Why Savings Groups are the Next Vital Financial Tool to Alleviate Poverty

As the founder of FINCA and a life-long advocate of reaching “the poorest-of-the-poor,” my attendance at the SG2015: Savings Group Conference in Zambia last month was immensely stimulating. The rapidly growing savings group movement entails of clusters of groups of 10 – 20 members, often poor women, who save their funds collectively. Similar to FINCA’s Village Bank loan groups, savings groups provide financially under-served populations an easy way to participate in the economy, build their assets and change their lives.

Here are four points I learned about savings groups:

1. Savings groups specifically address the needs of the world’s 300 million “poorest-of-the-poor,” defined as families subsisting on less than US$1/day.

2. You may have been exposed to an adage which has been virtually elevated to a sacred truth: “Give a man a fish and he has food for a day; teach him how to fish and he has food for a lifetime.” But the validity of this adage has been shattered by the global microfinance and savings group movements. First of all, as both movements attest, it’s not about men but rather mostly about women. Secondly, it’s not about teaching but about capital. A person may learn to fish, but first s/he needs capital to buy nets, boat, bait, fishnets, etc. Thirdly, the acquisition of capital begins with savings–not loans. Without savings, few of the world’s poor will ever borrow their way out of poverty; debt is worthless if it does not create equity.

Savings Group 1

3. Traditional, home-grown savings groups (known as ROSCAS) have existed for centuries, and most modern savings groups—particularly in Africa—contain a few former members of these traditional groups. According to research sponsored by MasterCard Foundation, it is now estimated that 13% of the adult population in Sub-Saharan Africa, or close to 70 million people, saved in an informal savings group in 2014. And in just three countries–Ghana, Tanzania, and Zambia—nine million of these saving group members have saved an astonishing US$191 million.[1] This savings movement has reached an estimated 12 million groups in 70 countries, and is expected to reach 20 million groups by 2020.

4. The enduring and widespread popularity of saving groups clearly demonstrates that the poorest want to save in order to address such needs as meeting emergencies and/or buying food, medicines, school fees, home improvements, or seeds for the next cropping season. But while their convenience and flexibility make savings groups popular, they also come with their own constraints and risks. Most of these savers are illiterate, so keeping accurate records is a challenge. The local storage of saving group funds —usually in a wooden or metal box with three padlocks and three key-holders—are at risk of armed theft. Linkages with the formal banking system can alleviate some of these constraints. Financial institutions can offer mobile-enabled products that allow saving groups to safely store their funds as well as safely access their savings in emergencies and/or receive and repay internal loans made from those savings.

[1] “Savings at the Frontier,” MasterCard Foundation report, 2015