In Dean Karlan’s “The Next Stage of Financial Inclusion,” Dean makes the point that NGOs have had a vital role in creating new markets and reaching populations that are not profitable for commercial financial institutions. While NGOs pioneered microfinance in the 1980s, I agree that the role for NGOs now is to reach those who are too distant, too poor or too young to be reached through formal financial institutions. I also agree that that reaching this population may likely require a subsidy. Karlan profiles savings groups as an example of NGOs innovations, using as an example the Oxfam America/Freedom from Hunger/Stromme Foundation Saving for Change Initiative in Mali that grew to 445,000 women organized into nearly 20,000 groups in thousands of villages over seven years.
Showing the power of this simple NGO driven methodology the number of savings group members worldwide has grown from 1 million to an estimated 10 million in just seven years with Care, Catholic Relief Services, Plan International, Oxfam America, Aga Khan, Freedom from Hunger and now hundreds of local NGOs and thousands of village volunteers taking the lead. What started in a few a few villages in a remote corner of Niger has spread to 65 countries. The systems and institutional capacity are in place to increase savings group outreach 5 to 10 fold over the next decade – between 50 and 100 million group members and with modest outside support could rival institutional microfinance in terms of outreach.
Savings groups are perhaps the best example of a “smart subsidy that I have observed in my decades in the development trenches. I calculate that it costs about a dollar per villager to introduce savings groups to a village in Mali and that introducing this methodology – according to IPA research carried out in 500 villages in Mali – has led to a village wide decrease in chronic hunger and growing assets – mainly in the form of livestock – while these groups spread virally to neighboring villages reducing this very low cost even further. While a higher percentage of the slightly better off and better socially connected join first – they could afford to take risks – the poorest joined at a rate that was only a few percentage points behind according to the IPA study.
Not only do savings groups reach a population that is far more rural and far poorer than most any financial institution they reach this population at a small fraction of the cost and staff of the institutional alternatives. In the Saving for Change Mali program the ratio was once NGO trainer for each 2,000 group members. Once the groups are trained they operate on their own, and the number of the groups continue with minimal (or no) outside trainer support. (Until March 2013 I lead the Saving for Change initiative for Oxfam America with our partner Freedom from Hunger. Saving for Change also operates in Senegal, Cambodia, El Salvador and Guatemala).
We savings group advocates believe – and we have evidence to back us up – that the fastest, simplest and most sustainable way to improve savings and borrowing for the world’s poorest is through these groups. Savings groups will probably never be profitable but at a cost of $1,000,000 per 1,000 villages they are certainly the most cost effective.
Two comments sum up for me the value of savings groups based on what I have heard during my field visits: “Why pay them when we can pay ourselves,” and “life is much less stressful now.