A friend wrote me this morning and asked, “To put it simply, what do savings groups offer that micro finance doesn’t?”
Great question! Here was my quick answer.
- Proximity, and low barriers to entry. No paper work, photo ID, applications, fees, bus ride into town, to access services.
- Commitment savings. Members agree to save, and other members put gentle or strong pressure on everyone to save at least the minimum.
- No money leaves the village. Interest is returned to members. Near zero administrative costs.
- Extremely fast disbursement. Get money when you need it.
- Individual loans - no joint and separate guarantees like Grameen style institutions require.
- Flexibility. Everyone knows when child is sick or breadwinner dies, and group allows people to repay late.
- Use as platform. Groups are an excellent platform for training, social marketing, collective purchase of inputs, access to social services.
- Social fund: most groups keep a separate fund to help out with births, funerals, and such.
- “Special sauce”. Groups have something in the area of democracy and empowerment that goes beyond what formal institutions can offer.
- Amounts that can be borrowed are low relative to MFIs, especially in the first year or two of a group’s existence.
- In most situations, group membership is not taken as evidence of credit-worthiness by formal institutions although this may be changing slowly.
- Groups do not support long-term savings nor long-term loans. That’s an argument for using multiple services, not replacing groups by MFIs, though.
Readers, what would you add or subtract from those lists?