The poor, often unconnected to banks, can benefit from savings groups because they offer a safe place to save money, the chance to borrow small amounts on flexible terms, and a strong support group.
Saving for Change (SfC) is an Oxfam America program that operates in 13 countries throughout the world with 680,000 members, most of them women. Saving for Change works in rural areas, training women to save regularly by meeting every week to put a few cents into a savings box and to borrow from their group’s fund as needed--tiny loans that they later pay back with interest.
At the end of a savings cycle, typically one year long, the fund is divided among the members, who receive not only their own savings but a portion of the profit. The yearly return on the savings is 30 to 40 percent or more. The end of the savings cycle is scheduled thoughtfully, usually during the beginning of the hungry season when members are more vulnerable. The money shared out is mainly used by the women for food, business, and livestock, with 41 percent of the total share-outs being used for income-generating purposes.
The most extensive part of the study, "Saving for Change: Financial Inclusion and Resilience for the World’s Poorest People," was conducted in Mali over a three-year period, where some villages were randomly selected to receive the savings program and others were not.
A snapshot of who joins Saving for Change:
- 82 percent of households live on less than $1.25 a day
- Financially and socially active women, usually those who run a business or own livestock
- Women who join are more likely to be in a leadership role within their household or village
- Women who are less socially connected tend to join later on, typically six months after the group first formed in their village
Women in Saving for Change villages felt positive impacts. They:
- Saved 31 percent more than women in control villages
- Took out twice as many loans from savings groups
- Were 10 percent less likely to be chronically food insecure than households in control villages
- Increased their livestock holdings, owning 13 percent more in livestock than those in control villages, or $120 more, which buys four goats, three ewes, or one calf
- Reported more village-level solidarity than non-SfC members
Many of the women in the Savings for Change study took advantage of the lending opportunity by borrowing $10 and $20 dollar loans during their savings cycles.
"Freedom from Hunger's research indicates that while some women in these groups are taking small loans to start and nurture small businesses, others are taking loans to weather the myriad challenges of life, whether an unexpected health expense or simply making sure there is enough food," states Nicki Fleuhr-Lobban in a blog post by Huffington Post and InterAction.
While the Oxfam study shows evidence of Saving for Change helping families to become more resilient against economic shocks like food price increases, any evidence of households climbing the socioeconomic ladder and beginning to reverse poverty has gone undetected so far in the reports.
But founder and executive director for Global Reach Sean Kline says that savings groups could be a significant tool for the future of the unbanked and underserved poor: "Savings-led, self-managed banking is not only a powerful phenomenon in the most remote rural areas where banks and [microfinance institutions] fear to tread, but this is a good-enough solution to many, though not all, financing needs among millions of poor people."