savings and Loan Pages in Passbook

Note : The arrows on the le t-hand page represent stamps or the shares bought by a member at eachmeeting during the savings period. Tshs = Tanzania shillings.


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Central ledgers or orms : All attendance records, savings and loan records, and cashbalances are maintained by a group record keeper and are not directly witnessed bythe members. Recording actual amounts saved allows members to save any amountbetween a minimum and a maximum sum ( ve times the value o the minimum sum).A ledger system allows or fexible loan periods and repayment, as well as the choice to

calculate interest, using a fat or declining balance system. Loans may be disbursed atany meeting. Over time, these records have been simpli ed and now more or less refectthe same data maintained in the passbook system. This approach is associated with CRSand Pact-WORTH.

Some projects use a combination o methods. Pact-WORTH uses passbooks and ledgers; CRSuses both passbooks and ledgers in some cases. Groups using only passbooks and notebookshave sometimes evolved a parallel set o backup records in their notebooks.

Table 5 shows where these methods have been success ully applied. These choices, made by the

principle acilitating agencies, do not imply that any o these methodologies could not be suc-cess ully applied elsewhere, but the conclusion is obvious: the simplest systems tend to be usedin remote rural areas where literacy levels are low, while the more complex systems tend to be

avored where literacy levels are higher. The exception is the Pact-WORTH project, which usesthe most comprehensive and fexible system o record keeping and applies it to savings groupswith low-level literate members. Most o its members in Nepal were illiterate when recruited,but the program made literacy training mandatory.

Table 5 Match o Record-Keeping Methodology to Literacy Levels and Environment

Record-keeping approach

Minimal

literacy (rural)

Some literacy (mainly rural)

Moderate literacy

(rural and peri-urban)

High literacy

(urban and peri-urban)

S C Mali: memorization

S C Cambodia: ledgers

SILC: ledgers

VSLA: passbooks and balances

Pact-WORTH: ledgers

Note: A partially shaded box ( or some o the categories listed) suggests that the record-keeping ap-proach may not be used as much with that group.

The sharpest di erence across these systems lies between the completely oral system o Ox am/FFH in Mali and all other projects, which use some orm o written record keeping. The Pact-WORTH record-keeping system is the most comprehensive, but because it is applied in placeswhere literacy is low (and literacy training is there ore required), Pact-WORTH savings groups taketwo years be ore they reach independenceroughly double the time needed by most others.

There is a high degree o similarity between the records maintained by SILC groups (CRS) andVSLA groups (Plan, CARE, and AKF); the main distinction is that SILC records are centrally main-


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tained, while VSLA depends on passbooks. What VSLA and SILC share in common is a clear trendo record simpli cation and consistency in recording the same essential data. No nancial state-ments are ever prepared.

2.2 Distribution and Share-Out

Share-out or cash-out is the distribution o a savings groups liquid assets at the end o an op-erating cycle. It is one o the most important distinguishing eatures o the SG model, and itsprevalence appears to be driven by the ollowing bene ts:

Simple record-keeping systems: By sharing-out and, in e ect, de-capitalizing thegroups assets, it is not necessary to develop complex record-keeping systems to track an increasing number o varied investments (which, however, may limit the growth o group-managed enterprises). This in turn reduces group dependency and leads to low-er-cost training and supervision.

A use ul lump sum: Share-out provides a lump sum, o ten at a time o the year whenmembers have a predictable need or cash (e.g., when preparing land or planting orwhen important religious estivals occur).

Transparency and minimized risk: Regular share-out reduces risks to the system andlosses o transparency, which are likely to accrue when complex investments are man-aged by a ew members

Having said this, it is increasingly common or groups to carry over some proportion o theirequity at the end o a cycle to start the next cycle with a use ul sum in the loan und. While nodata is available on this practice, it seems to occur with increasing requency among groupscompleting their second cycle.

The mechanisms used to manage share-out (at the end o the operating cycle) vary, dependingon the type o record-keeping system. Most savings groups base the share-out on the amountthat a member has saved, regardless o when the savings deposits were made.

Pact-WORTH groups do not share out member equity; instead, they pay dividends, based onthe individual members minimum balance during the last eight weeks o a six-month cycle. 17 (Other SG projects do not track average or minimum balances, only ending balances). Becausethere are limits to member deposits at every meeting (they are restricted to a common sharevalue and o ten a maximum number o shares), contributing a large amount o savings right

at the end o the cycle cannot occur, making the need or complex weighting calculations un-necessary. This is another example o how accounting practices have been simpli ed in theinterests o making it possible or a group to manage itsel within a year.

17. Pact introduced this policy to counter a tendency by members to substantially increase their contribu-tions close to the end of the cycle in order to garner a disproportionate share of the pro ts. CARE, Plan,and AKF do not allow more than ve shares to be bought at any one meeting for the same reason.


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2.3 Social Fund

The social und is a orm o limited, sel -managed insurance that groups can elect to createand und with regular equal contributions that are usually less than the value o a single share.It o ers grants or, more commonly, interest- ree loans to members or emergencies. While itis highly popular with most groups, some (e.g., CRS-Uganda) have dropped it due to a lack o member interest.

2.4 Security

Most SG projects promote the use o lockable cash boxes. Many use a cash-box with three locksand three di erent keys held by three di erent members (usually not members o the manage-ment committee). The contents o the box vary, depending on loan demand.

Savings Groups and Mobile Money

As telecommunications companies in many countries develop mobile money products, opportunitiesare growing or savings groups to bene t rom these services. For example, a virtual cashbox that can

only be accessed with multiple PINs (personal identi cation numbers) could eliminate the need or aphysical cashbox, which can be at risk in crime-prone areas. Members who cannot attend a meetingcould still save by sending money over the phone to a group account. East A rica is at the ore ront o these innovations.

De ning Emergency

In northwest Uganda, CREAM (a CARE partner) started selling solar lamps to SG members in 2010. Onegroup allowed its members to borrow rom the social und to buy the lamp because they decided thatavoiding the high risk o re rom the open fame o a traditional kerosene lamp quali ed as an emer-

gency.

Source: Rippey, P. and Nelson, C.; 2010, Marketing Solar Lamps through Savings Groups: Emerging Les-sons rom Uganda unpublished research, the Aga Khan Foundation, Ottawa.

Interest-Free Loans or Emergencies?

S C groups in Kambila, Mali, do not repay interest on emergency loans or illnesses. Yet, not all groups areso trusting. As a group in a di erent region pointed out, i they adopted such a policy, everyone wouldclaim their loans were always or emergency consumption in order to avoid paying interest on loans used

or income-generating activities.


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Saving or Change, SILC,18 and VSLA projects stress the use o a cash box, not only or securitypurposes, but to ensure that transactions do not take place outside meetings. They consider thisto be essential or maintaining a high level o member con dence and awareness o all savings,insurance, loan transactions and balances. Although the three-lock cash box is emblematic o savings groups, they are not used everywhere. Some groups opt to avoid this expense.

Owing to the usually buoyant demand or loans, there is usually little money in the box. How-ever, toward the end o the cycle, when loan repayments are completed, a great deal o moneyis on hand. At these times, the risk that the box will be stolen is higher. Rare cases o the t haveoccurred in urban areas or in areas associated with civil disorder. Groups take a number o stepsto counter this risk:

Distributing the money equally among the members at each meeting in the last month

with a requirement that it be returned intact at each subsequent meeting until theshare-out meeting

Delaying the repayment o the late-cycle

loans to the last meeting

Giving the box to a di erent member at each

meeting, so that its storage location is notcommon knowledge

Storing money on mobile phones (Still in its

in ancy, this strategy is working success ullyin Nairobi slums.)

Depositing surplus unds in a bank (typically

an option in urban areas)

18. In SILC projects, the use of a cash box is optional and at the savings groups discretion. However, CRSis likely to require a box.


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3 Sustainable Service Delivery

In the SG model, acilitating agencies and their partners employ eld o cers to mobilize, train,and supervise savings groups. Although they have pared their costs to a minimum, they arecovered by grant unds. The obvious criticism o the model is its reliance on subsidies to pay sta salaries. It has been argued that MFIs compare avorably because they are able to sel - nancethe growth and expansion o their client base. 19

However, the SG model has an inherent strength that counter balances its need or grants. Givenits simplicity, lack o in rastructure, and low cost, the model is easy to replicate. Indeed, it can(and does) sel -replicate at no cost to donors. New groups pay training ees to local trainers tohelp them get established, 20 which means that the initial investment in group ormation resultsin a continuing process o sel - nancing replication and a much higher yield.

Over time, acilitating agencies have experimented with SG replication to maximize quality o groups, minimize the cost o expansion, and create a sustainable model o service delivery.

3.1 Village Agents

In 20002001, CARE Niger pioneered what became known as the village agent model, in whicheld o cers identi ed a hand ul o SG members who were capable o becoming trainers. CARE

called these people village agents. The eld o cers then became the trainers o village agents,supervising them until they were competent to train groups on their own. Sometimes the vil-lage agents were volunteers; sometimes they received project stipends. Now, increasingly, they

receive their income rom ees paid by the groups themselves. The result has been the establish-ment o a training and support capacity embedded in the local community, able to und itsel

rom ees, with no long-term technical support needed rom a acilitating agency.

In various orms and with di ering designations, 21 this model (which we re er to as the VA model)has been widely adopted by most o the acilitating agencies and has proven to be e ective indriving down costs and signi cantly increasing outreach. 22 It is central to the growth and outreachand cost-reduction strategies o most o the acilitating agencies, except or Pact-WORTH, whichdoes not use the model (although it encourages SG members to create new groups). Annex 4suggests the main di erences in approach to service delivery across participating agencies.

19. This analysis is inexact; the true parallel is between the MFI and the savings group, both of which areset up through subsidies as autonomous institutions raising their own capital and operating pro tably.The agencies that create MFIs and savings groups are thus de ned as facilitators, rather than provid-ers, and both are traditional recipients of donor grants.

20. See section 3.4, Lessons for Replication.21. CARE, AKF, and Plan use the term village agent, Oxfam/FFH uses replicator agent, and CRS uses

the term private service provider.

22. Very roughly, the experience of CARE and Plan indicates that using village agents (who work under a eldof cers supervision) doubles the number of groups that can be formed when eld of cers alone are used.


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3.2 Replication through Village Agents: Facilitating Agency Strategies

Ox am/FFHs Replication Process

Ox am/FFHs original approach in Mali (home to its largest SG project) depended on replication

through social and in ormal networks. While groups were in training, observers rom potentialnew groups were invited to training sessions in order to in orm their own communities aboutthe project. At the same time, each group committed to training at least one new group.

This approach proved to be e ective and Ox am/FFH reported a 30-percent annual spontane-ous compounded replication rate. In 2008, an evaluation revealed only a slight di erence inthe quality between groups trained by eld o cers and those trained through this replicationapproach. The latter have about the same membership as the ormer (21 versus 23 members,respectively); comparable savings rates and outstanding loans; and attendance that is, on aver-age, only slightly lower (67 percent compared to 74 percent, respectively). In addition, groupsreplicated by villagers have adopted the same management structure as those trained by eldo cers, including seasonal adjustments to savings and the use o nes or non-compliance withestablished group rules. The major di erence was productivity: eld o cers trained 51 groupsduring the period o study, while village agents each trained an average o ve groupsnotsurprising in view o their limited time and ability to travel.

However, this approach a orded little control over the results. With new large-scale unding in2008 and speci c targets or Mali, Ox am/FFH shi ted to its current structured replication, inwhich replicators, or village agents, are ormally trained and supervised be ore being allowedto expand their client base. Animators (Ox ams eld o cers) recruit village agents rom the

Savings Groups Support Education

In a Kampala slum, three women met when they joined a savings group acilitated by British NGO Hopeor a Child. Each o them had cared or orphans and harbored a dream to start an orphanage. When they

discovered this shared vision, the three women dedicated themselves to increasing their business in-comes and building their savings. By pooling their savings, they were able to rent a building and opened

their orphanage to 67 children. When they had accumulated enough unds to hire a teacher, the womenadded a nursery school and took in 70 students. They con rm that their savings group was the key to be-ing able to und this new community institution and will enable them to expand it.

Elsewhere in Uganda, the Iganga Farmers Association is promoting savings groups across Iganga District. Three o these groups discovered that they had a common vision to provide their children with an educa-tion. The groups pooled their savings and ounded the Child SEEP Nursery and Primary School. Now, over200 children attend the school ( rom an area where 95% o the population earn less than $1 per day) andwill continue to do so because the school does not rely on hand-outs to stay open.


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groups, one per village. They are provided with a three-day training course, a pictorial manual,and a certi cate at the end o the workshop. Newly certi ed replicators organize and train newgroups until their home village is saturated. Animators use Ox ams structured curriculum and

ormal manual to train the replicators on the group ormation process. The replicators use thepictorial manual to orm groups.

This replication process is an approach shared by CARE, CRS, and Plan. Ox am/FFHs targets orvillage agents are somewhat lower than the other agencies, owing to Malis more dispersedpopulation and travel barriers.

CRSs PSP Networks: From Field Agent to Private Service Provider

CRS is the only acilitating agency whose eld o cers (paid local agents) evolve into privateservice providers (its name or village agents). Unlike the other agencies, CRS does not start outusing external agents to train groups. Instead, it recruits eld o cer candidates rom the com-munity. Training is ollowed by 9 to 12 months o supervised work in the eld, a ormal review,an examination, and, nally certi cation. Once certi ed, the trainees are designated as privateservice providers and work independently in the eld (see annex 4), charging groups or theirservices. CRS assists its private service providers to orm in ormal networks.

In this system, CRS pursues sustainability within its SG projects at three levels:

Group sustainability : The primary goal o all SILC projects is to create sustainable groups.

Field ofcer sustainability : Only 6070 percent o recruited eld o cers makes it pastthe initial recruitment screening, and o those about 8090 percent receives certi cates. Thus, about 5060 percent makes it through the entire certi cation process. This se-

lectivity is intended to yield highly motivated, good quality agents. During their ap-prenticeship, eld o cers receive a small stipend, estimated to be between one-thirdand one-hal what they will make as certi ed private service providers, when they cancharge ees or their services.

PSP networks: In order to continue the process o recruiting and deploying new trainersover greater geographical space, CRS helps organize a loose, in ormal network, o pri-vate service providers, each covering an unspeci ed (but not large) area. The key criteriaare in ormality, and little or no investment in xed assets or recurrent costs.

Because CRS designed and set in motion this entire structure in 20082009, it is too early to deter-

mine the easibility and viability o the network model, although it is a subject o CRS research. 23 O all the acilitating agencies, CRS has created the most structured, program-wide concept or asustainable delivery channel; it is also the most cost-conscious, balancing the need or a coherentstructure against the need to operate as economically as possible. Evidence rom Zanzibar sug-gests that when structures are ormalized, they become costly, which may lead village agents to

ocus more on increasing ee income rom existing groups than expanding outreach.

23. See annex 7 for a list of current research on savings groups.


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AKF, CARE and Plans Village Agent Strategy

AKF, CARE and Plans strategy or village agents (apartrom CAREs projects in Tanzania and Kenya) is consis-

tent across their networks. They deploy paid pro es-

sional eld o cers to create starter savings groups,deliberately spaced a ew kilometers apart. Field o -

cers then identi y and train about 68 village agentsand supervise them or a year, in much the same wayas CRS. A ter certi cation, village agents become in-dependent. Plan and CARE also make use o villageagents, but do not have organization-wide policies tocreate either ormal or in ormal ederations o thesetrainers. While Plan actively discourages this, CAREcountry programs make their own case-by-case deci-

sions about whether or not to pursue this approach.24

3.3 Lessons or Replication

The village agent model has proven that it can work or many years. It was introduced in Nigerthe worlds poorest countryin 2000, and all savings groups there are now trained by villageagents, who are paid by the groups themselves. When CARE le t Zanzibar in 2005, it had trained46 groups. Now there are 250, an annually compounded growth rate o about 38 percent, withno group collapse reported to date and no additional cost to the acilitating agency. 25

Facilitating agencies have standardized the VA model, but in di erent ways. The principal dis-tinction is between those organizations that seek to organize village agents in local ederationsand those who do not. CRS creates in ormal networks o village agents; CARE Tanzania does thesame, but in a much more ormalized structure. All other projects, at this time, have no plans orestablishing pro essional VA networks, since this could drive up costs and shi t village agentsattention away rom creating new savings groups.

The optimal ratio o supervisors to village agents has yet to be determined, but the suggestedrange is 1:510 at any one time. Likewise, no clear consensus has been achieved on the numbero groups that can be trained by a village agent at any one time; this ratio is subject to importantvariables, such as the ease o travel, population density, and norms regarding the requency o

group meetings. The lowest known ratio is 1:3 and the highest 1:8. The average appears to hoveraround 1:5. At the time o writing, most projects have made projections about VA per ormancebased on the actors just mentioned, but none has yet proven that the ratios o paid sta to vil-lage agents, and village agents to groups, is valid beyond the initial year or two. The market po-tential o a village agent is, however, expected to span at least three years, and the total number

24. With the exception of Tanzania25. Authors eld visit to Zanzibar, October 2008.


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o groups to be created per village agent ranges rom a low o 5 (Ox am/FFH in Mali), to about 8or Plan, and 12 or CARE and CRS.

The number o groups that a village agent is expected to createand the time needed or vil-lage agents to develop their individual marketsremain to be validated by experience.


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4 Plat orms and Linkages

Now that savings groups have achieved some visibility, there is a vigorous debate about howthey can be used as plat orms or, or linked to, other services, both non- nancial and nancial.Some eel that savings groups should be le t alone to decide their uture themselves, while oth-ers believe that they present an excellent opportunity to o er more diverse services. Whateverthe individual view may be, e orts to use savings groups to deliver non- nancial services willinevitably expand, as will e orts to link the groups to the ormal nancial sector. This sectionlooks at some o the most developed initiatives.

4.1 Savings Groups and Non- nancial Services

Savings groups are increasingly being used as plat orms to deliver other services, either by theacilitating agency or other organizations taking advantage o a network o existing groups.

Some non- nancial institutions are adopting the SG model and integrating it into their existingwork in health, agriculture, or support o people living with HIV and AIDS.

There are many reasons to pursue such linkages. The nancial services that savings groupsprovide can strengthen almost any program by acilitating purchase o program inputs (seeds,medicines, etc.). Similarly, the groups can be a venue or addressing the many challenges be-yond nance that their members con ront. Water collection, soil management, and home im-provements (improved stoves, alternative uel briquettes, and solar lighting) are just a ew is-sues o a larger development agenda that could be within the reach o savings groups. However,adding other interventions to the SG agenda comes with risks: the main one is overloading

savings groups with activities that are supply-driven by external entities, rather than demand-led by SG members.

The acilitating agencies eatured in this paper and their SG projects o er a variety o linkages, aselection o which is described below.

Ox am/FFHs (Saving or Change) Combination Approach

Ox am/FFH conducts research to identi y single high-impact interventions, which, when imple-mented through savings groups, promise to create economic and social synergies that reduceconstraints on economic activities. In Mali, they selected malaria prevention and developed acurriculum to help eld o cers educate SG members about this topic. 26 They reasoned thatpeople who regularly su er the e ects o malaria are less able to invest in productive activitiesand less able to save. Ox am/FFHs approach to malaria education has also been adopted byPlan in Mali and Burkina Faso.

26. SfC eld of cers in Mali facilitate a series of seven 30-minute sessions during weekly meetings. Thesessions, developed by FFH and Oxfam, are called Technical Learning Conversations and cover thecauses, prevention, and treatment of malaria.


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Pact-WORTH: Womens Literacy and Business Development Services

The Pact-WORTH approach is a ully integrated package o training inputs, used in all SG proj-ects. Women go through a course that combines training in SG management with literacy andnumeracy. Savings group members also receive training in basic small business management

(Road to Wealth) and marketing (Selling Made Simple).

CRS Savings and Lending Communities

CRS uses SILC to promote social empowerment and integral human development. Given savingsgroups abilities to smooth consumption, protect and grow assets, increase social cohesion, anddevelop leadership and decision-making skills, the groups are a use ul and fexible tool that helpssustainably achieve project objectives in a range o sectors, including agro-enterprise, health,education, HIV and AIDS, and peace building. Approximately 70 percent o the savings groups

ormed by CRS operate within in the context o integrated programming. Integration o ers tocommunities and individuals involved in other projects the opportunity to orm savings groups.Where other activities are added to the agenda o existing savings groups, the key principles o sel -selection and the right o each individual and group to control its assets still apply.

CARE Partner, Uganda Womens Efort to Save Orphans

Uganda Womens E ort to Save Orphans (UWESO) pursues our program areas: ood security andnutrition, health, education, and socio-economic development. It starts all its new program groupsas savings groups and adds additional activities in nutrition, health, and education as unding isavailable. Other development organizations, public and private, also collaborate with UWESO inorder to introduce their services to its savings groups (e.g., bed nets, water catchment tanks, seed

distribution, and animal husbandry). A host o health and HIV and AIDS service programs use sav-ings groups as a vehicle to identi y patients in need o medical or psycho-social support.

Savings Groups Engage in Collective Marketing

UWESO clusters 26 savings groups or greater e ciency in service delivery. In Masaka District, it has 96clusters and estimates that about 60 o these collectively market co ee, beans, maize, and groundnuts. This system was introduced in 2007 by a Swedish NGO that trained the SG clusters and a cluster ocal per-son in marketing. When cluster leaders decide to sell, they mobilize SG members to bring their produceto a designated location. Initially, the NGO helped the ocal persons contact buyers and negotiate the sale

o the collected produce, but they now do this on their own.


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4.2 Linkages to External Sources o Savings and Credit

Aspirations o linking savings groups to the ormal nancial sector are not yet matched by expe-rience. Such linkages are not yet widespread in A rica or several reasons: banks do not have ad-equate branch networks or technologies in place (with the possible exception o Rwanda, South

A rica, and possibly Malawi); no countries mandate avorable credit conditions or pro-poor sec-tors; and re nancing or pro-poor loan port olios is not available in A rica. 27 Consequently, the

ormal sector is reluctant to lend to savings groups, with the exception o those MFIs and bank-ing institutions that have a clear pro-poor mission (such as Opportunity International).

CARE is the only acilitating agency with a long-standing bank linkage program (in Rwanda)and is working on similar initiatives in Tanzania and Malawi. In addition, in Niger, MFIs provid-ed a large number o CAREs savings groups with credit 28 without direct CARE acilitation.

Other linkage initiatives taking shape are grappling with the ollowing key questions:

What are the most appropriate products and when should they be o ered?

What are the risks o linking savings groups to external capital, and under what terms

and conditions should loans be provided?

How can new technology assist?

What is the role o acilitating agencies in consumer protection?

What Are the Most Appropriate Products?

Most acilitating agencies agree that linkages should be based initially on savings mobilization.Poor people in A rica have demonstrated greater interest in saving than borrowing, owing totheir limited capacity or investment and debt. FinScope studies in Tanzania, Kenya, and Zam-bia 29 indicate that the demand or nancial services in A rica among the very poor is based

27. In India, it is mandatory for commercial banks to allocate 40% of their loans to pro-poor sectors. Toencourage this, re nancing is available from a number of institutions (notably NABARD, the NationalBank for Agriculture and Rural Development) at rates that are 2%4% below market rates. The ruralbanking infrastructure is also much more extensive in India, particularly in areas where self-help groupshave been most successful. The service is restricted to commercial banks and is not available to MFIs.

28. In all the savings groups that were linked to MFIs, studied by CARE Niger, membership declined.The studies found that the worse the experience, the greater the drop-out rate. Groups that were notlinked retained their membership or increased it. See P. Rippey, 2008, Etude sur limpact des crditsextrieurs sur les groupements et rseaux MMD et les mesures de minimisation des risques [Studyof the impact of external credit on MMD groups and networks, and measures for minimizing risks],report prepared for CARE Niger, Niamey, Niger, January 2008. In Rwanda, the results were mixed, withsavings groups making positive use of external credit for group-managed projects. The institutionalarrangements were, however, unsustainable. See J. Maes, 2007, Linkages between CAREs VS&LAswith Financial Institutions in Rwanda: Case Study, report prepared for CARE USA, Economic Develop-ment Unit (Atlanta, GA, USA: CARE USA).

29. The 2007 FinMark Trust/FinScope studies of Uganda, Tanzania, and Zambia all indicated a similarhierarchy of priorities for both savings and credit services (in descending order of importance): meetingbasic needs, emergencies, education of children, and business investment. Some 15% prefer to usecredit and 19% prefer to use savings for these purposes.


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mainly on household cash-fow management and less on enterprise investment. Savings andinsurance products are instinctively understood to serve this purpose better than credit.

Facilitating agencies exploring bank linkage are stressing the potential or mobile telephonesystems to acilitate savings, either held only on mobile phones (CAREs Access A rica approach)

or automatically deposited to bank accounts via cell phones (CARE and Plan-Ghanas strategy).Only CARE and Plan are experimenting with mobile phone-driven credit supply.

Terms and Conditions o Credit

Most acilitating agencies encourage SG members, whose borrowing needs cannot be met bytheir savings group, to approach local MFIs or larger, longer-term, lower-cost nancing options. They endorse this type o linkage because it can meet the needs o individual members withoutplacing the groups capital at risk. They share concern about indebting savings groups beyondtheir capacity to repay and placing the group at risk or the bene t o a ew individuals.

Nevertheless, some acilitating agencies are committed to helping savings groups that seek ex-ternal sources o capital 30 and among them consensus is emerging on the ollowing principles:

Savings groups should have completed at least one ull cycle o success ul operation

be ore linkage to external credit is considered.

Credit coverage should be limited. CARE proposes that the initial leverage ratio o sav-

ings to total debt should not be greater than 1:2. More conservative voices proposeratios that do not exceed 2:1 in initial cycles.

Loans should only be made to the savings group to augment its own loan und, and not

externally targeted to individual members

External loans should respond to the inadequacy o the savings groups own capital,

relative to demand.

Wherever possible loans should be structured as a line o credit

Most acilitating agencies are aware o the risks o linking savings groups to bank credit. De-spite good intentions, MFIs in particular are likely to regard savings groups as low-cost targets

or credit. In act, there are cases where multiple MFIs have lent to the same group, leading toover-indebtedness. 31 Facilitating agencies believe that they have a role in consumer protectionand plan to provide guidance to groups concerning demonstrable (as opposed to expressed)demand or credit and prudent levels o debt to equity.

30. CAREs Access Africa program is committed to this approach, while emphasizing savings as the entry-level service that groups should consider.

31. See Rippey, 2008, Etude sur limpact des crdits extrieurs [Study on the impact of external credit].


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To date, only CARE has a written policy concerning bank linkage. Access A rica has prepared acomprehensive manual covering linkages between savings groups and nancial institutions. 32

Annex 5 lists the approaches and status o bank linkage activity among the acilitating agenciescontacted.

4.3 Linkages to Insurance Providers

Using savings groups as delivery channels or insurance products is in its in ancy and two ap-proaches are being tested: linking insurance providers to savings groups and establishing SGnetworks speci cally to provide sel -insurance. CARE is working through MicroEnsure and Com-munity Vision in Uganda to provide li e insurance to SG members and is looking at a similarinitiative in Tanzania. AKF in Pakistan is developing a community-managed maternal healthcareinsurance product. CRS is looking into the easibility o providing health insurance in Benin.

4.4 Summary

The opportunities or integrating savings groups with other nancial and non- nancial servicesare limitless. Yet, there are diverging views across projects about the wisdom o ollowing thispath. That savings groups represent a plat orm or a broader range o development interven-tions is balanced by a concern or their capacity to manage additional activities without com-promising the ocus and discipline required or high quality, autonomous groups. Althoughrecognized best practices or clear trends indicating what works and what does not have not yetemerged, all the acilitating agencies eatured here are, or intend to, pursue some type o link-age. They are aware o both the risk o overload and the need to ensure that collateral interven-tions using savings groups as vectors or other services be demand-driven and cost-e ective. This is an area or urther study. 33

32. P. Labh, 2010, A Practitioners Guide to Facilitate Linkage between Village Savings and Loan Associa-tions and Financial Institutions, report prepared for CARE Access Africa, January 2010.

33. AKF is currently undertaking a research initiative to learn how effective it is to combine savings groupswith other development activities. Preliminary results are expected in October 2010. A randomizedcontrolled trial, undertaken by Yale University in 2006, showed positive results when entrepreneurshiptraining is combined with micro nance. See D. Karlan and M. Valdivia, 2006, Teaching Entrepreneur-ship: Impact of Business Training on Micro nance Clients and Institutions (New Haven, CT, USA, andLima, Peru: Yale University, Economic Growth Center; and GRADE), http://aida.econ.yale.edu/karlan/papers/TeachingEntrepeneurship.pd

Gaining Access to More Loan Capital

In Mali, S C groups have ound their own way to increase their loan capital. They orm a ROSCA o savingsgroups that unctions in much the same way as a traditional ROSCA. Each savings group contributes thesame amount at the ROSCA meeting and one group takes the pooled unds to add to its capital. Twomembers rom each savings group attend the ROSCA meeting, which elects its own o cers.
http://aida.econ.yale.edu/karlan/papers/TeachingEntrepeneurship.pdfhttp://aida.econ.yale.edu/karlan/papers/TeachingEntrepeneurship.pdfhttp://aida.econ.yale.edu/karlan/papers/TeachingEntrepeneurship.pdfhttp://aida.econ.yale.edu/karlan/papers/TeachingEntrepeneurship.pdf


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5 Per ormance Measurement

When CARE Niger started mobilizing savings groups on a large scale in the early 1990s, it paidlittle attention to per ormance measurement. Most acilitating agencies that took up SG promo-tion subsequently were happily surprised by the response in the eld and the demand or SGtraining, so little was done to track per ormance.

However, the last ve years have witnessed a growing interest in understanding the nancialand social per ormance o savings groups and acilitating agencies. Costs are certainly a cen-tral concern, 34 as are the sustainability o savings groups and their impact on household andcommunity wel are. Low-cost impact studies show airly consistent results across projects andregions, and are clearly positive in terms o asset acquisition and protection, improved nutri-tion, access to health and education services, and changes in social status. These need to bevalidated by long-term randomized control trials, such as CARE is undertaking in Malawi.

34. The prevailing view (clearly expressed by the Bill & Melinda Gates Foundation) is that the all-in costsof providing services to a single SG member should be less than $10 over the long term. There is notyet a consensus as to whether this applies to local partner costs only or must include those of facili -tating agencies. There is also no clear view as to when this should be measured, since SG programshave shown a strong capacity for post-project growth, nanced by member fees. The $10 per-member

gure is certainly far less than the cost to provide services through MFIs, such that savings groups cannance their own growth. Wh

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Savings Groups: What are They?