Grassroots Banking

While in Nampula, Mario, Samuel and I met up with 10 groups of men and women, perhaps 200 people, who all expressed to us the benefit that has been brought to their lives through something called village-based savings and loan programs. These were 200 of the 27,000 people involved in such groups throughout Mozambique, and over half a million around the world.

There is no need to reinvent the wheel when such a proven methodology can be borrowed and implemented in our own communities of influence.

We wanted to travel to Nampula to observe some of these groups first-hand, to evaluate for ourselves whether or not they are having an impact on the lives of their members. And person after person, story after story, confirmed that the benefit is real.

The foundational component of the village-based savings and loan program is organizing community members into independent groups of 15 - 30 people for the purpose of saving money. The savings aren't big: many people are able to put aside $0.20 each week, if anything at all; others have saved as much as $6 after a good week at the market, but that's rare. One group, with 22 members, saved a little under $4 this week: on average, $0.17 each.

Each group's members collect the savings and store them in a wooden box. Keys for the box's two locks are kept with two trustworthy group members, ensuring that the box is opened only in front of the group.

Some people question the security of the box. Couldn't it be stolen and opened easily enough with an axe or a rock? The group takes certain precautions, such as selecting a group member to store the box who has a secure house (which means a front door that locks). The reality, though, is that assets are not secure in any place or any form in rural Africa. To underline that point, the leader of one of the groups we met with was absent: his goats had been stolen the night before, and he was off pursuing the thief.

We also asked about the necessity of the pooled savings concept. After all, couldn't each person keep their own savings in their own homes? Time and again, the women told us about the dangers of keeping money in their homes: before joining these groups, savings were always consumed by myriad little purchases at the market, or by neighbours who begged to borrow it, or by husbands who washed it down their throats at the local filling station. The box, they said, injected discipline into their savings that was difficult to achieve otherwise.

A second important element of the methodology is that group members can request loans from the accumulated capital, subject to approval from fellow group members. The terms are strict: often 30-day loans at 10% interest per month, but the group sets these terms themselves. Interest generated from loans is returned to the box as well, to be distributed to deposit-holders at the end of the year. Because the group sets its own rates, and because no money leaves the group (as it does for commercial and microcredit banks), group members reported being satisfied with this lending option.

"We like being able to borrow from the box," one woman explained to me. "We no longer have any external dependencies."

Better still, because the group is on the hook for the loan if it is unrecoverable, the group frequently comes together to help a neighbour with a struggling business in order to improve the likelihood that the borrower will not default. This is personal banking at its finest.

Each group exists for cycles of one year at a time. At the end of the year, outstanding loans are repaid and savings are returned to deposit-holders with any interest accumulated from loans taken out over the year. Each member keeps a record of her savings, so she can know precisely how much money she has stored in the box at any given time. Despite these records, the annual distribution always proves shocking. One woman knew that she would receive $40 at the end of last year, but was still in disbelief when distribution day came around. She had never held so much money at one time in her life. She described to us how she went home and carefully hid the money, and over the following days would open her hiding place, take out the $40 and just hold it in her hand and gaze at it before returning it to safety.

Members could put their accumulated savings back into the box at the beginning of the following cycle, but I didn't meet anyone who had ever done that. Everybody has a place to invest their annual nest egg: school tuition for their children, a clay oven to start a bakery business, a field to grow vegetables, a bicycle to improve access to markets, pigs for reproduction.

One man, who lived under a leaky thatched roof, vowed that if he could ever save enough money to buy tin sheets to improve his house, he would sleep the first night on top of the new roof as a sign of thankfulness. When we spoke with him, he had recently completed his dreamed-about home improvements, and was nursing a cold that he caught sleeping in the rain on top of his house.

Story after story, people told us how their lives have improved as a result of being in these groups. That several of the groups were on their fourth yearly cycle is a testament that they believe there is real value in belonging to the group. These well-established groups, who have been through several cycles of saving and investing, were most positive.

One young group explained to us that they had recently started after having seen the success of a neighbouring group. They had previously stayed on the sidelines as skeptics, until jealousy over the investments that the original group was able to make convinced them to form their own.

Of course, none of this means that the methodology is a panacea. Facilitating community members to mobilize into village-based savings and loan programs makes a valuable contribution towards fighting poverty, but is not a solution all by itself. It's not perfect, but we didn't meet anyone who wanted to quit their involvement in their groups, either.