Don’t you tell me how to spend my money: Why simple savings trumps collective investment »

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SUZANNE ANDREWS |  WEDNESDAY, JUNE 15, 2011 AT 11:09AM

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In even the most remote communities, savings groups are helping low-income households to mobilize their savings, organize with their neighbors and strengthen social networks.  And development practitioners across sectors are taking notice.  Many agencies are beginning to integrate savings groups into health, education, disaster mitigation and recovery and agriculture programming.  For the most part, this is beneficial, as savings are fundamental to achieving long-term development objectives and, most importantly, the personal goals of beneficiaries.  There is a fine line, however, between integrating savings groups into development programming, and inadvertently pushing programming objectives onto savings groups by encouraging co-investment in collective businesses or other agency-determined projects. 

The attraction of using savings groups as the foundation for a cooperative business is no mystery.  The groups have both the organizational structure and accumulated capital required for investment and cooperative management. Using savings groups to pursue a co-investment strategy for agriculture projects is likely to be more effective than funding the project directly as members are more invested if they contribute their own savings.

But this strategy raises serious questions as the investment of members’ savings into group businesses undercuts the primary benefit and message of savings groups, best captured by a wise farmer in El Salvador, No one tells me what to do with my money – that’s what I like best about savings groups – these savings are mine, as well as the sense of empowerment that comes with a ‘you decide’ democratic approach to group governance.  

Moreover, collective enterprises may not be the most profitable business model, especially in rural areas where profit margins are slim.  One group planned to invest all of its savings in a community bakery, but according to their records of baking activities in the past, members earned a minimum of 40 cents and a maximum of 2 dollars for the day’s work, well below the $3-5 earned by day laborers in the community. 

In some cases individual members are able to opt out of co-investment in group businesses, and invest their capital independently. In others, groups have made the decision to postpone co-investment indefinitely due to resistance from independently-minded members.  One member who convinced her group to postpone investment in a mill explained, I need my savings to pay for school expenses and new shoes for my children.  I am planning to spend part of my savings to start a store in my house.  If we had decided to buy a mill, I wouldn’t be able to use my savings.  

Yet most members do not opt out.  As members are often dependant on the NGO for technical support and potential benefits, they are unlikely to challenge the NGO’s guidance.  Instead, members of savings groups pursuing a co-investment strategy tend to save at notably lower rates than other groups, often saving one-fifth as much as groups in communities with similar income levels. This is a clear sign that members are less motivated to contribute their scarce savings to collective enterprises than for their own use, and that savings groups are most powerful when kept simple, with innovation and investment decisions left up to the group.