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 countries—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.