INTRODUCTION
Beginning a Savings Revolution—They Know How
Two and a half billion people worldwide, most of them in desperately poor, rural communities, need a better way to save and borrow. The overarching and hopeful message of In Their Own Hands is that improving financial services for the poor need not be complicated or expensive if responsibility is firmly in the hands of those who directly benefit. Local ownership and control is the essence of “in their own hands” development. As local communities take charge of the financial aspects of their lives, they gain the skills, confidence, and motivation to do more. In the words of Marcia Odell, who taught me that savings groups were possible in Nepal more than a decade ago, “Dependency is not empowering.”
In Their Own Hands is a book about learning to be courageous, to take risks, and to make change happen. Rather than critiquing development, In Their Own Hands provides clear guidelines for how to develop and carry out initiatives that work.
This is a book for those who are already working for change abroad and at home, seeking a better way to do development that avoids dependency and helps achieve transformative change. Foundations and agencies funding grassroots efforts can use this book as a reference to refocus their efforts away from funding handouts and toward empowering the poor to take responsibility for their own change.
In addition, this book is for anyone who is curious about what it takes to make a difference. Educators will find this book useful as they introduce students to the effort it takes to implement effective grassroots development and the courage and dedication it takes to achieve it.
Savings Groups: Turning Banking on Its Head
Savings groups are a robust, simple, game-changing financial innovation that reaches the village poor by turning banking on its head. Instead of attempting to extend the reach of financial institutions that cannot profitably reach the poor, small groups of community members are trained to manage their own mini-financial institutions. Members save what they can weekly in a communal pot and loan their growing funds to members. Annually, timed for when money is scarcest, the pot is divided according to how much each member saved plus each member’s share of the interest. Every cent saved over the cycle plus interest is returned to the members. As a woman in Nepal I interviewed said, “Why pay them when we can pay ourselves?”
The simple model of savings groups is a marked difference from traditional financial institutions—banks, microfinance providers, large credit unions—with their imposing buildings, armies of staff, and complex systems, which rarely reach these rural areas. The principal reason why membership in savings groups has grown from one million to ten million in just six years is that instead of depending on institutions, savings groups tap into the vast, underutilized potential of smart people to solve their own problems.
Through the discipline of weekly saving, community members now have a useful sum of money in hand when cash is scarcest. With their end-of-year payout, they buy food during the “lean season,” before the harvest puts food on the table. They may pay school fees, purchase medicine, stock a business, grow more food, or buy a goat or two to fatten and sell. Benefits are not only financial; now that members have their own money to spend, women (most of the group members are women) have gained a measure of independence and benefit from the growing solidarity and mutual assistance among members.
Savings groups are as convenient as meeting under a tree in a village and as flexible as the rules members design for themselves. They are as reliable as their own accounting, which is quite dependable if registers are simple and training is adequate. They are easy for villagers to understand because they build on how women have saved for generations. “These savings groups are like a tontine [West African traditional rotating savings group], only better,” a woman in Senegal once told me. Instead of working like a traditional tontine, with each member in turn receiving her payout of the total collected that meeting, a member of a savings group can take out a loan when and in the amount she wants, as she saves the amount of money she can. Interest is charged on the loans, and fines are levied when members miss meetings or do not pay a loan on time, so when the fund is divided, members receive more money than they saved. More flexibility comes at a cost: the need for better record keeping. Better record keeping is the focus of savings group training and the major task of the local nongovernmental organization (NGO) staff who train these groups.
In the decades that I have been involved in promoting change, I have observed that savings groups are the best example of the power that local ownership and control can have. Savings groups overcome the risks of top-down efforts to improve the lives of the poor. What outsiders create often fails when they leave; what villagers create through their efforts persists, evolves, and grows. It follows, then, that our task as outside agents is not to provide services, but to catalyze the capacity of poor communities to resolve their own problems. After working to promote this type of approach to development for decades, I’ve identified nine principles needed for success:
• Start small to learn, but plan for scale—if there are thousands of communities, what will have been achieved if only a few are reached?
• Simple is better than complex.
• Build on what is already in place and already widely understood.
• Design for change that persists long after outside agents leave and that spreads from village to village without outside staff.
• Keep costs low: resources are scarce and the scale of poverty is vast.
• Give nothing away: if what is introduced depends on a free handout, it will not spread.
• Insist on local control: if local community members are in charge, new development initiatives will last.
• Establish high performance standards and insist on meeting them.
• Build learning and innovation into program design: it is impossible to get it right the first time.
These principles are described in greater detail in chapter 1.
By adhering to these principles, the number of savings groups could grow fivefold or even tenfold in a decade, from a hundred thousand villages to a million villages. Assuming that savings group membership grows from ten million today to fifty million by 2020, these groups will by then mobilize and largely distribute US$1.25 billion of their own money every year, of which $750 million will be profits from lending. This growth is impressive especially considering that the individuals who are mobilizing resources at this scale are among the poorest people in the world, whose annual income is often less than $500 a year. The poor are not too poor to save.
These lessons of savings group promotion can be applied across the development spectrum, including areas such as agriculture, health, enterprise development, business literacy, education, and advocacy, among others. This task is already underway with promising, scalable results, described in chapter 7.
A savings-based approach will become increasingly necessary as the poorest countries and poorest regions cope with increasing challenges of climate change, scarce and depleted land, and endemic conflict. Given the amount of development assistance that is misspent and the declining amount of aid to the poorest countries overall, the value of a simple, replicable, and sustainable approach can hardly be overestimated. “In their own hands” development works—it builds resilience, reduces chronic hunger, and increases assets. (The impact of membership in a savings group is described in chapter 6.) Although much more is needed—basic infrastructure, markets, government services, good governance, more equitable division of resources—savings groups are a reliably useful starting point.
A Call to Action
Savings groups work. It is time now for the development community, including foundations and bilateral and international agencies, to get behind the expansion of the savings group model. While microfinance works well in the densely populated villages of Bangladesh and in cities and their surrounding communities, it is often not the best answer in scattered rural villages. In countries marked with political strife, collapsing economies, and unchecked inflation, not only do savings groups work, but they work where microfinance fails.
The systems and the institutional capacity are already in place to accomplish this.
The cost for training and supporting savings groups is extraordinarily low. Each group creates its loan fund through weekly savings and tracks its own payments. Securing loan capital, tracking transactions, and ensuring that loans are repaid are the major costs of financial institutions. Once the groups are trained, except for an occasional monitoring visit, they manage themselves. The groups do most of the work—selecting members, electing officers, deciding on their bylaws, creating their own loan fund, deciding who will receive a loan, and making sure loans are repaid.
Compared with what is spent for development every year—US$44.6 billion in 2010 alone for the fifty-four least developed countries1—the $150 million per year needed to bring savings groups to fifty million participants over seven years is inexpensive indeed. An investment of about $1,500 in each village, spread over three years, will predictably lead to a decrease in chronic hunger, an increase in assets, and an increase in social capital. If the average village size is about one thousand people, this works out to $1.50 per person. And this is only the start: in the fourth, fifth, and sixth years after groups have been trained, I have seen that the groups grow in size, that they save and invest more, and that they launch their own initiatives—training groups for their children, buying grain when the price is low to better survive the lean season, and launching collective enterprises as they reach out to other NGO and development programs. With their economic clout, management skills, and group solidarity, they aspire to more.
I have come to realize that “in their own hands” development may be one of the very few viable paths for jump- starting development in the million or so villages of the world’s poorest countries, so why is funding so difficult to secure? Despite the obvious benefits, funding the training of savings groups does not easily fit into the way development is usually carried out. There are scant opportunities for investors. There are no massive development institutions with their thousands of workers and few well-told stories collected by journalist staff to delight and impress donors in order to loosen up their purse strings. In this “neighbors talking to each other” development model, the electronic gizmos that so delight Silicon Valley millionaires are not front and center, although villagers may call each other on their cell phones to organize a meeting. What has occurred is more subtle, but ultimately more profound: villagers are in charge and they follow their own agenda.
What savings group practitioners call the “savings group revolution” is remarkable in that it is almost invisible—a group of people in a rural community sitting under a tree put money in a box, with a few of them taking money out of the box as loans to attend to urgent needs. Each group has what it needs to survive, to grow, to evolve, and to self-replicate. Savings groups may just be the most effective use of a “smart subsidy” on record, where so many positive benefits can be achieved at such a small cost. Once the basic structure of the savings group model is introduced to a rural community by an outside agency—usually a local nonprofit—the groups do virtually everything, including training more groups.
What is needed are the will and the resources to achieve the benefits that expanding the outreach of savings groups would provide. This small investment would not only provide a safe and convenient place to save and easy access to small loans, but it would enable savings groups to help slow, or potentially even reverse, an increasing spiral into debt for the world’s poor. Savings groups can also serve as a launching pad for development initiatives that communities undertake on their own and sometimes with the help of a local nonprofit or government program.
The Savings Group Movement
Oxfam America, Freedom from Hunger, CARE, Catholic Relief Services (CRS), Plan International, the Aga Khan Foundation, Pact, and many other international and local organizations have made the promotion of savings groups a central tenet of their development strategies. Today, there are savings groups with ten million members living in at least a hundred thousand villages in sixty-five countries. Six years ago, there were just one million savings group members. As Frances Moore Lappé describes in the foreword, the growth in savings group membership must have set a speed record. I know of no other development initiative that has grown so quickly and in so many countries that shows the broad applicability of this methodology across nations, cultures, and religions.
In 1971, Moira Eknes and her team at CARE developed the first savings groups in a remote corner of Niger. It was only decades later, in 2008, that a major investment by the Bill & Melinda Gates Foundation helped spur rapid growth in the field, attracting more funders, including MasterCard Foundation, USAID (the US government’s development agency), and the Inter-American Development Bank, as well as high net worth individuals and a number of smaller foundations.
This massive scale-up has been achieved not through building financial institutions, as microfinance has done, or by transacting finance in the cloud, as mobile banking is doing now, but by catalyzing the problem-solving capacity of the poor to lead their own development, with a little transitory support from an outside agency. Paying the local staff to train groups is virtually the only expense other than research, the training of trainers, advocacy, and developing new products.
Although savings groups are uniquely designed to effectively reach the world’s poorest, they aren’t able to address every financial need in these areas. Both microfinance and mobile money have a unique role to play in expanding financial inclusion. Savings groups are most appropriate for the rural or urban poor, who need a place to save more than they need a loan and are beyond the reach of financial institutions. Microfinance is best suited for those with a business large enough to benefit from a loan and in areas where there is more economic activity. Members of savings groups whose needs are greater than the group can finance often take out loans from financial institutions.
Between 1980 and today, microfinance has grown from a few scattered projects carried out by NGOs to two hundred million borrowers today. Credit unions reach a similar number. Mobile money facilitates remittances from workers in the city to their relatives in the villages and extends the reach of financial institutions. Everyone can work together to provide financial inclusion for the two and a half billion who need a better way to save and borrow. If nonprofits introduce this improved way to manage finances that savings groups represent in a scattering of villages throughout a region, we may learn that new savings groups have sprung up spontaneously to fill in the gaps between groups that were trained by paid staff.
In Their Own Hands: Empowerment as Development
In Their Own Hands is the story of how I came to see the impact of savings groups—once I learned how they worked, I never turned back. This book is about how we can learn from the power of savings groups and apply the principles I learned over years of working in this field to move development forward.
Before I learned about savings groups, I had designed, managed, and evaluated microfinance institutions for twenty years. While microfinance was working well in urban areas, I concluded that it was not serving the rural poor. I built from what I learned in Nepal, and later in India and Zimbabwe, to launch and lead the Oxfam America/Freedom from Hunger Saving for Change initiative that has, since 2005, trained and supported savings groups with 650,000 women members in thousands of villages across Mali, Senegal, Cambodia, El Salvador, and Guatemala.
Through this experience, I have learned that the poor are not too poor to save, that there is enough savings potential within a group of twenty people to meet most needs within a small community, and that small sums can make a big difference. Once groups have mastered the mechanics of savings and lending, they begin to ask, “What’s next?” With a reserve of savings and the knowledge that they can easily access small loans to meet an immediate need, they gradually come to believe tomorrow can be different from today. The disciplined hard work of saving every week and running a group has made a difference.
FROM MICROFINANCE TO MICROSAVINGS: A PERSONAL JOURNEY
I have worked in microfinance almost from its inception in the early 1980s, working to create and evaluate microfinance institutions (MFIs) in thirty-five countries, including the United States. Through my position at Acción International, I joined the movement to create a “best practice” model of microfinance project design: large-scale, well-managed, permanent financial institutions that provide credit (and sometimes savings and other services) to those not reached by traditional banks.
As I continued to design microfinance projects in eastern Europe, Africa, Asia, and Latin America, I began to look closely at the different self-managed savings and lending clubs that poor people around the world used to meet their basic financial needs. People joined zadrugas in Bosnia, equibs in Ethiopia and Eritrea, tandas in Mexico, cadenas in Colombia, tontines in West Africa, chit funds in India, merry-go-rounds in East Africa, and partners in Jamaica. These are only a few of the hundreds of variations of what are technically referred to as Rotating Savings and Credit Associations (ROSCAs). In The Poor and Their Money, Stuart Rutherford and Sukhwinder Arora call this process “the world’s most efficient and cheapest financial intermediary device” because “at each round the savings of many are transformed instantaneously, with no middlemen and no transaction costs, into lump sums for one person.”2
As the 1990s went on, I continued designing and evaluating microfinance programs, but I kept returning to a fundamental question: Why do we start with microloans (i.e., microdebt) and not savings? Wouldn’t the security of savings be better than the stress of repaying a loan? Poor borrowers, I could see, often used their high-interest microfinance debt for consumption and emergencies instead of investing in profitable businesses that could pay their loans’ interest. These borrowers struggled to repay. I saw that debt often equals stress.
Then, in 2000, I heard Marcia Odell, then the director of Pact’s Women’s Empowerment Program in Nepal, give a speech at Brandeis University. It forever changed my understanding of microfinance. I learned that savings-led microfinance was not only possible but was already being implemented in Nepal. The Women’s Empowerment Program (WEP) worked through savings and lending groups, whose members mobilized their own savings and made loans to one another. I traveled to Nepal three times to document the model, which led me to evaluate similar initiatives in India and Zimbabwe over the next two years. These programs, even though they were developed independently and were not aware of each other, were organized on the same principles—the groups saved to build a loan fund, loans were made from the growing fund as members needed them, and the groups distributed the profits from lending to the members. There was no link to a financial institution or any injection of outside capital into the group fund.
Understanding how these programs worked became an obsession of mine. These savings-led initiatives had remarkable success, reaching poor villagers, most of them women, at low cost and on a large scale, with the profits from loans paid to the group members. Savings groups start with savings—building assets rather than debt. Trained groups of community members, not financial institutions, manage transactions.
SAVING FOR CHANGE
In late 2004, I was hired to introduce savings groups to Oxfam America’s Community Finance Department as the department’s director. I worked hard to ensure that Oxfam’s version of “community finance” reached populations that financial institutions, even the most innovative microfinance institutions, had scarcely touched. Saving for Change, our name for this model, was designed to support Oxfam’s work to “right the wrongs of poverty, hunger, and injustice.” Oxfam’s focus is on the world’s poorest communities, with an approach to work through local partner organizations. My colleagues and I at Oxfam, along with Kathleen Stack and her colleagues at Freedom from Hunger, another advocate for self-help solutions to end hunger, developed Saving for Change. Saving for Change capitalized on the unique skills of local nonprofits (NGOs): outreach, training, and hands-on support. This program set local grassroots nonprofits at the heart of our design and built on what they already did so well: delivering services and training in poor and often remote villages.
Our mission was to develop a locally controlled, easily accessible, scalable approach to improving financial inclusion to reach a population that microfinance as it is traditionally conceived never will. No money can be made on weekly savings deposits of twenty-five cents and fifty dollar loans, the scale of the transactions that the poor most often need. We calculated that in Mali alone, a country with a population of nearly sixteen million,3 the potential market for savings group membership was substantially greater than one million members, just counting women, who were the target for Saving for Change membership. We chose to target women because Saving for Change was more than just a better way to save and borrow—we wanted to provide opportunities for women to develop their organizational and leadership skills in a forum where they could discuss issues of importance to them.
Eight years later, nearly 450,000 women had joined Saving for Change groups in Mali, in addition to the 143,000 villagers in Mali who had joined similar projects sponsored by CARE, the 40,000 who were part of Plan International projects, and the 30,000 who had joined groups trained by CRS. By early 2014, a total of 695,589 savings group members were trained in Mali among the four organizations.4 To put this in perspective, this figure is larger than the entire population of Boston, and it puts savings group membership in Mali into the top ranks of microfinance outreach worldwide—this was financial inclusion without financial institutions.
Speaking just of the Saving for Change part of this expansion into Mali, we achieved this level of outreach (450,000) with a staff that never exceeded 203 people. This included a staff of trainers (animators) and their supervisors working for ten local NGOs and a team of four Malians who made up the technical unit. The number of staff working with groups is now one-third of that number, with virtually no sign that the groups are faltering. The groups were taught to manage themselves and to share what they had learned, and so they did. While the ratio of staff to borrowers is typically 1 to 300 for a financial institution, the ratio for Saving for Change in Mali was 1 to 2,000 during the high-growth stage. Since village volunteers increasingly took the lead for training and supporting groups, this ratio has grown to about six thousand group members for every NGO staff person.
Savings groups are hardly a perfect solution, and some groups function better than others. One limitation is that the amount that each group can save and distribute each year is small—about $500 in countries like Mali—so loan size is limited. Another limitation is that it takes a lot of time and effort to meet every week. Members do not seem to mind in the dry season, when there is more time and a savings group meeting is the perfect excuse to get together, but time is limited when the rains come and all are busy in the fields. There is also always the chance that someone with higher status will have an easier time getting a loan.
With that said, 95 percent of the groups trained in Mali since 2005 continue today. Despite these problems, groups have been able to resolve their difficulties, and they keep coming back week after week and year after year.
Joining a savings group will not lift many out of poverty—no development initiative can deliver on that promise—but regular savings and a reserve of cash can help reduce life’s uncertainties.
ASSESSING THE PERFORMANCE OF SAVING FOR CHANGE IN MALI
In 2006, the local Saving for Change team in Mali—including representatives from Oxfam America, Freedom from Hunger, and the Strømme Foundation, our donor and collaborator in identifying initial partners—and I carried out the first assessment of Saving for Change. This assessment was a chance to see how—and if—Saving for Change actually worked for its members. I had managed and evaluated dozens of programs before, but it is different when you are checking on your own initiative, especially when it is new and unorthodox. I felt a little nervous as the plane touched down in Bamako, Mali’s capital.
Mali, one of the poorest countries in the world, is a land-locked country in West Africa, with its northern half firmly planted in the Sahara Desert, and its southern part, where we implemented the Saving for Change training, in the semiarid Sahel. The team climbed into a program vehicle, left Bamako, and drove through a flat plateau of scrub grasses dotted with intermittent, colossal baobab trees. We left the main road and veered sharply onto a rutted, rocky dirt track. Two hours later, we came upon the cluster of mud houses that marked the first village stop on our ten-day assessment trip.
We exchanged appropriate greetings with village leaders and staff of the local NGO (trained by the Oxfam America and Freedom from Hunger team),5 and then the savings group meeting began. I followed along as best I could, knowing the general order of business and receiving a few helpful whispered translations from Mariame Coulibaly, a local Saving for Change staffer who worked for the Strømme Foundation.
The women repeated their bylaws in unison, as they did every week. The officers took attendance, opened the cashbox, and reported the total to the members—it had to be the same as when the box was closed at the end of the last meeting, ensuring that no transactions occurred during the week. Once the women had each contributed their savings and earlier loans from the fund were repaid, the secretary announced the new total in the cashbox. The group president then asked if anyone wanted to request a loan. A few placed one of their sandals in front of them or raised their hands to indicate they did, and a lively discussion ensued, with the borrowers explaining how the loans would be used and the rest of the group debating the likelihood they would be repaid. By the end of the meeting, most of money in the box was loaned out.
As the discussion wrapped up, the trainer from the local NGO carrying out Saving for Change in this region, the “animator,” led us to a meal prepared by one of the groups. I assumed we would be getting back into the car to head to the next village after lunch, but instead the animator brought us to watch another group meeting in another part of the village. When that meeting finished, she had us wait to attend a third, and then a fourth. As another efficiently run Saving for Change meeting unfolded before me, I was concerned. Had the animator we had contracted with through the local NGO to seed savings groups in twenty nearby villages merely stayed put, thoroughly organizing this one place at the expense of all the others?
It turned out that this village had eleven Saving for Change groups, with a combined membership of about 250 women. It was an impressive number. I interrupted a conversation transpiring in Bambara between the Malian staff and the animator before she took us to sit through another meeting. She assured me that she had indeed trained groups in surrounding villages, as she had been expected to do. In fact, the animator had organized only one group in this village. The rest of the groups were trained by Salimata Coulibaly.
Salimata, or Sali, was the president of the first Saving for Change group in the village. Unlike most of the women there, Sali attended school up to the eighth grade. She ran a small kiosk selling necessities such as matches, salt, sugar, and tea. Sali was small, lean, and intense. She wore glasses and a tightly tied hijab wrapped around her face, which contrasted with the flowing scarves and head wraps that most other women wore. Sali was all business. I had been impressed with how smoothly she directed her group. I was more impressed as I realized that she had cultivated that same impeccable order in ten more.
“How did you do it?” I asked Sali through a translator. She explained that it was not so difficult; she simply repeated each weekly lesson the animator taught her group as it formed, reviewing with ten other groups how to choose members, elect officers, craft bylaws, and keep records. Sali would meet with each of the ten groups she organized in turn and pass on what she had learned.
“Why did you do it?” I asked. A year later a group making a video that featured Sali asked her this same question. She answered:
I want better development for my village. The women trust me a lot. That’s why they always come to me for advice. It is with great joy that I share my knowledge with them. I would like to have this program reach everyone. There are some villages that have not been reached. I would really, really want to have these women receive the learning we have received.6
During that first assessment, Sali took us to task, saying we needed to do a better job teaching the women to keep records. Since most of the women in her groups were illiterate, Sali explained, they ask their husbands to step in and handle record keeping. Sali declared, “Sooner or later, the men will steal from us.”7 We took this request to heart and later introduced a record-keeping system based entirely on oral recall so that groups without a single literate member could keep their own records.
The groups Sali Coulibaly organized were, to my eye, equal to those groups created by the animator, a trained and paid NGO staff member. I began to believe that even at this early stage we were on the right track. Our vision was that some group members would volunteer to train new groups in their villages within two years, as I had seen elsewhere. Having volunteers train and support the groups is the cornerstone of both controlling costs and ensuring that the groups continue beyond the scope of the project. The volunteers live in the village, but the paid staff will soon go on to another village. Within months after the first group was formed in her village, Sali was training new groups with no special guidance or training from Saving for Change.
If Sali had taken it upon herself to organize groups in her village, perhaps other leaders were training groups in their villages. I asked her supervisor what the animator team had told him about groups replicating spontaneously. He said that while Sali was unique in the number of groups she had trained, he knew of several other volunteer replicators who had each already trained a group or two. The next day, in a new village a half-day’s drive away, Fatoumata Traoré, an animator from another local NGO, reported that she too knew of many villages where group leaders were training groups.
Nine years later, we know that of the 18,700 groups in place in Mali today, volunteers trained well over half of them. We now incorporate volunteers, whom we came to call “replicating agents,” as an integral part of our strategy. What emerged on its own in a few villages that first year with a little extra training and encouragement (and no payment), we were able to duplicate in thousands of villages.
Sali Coulibaly saw something in Saving for Change that inspired her to teach the idea to her peers. Her story was emblematic of the underlying ethos we tried to build into Saving for Change: ownership. Each group was managed by its members, using their own money to build assets collectively that they could access throughout the year in the form of loans. Annually, dividends that included their year-long savings and the interest garnered from the loans were distributed back to the members. Our theory was that if members owned and operated the groups, members could adapt their groups to fit their specific financial needs. We hoped this would lead members to value the groups as a resource so much that they would decide to share their knowledge with others. Sali manifested this hope tenfold.
The savings group practitioners, operating quietly in the rural backwaters of the world’s poorest countries, are demonstrating that what is needed is a disciplined commitment to savings.
Savings groups are not the end point, only a beginning. We are on the verge of a savings group revolution.