In our stories, we often talk about ‘savings clubs’ as a means of transformation for our beneficiaries. Many of our partners use this methodology to build economic stability and create opportunities in poor communities. They are also known as microloan groups, solidarity groups, and self-help groups. Here’s a brief guide to why they’re needed and how they work.
The underlying principle
You’ll have heard the famous line ‘Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime’. Instead of fish, the issue here is a lack of credit.
Economists amongst you may know that credit is an essential tool for a modern economy. And many of the poorest of the poor in rural Burundi have no access to financial services. Furthermore, it is common for people to live ‘hand-to-mouth’, meaning they are paid daily and tend to spend their wages on providing as best they can for their families. Understandably saving is not a priority for these people in their struggle to survive.
So when trouble strikes and people require a large sum of money for something such as a medical bill, a school fee or some business capital, they find themselves without funds to foot the bill. Banks may not be accessible for rural communities, and even if they are, a loan comes with an extremely high interest rate.
A Better Way
Savings clubs operate in a similar way to a co-operative, or a microloans initiative. A group of people agree to pay a small amount into the shared pot (like the box in the photo above) each week. Then, when a need arises, a member of the club can access the funds as a loan with a much lower interest rate than they would get anywhere else. Because a number of people in the group have consistently paid in, more money is available than any person could save alone.
Usually, the money is taken as a loan, with little or no interest. Once they can do so, the money is paid back into the pot, and ‘recycled’ by being given to somebody else.
Like any of us, when we invest in something financially, we often become emotionally invested as well. We yearn to see it succeed. This has a positive impact on relationships in the community, and the weekly group meeting can become a focal point for collaboration.
Hand-ups, not hand-outs
The beauty of this system is that when our GLO partners set up these groups, they put little-to-no money in themselves. It is funded by the group of beneficiaries who will benefit from it, whilst the partner provides training and oversight. The cost to the partner is mainly in staffing costs and supporting the communities long-term. It also frees them up to focus on larger-scale needs, instead of being preoccupied with multiple individuals.
Often, people use these loans to get them set up with, or to further develop a small business. As they invest in more materials, or better tools etc, the business grows and so individuals become more financially stable.
So instead of perpetuating a culture of aid and receiving, people are empowered to work their way out of poverty. This is far more sustainable! Savings clubs are a simple model, but they are making a big impact in Burundi!
People Who Have Benefitted from Savings Clubs
Claudine, one of a group of single mothers living on the streets of Bujumbura was able to make use of her savings club when her baby was sick. Read more in Single Mothers of the Streets.
Innocent’s family was too poor for him to complete his education. Thankfully he connected with a savings club and made excellent use of his small loan to build a thriving business. Read more in The Young Entrepreneur.
Odetta had fled from conflict in Burundi. Upon returning home she had to rebuild her life from nothing. A savings club was instrumental in transforming her life and creating ripples of renewal in her community. Read more in Repatriated and Renewed.
