Over 70% of people in emerging markets do not have a formal bank account (Goss, Mas, Radcliffe, & Stark, 2011). Despite exclusion from what we consider formal banking, many people in emerging markets have figured out their own ways to save money. An increasing number of people are participating in informal savings groups.
Our goal in this series is to explore the effectiveness of savings groups. In this post, we’ll explain how they work and what the existing benefits are. Next week, we’ll explore their inefficiencies and ways the increasing availability of mobile money services can provide the opportunity to make them more effective.
What is an Informal Savings Group?
An informal savings group is a social organization formed to help community members save money for specific purposes (either individual or community level). The two most common examples are Rotating Savings and Credit Associations (ROSCAs) or Accumulated Savings and Credit Associations (ASCAs). ROSCAs function by taking monthly deposits from each member of a group and then giving the whole monthly sum to one member of the group. The recipient of the monthly sum is based on a predetermined rotation, ensuring each participant will eventually receive a large payout. ASCAs also require group members to make regular contributions. Instead of rotating payouts, the ASCA group fund is used to make loans that are paid back with interest. Loans are made either to group members or trusted third parties. After a certain period of time (often six months to a year) the group fund and its proceeds from interest are paid back to the original members.
How Informal Savings Groups Work
Groups have different names and missions across countries. In South Africa, for example, you’ll find makgotlas for funeral expenses or stokvels for group purchasing or community entertainment. In Kenya, you’ll often find groups designed to save for a large investment that benefits the community, usually investing in a business or the Nairobi Stock Exchange.
Regardless of the name or purpose, most groups have a similar structure and protocol. Members are required to make a small monthly contribution to the community fund. Groups usually have 15-20 members and are governed by a strict set of rules, either written or unwritten, depending on the group’s literacy. Breaking the rules is considered “taboo” and comes with social repercussions and possible financial penalties.
According to FinMark Trust’s FinScope survey, there were roughly 37 million people participating in some kind of informal savings group in East Africa as of 2009. In West Africa, Nigeria alone had nearly 41 million people participating in such groups (Napier, 2009). The value these individuals gain from participation in a savings group includes both tangible economic benefits as well as intangible social benefits.
How Do Informal Savings Groups Provide Economic Benefits to Their Members?
Reducing Pressures on Free Cash
In emerging markets, an individual’s cash flows are highly uneven and cash on hand is subject to the pressures of family members and friends. Women in particular find that control over their money is limited, too often due to a frivolous or alcoholic husband. These circumstances make it nearly impossible to save a sum of money large enough to invest in a piece of equipment that would improve a business, purchase materials for home improvement, or make any other large purchase to increase quality of life. Savings allows members to shed the pressure placed on their free cash by husbands, neighbors, and friends. Ultimately, this enables people to commit their surplus cash towards future purchases with the potential to improve their quality of life.
Enabling Access to Funds for Unexpected Life Events or Large Purchases
Having access to a financial savings tool makes it possible to access to a pool of capital in case of emergencies or save money for a large purchase. In case of unforeseen illness, members can rely on their group members and the resulting group fund to quickly take out a loan. Ultimately, group members have to repay the loans or end up contributing the same amount over twelve months as if they had saved the money themselves, but participating in a group creates additional flexibility and builds a social structure that creates discipline. Such discipline also enables members to save up for large purchases, since the cash is safely put away for extended periods.
The Importance of Social Capital to Informal Savings Groups
Informal savings groups in South Africa provide fascinating insight on the importance of social capital to group members. South Africa has the most developed formal banking sector in sub-Saharan Africa, where 63% of the country has access to formal banking as of 2011 (Khumalo, 2011). Yet, surveys have shown that nearly 90% of members that save primarily through ISGs also have a formal savings account (Irving, 2005). These members choose to participate in an informal savings group because the social structure it provides creates benefit that cannot be realized by saving at a bank. There are three key benefits that the group’s social structure creates:
Disciplined Saving: As mentioned briefly above, involvement in a group forces members to set savings goals and meet them each month. The negative repercussions (both economic and social) associated with failing to meet these goals create significant incentive to meet the monthly commitment. Maintaining this level of discipline is much more difficult as an individual, making group membership more appealing.
Increasing the Strength of Social Networks: Working together towards the same financial goal as part of a group that meets each month creates strong bonds. It is common knowledge in the Western world that you are more likely to get a job if referenced to a potential employer by someone you both know. This principle works the same way in the developing world. Individuals are able to leverage other members of the group to further create opportunities for themselves.
It’s Fun: It is important not to forget the human aspect of informal savings groups. Groups are formed with trusted friends or family and can often be a perfect excuse to get together once a month to socialize. Beyond just the economic opportunities, savings groups also offer a more enjoyable way to save money in comparison to simply visiting a stuffy bank branch to make a deposit.
IN THE 19TH CENTURY, the paramount moral challenge was slavery. In the 20th century, it was totalitarianism. In this century, it is the brutality inflicted on so many women and girls around the globe: sex trafficking, acid attacks, bride burnings and mass rape.
Yet if the injustices that women in poor countries suffer are of paramount importance, in an economic and geopolitical sense the opportunity they represent is even greater. “Women hold up half the sky,” in the words of a Chinese saying, yet that’s mostly an aspiration: in a large slice of the world, girls are uneducated and women marginalized, and it’s not an accident that those same countries are disproportionately mired in poverty and riven by fundamentalism and chaos. There’s a growing recognition among everyone from the World Bank to the U.S. military’s Joint Chiefs of Staff to aid organizations like CARE that focusing on women and girls is the most effective way to fight global poverty and extremism. That’s why foreign aid is increasingly directed to women. The world is awakening to a powerful truth: Women and girls aren’t the problem; they’re the solution.
“My sister-in-law made fun of me, saying, ‘You can’t even feed your children,’ ” recalled Saima when Nick met her two years ago on a trip to Pakistan. “My husband beat me up. My brother-in-law beat me up. I had an awful life.” Saima’s husband accumulated a debt of more than $3,000, and it seemed that these loans would hang over the family for generations. Then when Saima’s second child was born and turned out to be a girl as well, her mother-in-law, a harsh, blunt woman named Sharifa Bibi, raised the stakes.
“She’s not going to have a son,” Sharifa told Saima’s husband, in front of her. “So you should marry again. Take a second wife.” Saima was shattered and ran off sobbing. Another wife would leave even less money to feed and educate the children. And Saima herself would be marginalized in the household, cast off like an old sock. For days Saima walked around in a daze, her eyes red; the slightest incident would send her collapsing into hysterical tears.
It was at that point that Saima signed up with the Kashf Foundation, a Pakistani microfinance organization that lends tiny amounts of money to poor women to start businesses. Kashf is typical of microfinance institutions, in that it lends almost exclusively to women, in groups of 25. The women guarantee one another’s debts and meet every two weeks to make payments and discuss a social issue, like family planning or schooling for girls. A Pakistani woman is often forbidden to leave the house without her husband’s permission, but husbands tolerate these meetings because the women return with cash and investment ideas.
Saima took out a $65 loan and used the money to buy beads and cloth, which she transformed into beautiful embroidery that she then sold to merchants in the markets of Lahore. She used the profit to buy more beads and cloth, and soon she had an embroidery business and was earning a solid income — the only one in her household to do so. Saima took her elder daughter back from the aunt and began paying off her husband’s debt.
When merchants requested more embroidery than Saima could produce, she paid neighbors to assist her. Eventually 30 families were working for her, and she put her husband to work as well — “under my direction,” she explained with a twinkle in her eye. Saima became the tycoon of the neighborhood, and she was able to pay off her husband’s entire debt, keep her daughters in school, renovate the house, connect running water and buy a television.
“Now everyone comes to me to borrow money, the same ones who used to criticize me,” Saima said, beaming in satisfaction. “And the children of those who used to criticize me now come to my house to watch TV.”
Today, Saima is a bit plump and displays a gold nose ring as well as several other rings and bracelets on each wrist. She exudes self-confidence as she offers a grand tour of her home and work area, ostentatiously showing off the television and the new plumbing. She doesn’t even pretend to be subordinate to her husband. He spends his days mostly loafing around, occasionally helping with the work but always having to accept orders from his wife. He has become more impressed with females in general: Saima had a third child, also a girl, but now that’s not a problem. “Girls are just as good as boys,” he explained.
Saima’s new prosperity has transformed the family’s educational prospects. She is planning to send all three of her daughters through high school and maybe to college as well. She brings in tutors to improve their schoolwork, and her oldest child, Javaria, is ranked first in her class. We asked Javaria what she wanted to be when she grew up, thinking she might aspire to be a doctor or lawyer. Javaria cocked her head. “I’d like to do embroidery,” she said.
As for her husband, Saima said, “We have a good relationship now.” She explained, “We don’t fight, and he treats me well.” And what about finding another wife who might bear him a son? Saima chuckled at the question: “Now nobody says anything about that.” Sharifa Bibi, the mother-in-law, looked shocked when we asked whether she wanted her son to take a second wife to bear a son. “No, no,” she said. “Saima is bringing so much to this house. . . . She puts a roof over our heads and food on the table.”
Sharifa even allows that Saima is now largely exempt from beatings by her husband. “A woman should know her limits, and if not, then it’s her husband’s right to beat her,” Sharifa said. “But if a woman earns more than her husband, it’s difficult for him to discipline her.”
WHAT SHOULD we make of stories like Saima’s? Traditionally, the status of women was seen as a “soft” issue — worthy but marginal. We initially reflected that view ourselves in our work as journalists. We preferred to focus instead on the “serious” international issues, like trade disputes or arms proliferation. Our awakening came in China.
After we married in 1988, we moved to Beijing to be correspondents for The New York Times. Seven months later we found ourselves standing on the edge of Tiananmen Square watching troops fire their automatic weapons at prodemocracy protesters. The massacre claimed between 400 and 800 lives and transfixed the world; wrenching images of the killings appeared constantly on the front page and on television screens.
Yet the following year we came across an obscure but meticulous demographic study that outlined a human rights violation that had claimed tens of thousands more lives. This study found that 39,000 baby girls died annually in China because parents didn’t give them the same medical care and attention that boys received — and that was just in the first year of life. A result is that as many infant girls died unnecessarily every week in China as protesters died at Tiananmen Square. Those Chinese girls never received a column inch of news coverage, and we began to wonder if our journalistic priorities were skewed.
A similar pattern emerged in other countries. In India, a “bride burning” takes place approximately once every two hours, to punish a woman for an inadequate dowry or to eliminate her so a man can remarry — but these rarely constitute news. When a prominent dissident was arrested in China, we would write a front-page article; when 100,000 girls were kidnapped and trafficked into brothels, we didn’t even consider it news.
Amartya Sen, the ebullient Nobel Prize-winning economist, developed a gauge of gender inequality that is a striking reminder of the stakes involved. “More than 100 million women are missing,” Sen wrote in a classic essay in 1990 in The New York Review of Books, spurring a new field of research. Sen noted that in normal circumstances, women live longer than men, and so there are more females than males in much of the world. Yet in places where girls have a deeply unequal status, they vanish. China has 107 males for every 100 females in its overall population (and an even greater disproportion among newborns), and India has 108. The implication of the sex ratios, Sen later found, is that about 107 million females are missing from the globe today. Follow-up studies have calculated the number slightly differently, deriving alternative figures for “missing women” of between 60 million and 107 million.
Girls vanish partly because they don’t get the same health care and food as boys. In India, for example, girls are less likely to be vaccinated than boys and are taken to the hospital only when they are sicker. A result is that girls in India from 1 to 5 years of age are 50 percent more likely to die than boys their age. In addition, ultrasound machines have allowed a pregnant woman to find out the sex of her fetus — and then get an abortion if it is female.
The global statistics on the abuse of girls are numbing. It appears that more girls and women are now missing from the planet, precisely because they are female, than men were killed on the battlefield in all the wars of the 20th century. The number of victims of this routine “gendercide” far exceeds the number of people who were slaughtered in all the genocides of the 20th century.
For those women who live, mistreatment is sometimes shockingly brutal. If you’re reading this article, the phrase “gender discrimination” might conjure thoughts of unequal pay, underfinanced sports teams or unwanted touching from a boss. In the developing world, meanwhile, millions of women and girls are actually enslaved. While a precise number is hard to pin down, the International Labor Organization, a U.N. agency, estimates that at any one time there are 12.3 million people engaged in forced labor of all kinds, including sexual servitude. In Asia alone about one million children working in the sex trade are held in conditions indistinguishable from slavery, according to a U.N. report. Girls and women are locked in brothels and beaten if they resist, fed just enough to be kept alive and often sedated with drugs — to pacify them and often to cultivate addiction. India probably has more modern slaves than any other country.
Another huge burden for women in poor countries is maternal mortality, with one woman dying in childbirth around the world every minute. In the West African country Niger, a woman stands a one-in-seven chance of dying in childbirth at some point in her life. (These statistics are all somewhat dubious, because maternal mortality isn’t considered significant enough to require good data collection.) For all of India’s shiny new high-rises, a woman there still has a 1-in-70 lifetime chance of dying in childbirth. In contrast, the lifetime risk in the United States is 1 in 4,800; in Ireland, it is 1 in 47,600. The reason for the gap is not that we don’t know how to save lives of women in poor countries. It’s simply that poor, uneducated women in Africa and Asia have never been a priority either in their own countries or to donor nations.
ABBAS BE, A BEAUTIFUL teenage girl in the Indian city of Hyderabad, has chocolate skin, black hair and gleaming white teeth — and a lovely smile, which made her all the more marketable.
Money was tight in her family, so when she was about 14 she arranged to take a job as a maid in the capital, New Delhi. Instead, she was locked up in a brothel, beaten with a cricket bat, gang-raped and told that she would have to cater to customers. Three days after she arrived, Abbas and all 70 girls in the brothel were made to gather round and watch as the pimps made an example of one teenage girl who had fought customers. The troublesome girl was stripped naked, hogtied, humiliated and mocked, beaten savagely and then stabbed in the stomach until she bled to death in front of Abbas and the others.
Abbas was never paid for her work. Any sign of dissatisfaction led to a beating or worse; two more times, she watched girls murdered by the brothel managers for resisting. Eventually Abbas was freed by police and taken back to Hyderabad. She found a home in a shelter run by Prajwala, an organization that takes in girls rescued from brothels and teaches them new skills. Abbas is acquiring an education and has learned to be a bookbinder; she also counsels other girls about how to avoid being trafficked. As a skilled bookbinder, Abbas is able to earn a decent living, and she is now helping to put her younger sisters through school as well. With an education, they will be far less vulnerable to being trafficked. Abbas has moved from being a slave to being a producer, contributing to India’s economic development and helping raise her family.
Perhaps the lesson presented by both Abbas and Saima is the same: In many poor countries, the greatest unexploited resource isn’t oil fields or veins of gold; it is the women and girls who aren’t educated and never become a major presence in the formal economy. With education and with help starting businesses, impoverished women can earn money and support their countries as well as their families. They represent perhaps the best hope for fighting global poverty.
In East Asia, as we saw in our years of reporting there, women have already benefited from deep social changes. In countries like South Korea and Malaysia, China and Thailand, rural girls who previously contributed negligibly to the economy have gone to school and received educations, giving them the autonomy to move to the city to hold factory jobs. This hugely increased the formal labor force; when the women then delayed childbearing, there was a demographic dividend to the country as well. In the 1990s, by our estimations, some 80 percent of the employees on the assembly lines in coastal China were female, and the proportion across the manufacturing belt of East Asia was at least 70 percent.
The hours were long and the conditions wretched, just as in the sweatshops of the Industrial Revolution in the West. But peasant women were making money, sending it back home and sometimes becoming the breadwinners in their families. They gained new skills that elevated their status. Westerners encounter sweatshops and see exploitation, and indeed, many of these plants are just as bad as critics say. But it’s sometimes said in poor countries that the only thing worse than being exploited in a sweatshop is not being exploited in a sweatshop. Low-wage manufacturing jobs disproportionately benefited women in countries like China because these were jobs for which brute physical force was not necessary and women’s nimbleness gave them an advantage over men — which was not the case with agricultural labor or construction or other jobs typically available in poor countries. Strange as it may seem, sweatshops in Asia had the effect of empowering women. One hundred years ago, many women in China were still having their feet bound. Today, while discrimination and inequality and harassment persist, the culture has been transformed. In the major cities, we’ve found that Chinese men often do more domestic chores than American men typically do. And urban parents are often not only happy with an only daughter; they may even prefer one, under the belief that daughters are better than sons at looking after aging parents.
WHY DO MICROFINANCE organizations usually focus their assistance on women? And why does everyone benefit when women enter the work force and bring home regular pay checks? One reason involves the dirty little secret of global poverty: some of the most wretched suffering is caused not just by low incomes but also by unwise spending by the poor — especially by men. Surprisingly frequently, we’ve come across a mother mourning a child who has just died of malaria for want of a $5 mosquito bed net; the mother says that the family couldn’t afford a bed net and she means it, but then we find the father at a nearby bar. He goes three evenings a week to the bar, spending $5 each week.
Village Saving and Loan Association is small groups of people who save their money together and by turn make use of these saving as a loan. As this activity goes on, saving become more accumulated hence members can earn more profit. In comparison with conventional financial services, VSLA provides a relatively simpler procedure for loan applicants.
Informal ways of saving among groups has been going on for years in numerous parts of the world. VSLA provides a clearer way of loan payment. This is a flexible method which can easily be implemented in rural regions to empower the local people.
There is usually a committee member team which is elected every year by the members. The committee members have clear roles but not limited. This is to make sure everyone plays a role in the whole system.
Every group has around 15 to 25 members which voluntarily choose to be in the group. Every week the group members meet and they decide to purchase a share in order to save. The share price is determined by the group.
flexible saving scheme
Since the saving is flexible across the members, the system is very simple but is strong. The members do not have to save as much as each other. This allows the members with lower income to save more frequently though smaller.
All savings are accumulated in form of loan which members can borrow later. Each member can borrow as much as three times their individual savings. Loans are for a maximum period of 90 days in the first year and loans may be repaid in flexible instalments at a monthly service charge which is determined by the group.
Social loan is a new service that provides members with a basic form of insurance. This loan functions as a community safety and may serve is special occasions – such as emergency assistance – for the entire community which includes members and non-members. Social fund is not aimed to grow, but is set a level which covers basic needs.
The VSLA group does not use a complex accounting system. To record the individual saving and loan liabilities of the members, VSLA passbooks are used. This is appropriate for members with limited literacy. The Lock box contains the material, passbooks, loan funds and social funds which is safeguarded by the group box-keeper between meeting.
Swissjumprope as an athletic campaign, seeks to support women. Through the VSLA program which has been started by Care organization since 1991, you can read more about VSLA or start donating online through Care’s international secretariat in Geneva, Switzerland .
SwissJumpRope is an athletic project to spread the word about VSLA program. It will develop women access to financial loans in African countries. This project runs in Switzerland on March 2018. You can easily take a step to improve lives of mothers and childrens in Africa by sharing this project with your friends or by direct donating.