No one is too poor to save
Observing this group reminded me that, irrespective of background, no one is too poor to save.
While I was observing, the Tushikamane Paris group were gathered on a mat under the shade of a tree to conduct their meeting, all the time adhering to a set of self-created, incredibly rigorous rules designed to ensure they stick to their aspirations of growing their savings and keep the dealings transparent. On the day I observed, the group added 300,000 Tanzanian shillings to the existing 4.7 million shillings (2,175 USD) already saved in a locked box. Across the Unguja (Zanzibar) islands there are a thousand more groups like this one, and 20,000 across Tanzania, mostly made up of women.
Tushikamane Paris group were supported by CARE Tanzania through the Village Savings and Loan Association (VSLA) initiative. Through local community-based trainers funded by CARE, the group are taught financial literacy skills, and develop money management capabilities based on participating in the transparent, structured and democratic group savings and loans scheme.
Group savers make ideal customers for the banks
While observing I was struck by their total commitment to save. It was clear; they took their participation in the informal savings group seriously. These (mostly) women were incredibly professional, rigorous and displayed such discipline toward growing their finances that they rivalled some of the best money managers I have come across. It was inspiring.
Therefore my second take-away message from observing was that these members seem like ideal clientele for the banks. After many months of rigorous saving, the Tushikamane Paris group last month linked with the national Microfinance Bank and opened a group savings account, which now holds the equivalent of a couple of thousand USD.
Through their informal savings group participation they had proved to themselves an ability to make regular savings deposits, and understand concepts such as buying shares, repaying loans and book-keeping skills. They are also incredibly strict about it all. Like many other savings groups, the Tushikamane Paris group apply fines to members who forget the rules of their constitution, are late to a meeting or default on loan repayments. They also fine each other if someone talks while the money is being counted!
All too often low-income earners face the greatest barriers to opening bank accounts, including unpredictable incomes, living in remote areas away from branches, and a lack of identification, all of which inhibit them from opening bank accounts. Around 77 percent of those living on less than $2 a day remain unbanked, dependent mainly on informal savings and loans, moneylenders (sometimes unscrupulous), friends and family to resolve their financial needs.
Overcoming the barriers
Many low-income earners and rural populations such as the Tushikamane Paris group do not have easy access to formal financial services. The ongoing exclusion of low-income earners from the financial system is exactly why programmes such as the Tanzania Link Up programme focus on supporting informal savings groups to link to formal financial services, including the banks. They also build into the programme a primary focus on developing financial capabilities before linking with a financial service provider. Altogether this is generating financial inclusion opportunities for poorer segments of society.
Globally there are 11.5 million people actively participating in informal savings groups. The methodology has been proven to support women to grow businesses, guard against economic shocks, and connect to the formal financial system. It can also create gender transformative outcomes, including giving women increased control over financial resources and an increase in women’s voice and decision-making power in the home and at community levels.
How do Village Savings and Loan Associations work?
- The group forms and creates a constitution, detailing how the group will operate. The process is supported by CARE, but the group remains independent.
- The constitution usually stipulates 5 members should be voted in to serve as chairperson, two money counters, secretary, and treasurer. They are given three keys to a padlock which secures money in steel box.
- Groups meet regularly (often weekly), and members save through the purchase of shares.
- The price of a share is decided by the group. In Tanzania it’s often around 2,000 shillings (just under $1 USD).
- At each meeting, members purchase between 1 and 5 shares. The share price is fixed for the entire cycle – usually 9 -12 months.
- Members can request from the group to take a loan from the total savings – they can access up to three times their total individual share investments.
- As groups mature, many seek the security of a bank account to hold their growing savings.
- At this point, and upon group consensus, they will be supported by community-based trainers on financial linkage training and Know Your Customer identification collection so they are able to open a group savings account.
Evidence from CARE’s experience working with VSLA groups
- Women in informal savings groups are twice as likely to start productive income-generating activities.
- Groups linked with bank accounts consistently grow their savings.
- Linked households experience a rise in female empowerment.
- Once linked, group members often open an individual bank account, creating more business for the banks.