Community-based Savings & Credit: Experiences in Implementation

1. Community-based Savings & Credit: Experiences in Implementation Nqe Dlamini, 17 March 2009

2. Scope of presentation • What is Community-based Savings & Credit? • Situation analysis / Cues for intervention • Description of the model / programme • Experiences in Implementation • What does this mean for government/ LED actors? • Motivation and conclusion

3. What is Community-based Savings & Credit? (1) • It is savings (not credit) led • It is managed by Savings & Credit Groups (SCGs) • It involves strict adherence to rules & procedures • It builds on local knowledge & practices • It is share-based, from one to five per meeting

4. What is Community-based Savings & Credit? (2) • Groups operate in annual cycles • Capital shared annually according to the shares held by each member • Transparency in all transactions • Loans are issued on approval of the SCG • Interest/ service charge is set by the group • Duration of loans is short • An emergency/ social security fund

5. What is Community-based Savings & Credit? (3) • Constitution governs operations • Office bearers elected annually • Funds retained in a secure money box • Most capital is out on loan • Social security funds awarded as grants • Groups range from 8 to 22 in size • No apex / overarching structure • No external credit or grants

6. Environment – cues for Intervention • Indigenous instruments: A culture of savings exists • Access to social grants (pensions, child support, HIV/AIDS, disability) flowing monthly • Stokvels & Burial Societies frequently exploit less informed/less alert members & do not bring good returns on investment • Most are end-of-year, food buying stokvels, with no returns on savings • Limited or no access by the poor to the banks (location, collateral, mismatch of financial services) • Micro-finance lenders including Loan Sharks & Mashonisas are profit centred, & mostly exploitative

7. The financial services model • The model shows strong results & sustainability trends • Small adaptations of generic model • Combination of: • Tight controls/ rigorous adherence to procedure • Some flexibility for members to redesign • Flexible use of credit • Introduced with partnership emphasis, shared vision & complementary contributions

8. Promotion of Livelihood Security & financial services for the poor & vulnerable groups through: The 3 pronged approach 1. Promotion of Savings & Credit Groups - SCGs Financial Services & Livelihood Security for Poor & Vulnerable Groups 2. Life skills training of Groups 3. IGA/ Micro-enterprise training: Isiqalo

9. Programme target and purpose Target: • Poor & vulnerable households whose income is irregular & less reliable; & • Households at the periphery of national economy / or not benefiting from it Purpose: • To help the poor & vulnerable manage their cash-flow • To assist them to save as a group in order to provide useful lump sums for life-cycle-events • To prepare them for enterprise development (Isiqalo) • To establish ambassadors of the model / self replication

10. What is Isiqalo? (Enterprise development) • Isiqalo is a very exciting course accessible to illiterate people • Its adapted from Bangladesh & African countries • It covers critical success factors, i.e. the market, knowledge & skills, capital, income & profitability, and ability of an enterprise to pay for family expenses Business planning exercise: Hopewell, Richmond, 2007

11. Experience: Group Features • Low drop out rate (< 6% pa including deaths) • Many groups grow in size as the word spreads • Atmosphere of harmony & mutual support • Stable & robust • Adherence to rules through routine practices • High interest in saving – many save more than the minimum share value • Sense of empowerment & growth in self-esteem

12. Experience: Financial performance (1) • Approximately 2 000 members in 140 groups • No funds have gone unaccounted for • Lump sums of money can be accessed when needed (consumption or production uses) • 99.9% repayment rate on loans • Annual rate of return on savings in excess of 50% • 50 - 60% capital utilisation rate

13. Experience: Financial performance (2) • Social Funds responding to acute needs • Transaction costs remarkably low • Rapidly escalating demand - indicates positive grassroots experience of programme

14. Experience: Growth trends Growth in LEAP KZN Start in late 2005 (on a low-key pilot basis) From a base of 324 in Jan 2008, total number of group members is 2 000 Percent of men climbing from 7 to almost 10 percent

15. Programme distinctive features The programme offers: • Financial security for the poor • Development of self-reliance and resilience to shocks • A platform for climbing out of poverty • Social capital and trust between people • Institutional capacity to manage financial services & enable collective action

16. Social Grants complement activities Members invest social grants in their Savings & Credit Groups Community-based financial services are an effective strategy for participants to harness social grants towards sustainable livelihoods • Social grants are good for the very vulnerable • They put cash into many homes where there is acute vulnerability: • Lack of income • HIV/AIDS • A growing TB threat

17. Implications for Government Financial services & the poor Credit & grants can be destructive Many believe that credit & grants undermine savings & self-reliance Premature credit is a threat to livelihood security & economic development Offers of credit induce the vulnerable & ill-informed into risky & at times calamitous behaviour • Embrace an asset-based approach • Acknowledge that the poor & vulnerable need assets, not debt • Resist making the assumption that savers need credit • Encourage local initiative • Resist providing handouts

18. Motivation for community-based financial services • In summary government should support initiatives that enable asset building • Develop a more critical & nuanced analysis of microfinance • Acknowledge that not all microfinance is suitable for the poor & vulnerable households • Powerful platform for financial & consumer education • Powerful platform for economic development/ livelihood security • Linkages with / solid foundation for income generation • Supports household food security • Ensuring improved resilience in times of life cycle events, such as sickness, death & even natural disasters

19. Conclusion • The approach ensures sustainability beyond the life of projects • It counters bad practices amongst informal local models, whilst harnessing these deeply embedded semi-traditional practices • It builds social capital through mutual support of members - this is a key resource in times of crisis or family shock; support & cash is provided in the most efficient & responsive way • It has clear, simple procedures & systems understood by all • It gives attention to detail/controls in group practices

20. Conclusion ctd. It spreads understanding across the groups in sound financial management & fair, transparent investment practices It has the ability to meet a major market gap – meeting acute needs in areas where there are either poor or no financial services This model reaches more people compared to MFIs Benefits are spread to other household members It empowers participants especially women It facilitates and encourages socio-economic dialogue Provides a solid platform for enterprise development

21. 123 Jabu Ndlovu Street, Pietermaritzburg Website: www.saveact.org.za info@saveact.org.za or nqe@yonkesolutions.co.za Ngiyabonga