Time for a deep breath

There is no question that the advent of Savings Groups represents a new and promising approach to bringing financial services to poor people. It certainly seems like they work, like they are a good thing for just about everyone, like they are better in many ways than old approaches, and like they are worthy of support for massive expansion.

But for those of us who have been working around microfinance for a few years or decades, all this sounds familiar. Weren’t we saying the same things about microcredit in the 1980’s and ’90’s? And then… didn’t things turn a little, uh, sour?

Remember what happened? Back in the microcredit days, we needed institutions to get scale, and because the institutions needed a lot of nurturing, we started focusing on the role of clients as income sources for institutions. We put more emphasis on the client as a commercial market than on how the institutions could serve the clients. We believed convenient claims, like “microfinance alleviates poverty”, and “borrowers start micro-businesses with their micro-loans”, with very little evidence other than a few anecdotes. 

If I had to mark the moment in which microcredit began to get weird, it was when MFI managers started greeting each other at conferences with the question, “How many clients do you have”? The clients had become objects, counters in a game between big firms. Well-funded development programs and projects grew up to help MFIs with their marketing, help them find investors, help them build their brands, helped them “go to scale” – and the clients got lost in the shuffle. We never celebrated when people got free of debt and left an MFI; instead, we tried to “reduce dropouts”. Microcredit became more and more about institutional performance, and less and less about what happened to poor people.

Something similar – not identical – to what happened in microcredit may be starting to happen with Savings Groups: there is beginning to be a pervasive and unchallenged belief that more people in savings groups is always a good thing, and that group membership is always good for members. As in microcredit, implementing organizations are defining their success almost exclusively by their outreach. Here’s a warning sign: some countries may be on their way to saturation in savings group formation, but existing programs are expanding into areas that are already served, and new entrants are launching programs in those countries, sometimes with very little coordination, and in some cases building portfolios by offering more attractive but perhaps less developmental terms – for instance, giving away cash boxes in areas where other practitioners have been patiently working to have their groups pay for their boxes.

Let’s slow down and breathe deeply for a moment. 

We all love Savings Groups in part because so far as anyone can tell, they are low risk. But low risk does not mean no risk. As we expand, we are likely to follow the same pattern as the expansion of microcredit. We’ll pick the low hanging fruit of entrepreneurial, eager, alert, healthy members first, and everything will go well. As we go deeper and deeper, we’ll be attracting members who are poorer, not as confident, more likely to be sick, more burdened by the many calls on their resources that people in poverty have, and frankly, our field staff, driven by a mandate for outreach, will find ways to include members who are reluctant to join – who come half-heartedly to the first meetings, and may drop out during the year. We’ll be struggling to reduce drop-outs, forgetting that for poor people in the wrong institution, dropping out may be escaping.

Poor people have had enough ups and downs in their lives that they do not need any more failures –  and dropping out of a group is a failure, whatever else happens. If we set people up to take risks that they are not ready for, what are we doing for them?

And, as we experiment with new products and approaches, as we link and federate and add-on and incentivize and simplify and complicate, arrange and rearrange and rearrange, not all of our innovations will work. While Savings Groups are relatively safe, some of the variations I have seen have a lot more risk, on the face of it.

The challenge and the opportunity for those of us working in Savings Groups is to remember to focus on what the group members need and want.  That’s why the various studies that are happening now are incredibly important. They can help keep us focused on what is actually happening. Hats off to the agencies - CARE, Oxfam, CRS and their partners - participating in the Gates-funded studies, and to Gates itself, to Aga Khan Foundation, its many collaborators, and the MasterCard Foundation for the studies on platforms and linkages that are just starting, and to DFS for the study of COSAMO about to come out of Kenya. We will learn a lot from these, and it will be very surprising if there are no surprises!

Savings groups are not about AKF or CARE or VSL or Oxfam or CRS — all of these organizations contain great people, but organizations have to eat also, and they have egos, and old conversations that drive present actions. We need to keep our eyes and minds open. We have an opportunity to find out what’s happening, be objective and constructive, and maybe inflect the course of history and make a difference in the lives of millions of poor people. It’s a very exciting time, and a very noble cause – but let’s be at least a little concerned the next time we find ourselves asking colleagues, “How many members do you have?”

Note: This article was originally published years ago,  but the date was changed to move it up higher on our chronological feed. It's still relevant!