The New Microsavings: Community-Driven Lending

While microfinancial institutions in developing countries tend to fail without outside volunteers, microsavings groups owned and organized by the communities that use them are on the rise.

Nepalese craftswomen

For women in hard-to-reach villages, the ability to save money and take out flexible loans can be the difference between running a successful business and going hungry.

Photo by Fotolia/Aleksandar Todorovic

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The need for a better system of saving and lending in developing countries is readily apparent—but microfinance continues to reach only a small fraction of the world’s poor. In Their Own Hands (Berrett-Koehler Publishers, Inc., 2014) is Jeffrey Ashe and Kyla Jagger Neilan’s illustration of how microsavings groups, formed and operated by their members, can answer that need. More than a financial benefit, microsavings groups offer political and social empowerment to the women who organize them, giving them greater autonomy as well as a way to save money and provide for themselves and their families. The following excerpt from chapter 3, “Dependency is Not Empowering,” describes Ashe’s first experience with microsavings in Terai, Nepal.

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It was the year 2000, and I was attending a microfinance conference at Brandeis University. After I gave my talk about a program in Burkina Faso that I had just evaluated, Marcia Odell, at the time the director of Pact’s Women’s Empowerment Program (WEP) in Nepal, walked up to the podium, and with a voice filled with passion told of a dramatically different approach to financial services for the poor. Pact’s WEP initiative made it possible for small groups of village women to pool regular savings into a usefully large fund they managed themselves. They could borrow from that growing fund as they needed. A better way to save and borrow was being delivered in a simple, low-cost, replicable, and (as I was to learn later) self-replicating package. Marcia’s talk was the beginning of my journey of transformation from microcredit to microsavings, and I never looked back.

I felt compelled to evaluate Marcia’s program to better understand its approach and impact. One hundred and thirty thousand women saving and borrowing in a year—how was this possible? I pulled all the networking strings I could, and with support from Pact, USAID, and Freedom from Hunger, I finally secured the funding I needed. I had been a consultant to Freedom from Hunger for years, and they, like me, were interested in savings. Lisa Parrott, Freedom from Hunger’s technical advisor in microfinance, also joined me in conducting an evaluation of WEP’s savings group model in Nepal. Lisa and I visited Nepal three times, devoting a year of our lives to learning about and critically understanding savings groups. I had found my calling.

Pact’s Women’s Empowerment Program in Nepal

We first arrived in Katmandu during the monsoon. Driving out from the city to the lowlands on the border with India, we watched out the window of the car as we descended down treacherous Himalayan roads into the open wetland valley—Nepal’s Terai region and its thousands of villages. Our process was simple. Pact’s senior leadership in Nepal introduced us to the local NGO staff that directly trained villages on the savings group model. We visited WEP groups each day, and Lisa and I, with one or two of Pact’s staff to translate, observed the WEP groups’ regular meetings. After the meetings, Lisa and I spoke with the groups and asked questions.

We interviewed two to three groups per day, in school buildings, on porches, or in courtyards of houses of better-off group members or community leaders. Each night, Lisa and I and the small WEP team traveling with us reviewed what we learned over sweet buffalo-milk tea, momos, and dal. From these visits, we learned the basic process group members used to collect savings, ask for loans, and record transactions. Sometimes we dropped into villages by surprise and pulled together meetings to ensure that we did not just see the preselected, cherry-picked groups. It was encouraging that these groups also worked quite well and operated by the same principles.

These were the basics: WEP was organizing women into several twenty-person groups in each village. In total, more than 130,000 women joined 6,500 WEP groups in little more than a year. This achievement was extraordinary in itself, as no microfinance program I had heard of over the previous two decades had grown so quickly. The program grew so fast because it did not need to build a financial institution to provide loans; instead, it built on preexisting literacy and forest conservation groups—even microcredit groups. Each WEP group was a miniature financial institution in which the money loaned out came directly from members’ weekly contributions to their savings accounts, and where the profits from borrowers’ interest returned to and increased the size of the savings account of each member. Unlike credit unions, which often have hundreds or even thousands of members and are regulated to protect member savings, WEP groups operated informally under the regulatory radar. Transparency and self-management took the place of regulation. Regulation was not necessary; members observed every savings deposit and loan payment and discussed and approved every loan at their weekly meetings.

Microsavings Gives Communities Ownership

The members of the savings groups were careful because they were managing their own money. There were neither matching funds or handouts nor a link to an external credit source. “Dependency is not empowering,” Marcia told us on our arrival, a mantra that she repeated with equal fervor every time we met. Group members purchased the lockboxes where they stored their money between meetings, the forms they used to keep their records—even the kerosene they used for the lanterns for their evening literacy classes. Instead of waiting for a handout, they took charge. Because they were in charge, the program grew quickly.

WEP had opened a new market for financial inclusion. Few of the almost entirely illiterate and impoverished members of the WEP groups had ever thought of taking out a loan from an MFI. They had no assets for a guarantee or any business to invest in, yet they were saving and borrowing. The few women we met who had previously taken out loans from MFIs now saved and borrowed only through their groups. “Why pay them,” one woman said, “when we can pay ourselves.”

As I learned more, Marcia’s logic began to make sense. Every four months the groups distributed dividends to their members based on the profits from lending. Members explained to us how borrowing from their groups built their savings—even if it took a while to obtain a loan or if the loan might be smaller than they wanted because the amount they could borrow was naturally limited by the tiny amounts each group member saved. They were willing to wait.

While interacting with groups composed of some of Nepal’s most marginalized women, Lisa and I noticed a pattern. At the beginning of every meeting, each person introduced herself. In recently formed groups, some members could barely muster the courage to stand up and stammer their names before sitting down to cover their heads in embarrassment, not wanting to speak in front of outsiders such as ourselves. By contrast, in groups that were a year old or more, the women not only introduced themselves proudly, they also eagerly answered our questions, and not just the group leaders but regular members chimed in as well.

Other Goals of the Women’s Empowerment Program

WEP was about more than saving and lending—it was called the “Women’s Empowerment Program” for a reason. Sometimes, even before receiving the specialized training on women’s legal rights provided to many groups by the Asia Foundation, members leveraged their savings groups into advocacy groups. We learned about groups coming together to work against partner abuse, alcoholism, and child marriage in their communities. Marcia recalled how it was common in the Terai region for human traffickers to recruit young girls by offering poor mothers money to send their daughters to “waitressing jobs,” which were really brothels in India. Their daughters were their last remaining asset. Nepalese girls were in high demand by traffickers since they would be easier to control in a foreign country where they could not speak the language. WEP groups became a platform from which women rallied against the exploitation of their children by human traffickers. They told me they felt more courageous now that they were organized.

One image remains vivid in my mind. Lisa and I were talking to a group of women in southern Nepal, a village so close to the Indian border that we could see it. Members were telling us what had by then become a common refrain: with their WEP group, the women had their own money, so their husbands showed them more respect. They had joined with other groups to advocate against child marriages. Meanwhile, through a gap in the high adobe wall, I could see that a group of men was meeting on the other side. Through our translator, I learned that the village imam was exhorting the men to keep their wives subservient and under control. Two group meetings, two different agendas. The WEP groups appeared to be giving women more say in their households and as community-level advocates for women and children, but they faced considerable resistance.

Literacy was another pillar of the WEP program—in fact, it was the program’s foundation. Pact had promoted literacy in Nepal for many years, providing literacy training through more than a thousand local NGOs. Pact used simple, well-crafted workbooks that taught new readers important information or skills while they learned to read. For WEP groups, the literacy workbooks taught members how to organize their group and how to keep records. Additional workbooks explained human and civil rights and how to run a business. Costs for literacy training were minimal because the instructors were local volunteers trained and supported by WEP’s NGO partners. These committed volunteers met with their groups four evenings per week. The women studied and chanted the words in the workbooks, and as they learned to read, they learned the practical and the transformative messages the workbooks contained.

Saving and lending plus advocacy and literacy training made for a powerful program. However, it was something that I learned entirely by accident that brought to my attention just how important these groups were for their members. One of the group leaders mentioned that she had trained another group. Lisa and I were intrigued. Wasn’t it the NGO’s responsibility to train new groups? Why did she do it? The group leader told us she wanted to share what she had learned. In a village we visited a few days later, another leader proudly showed me her dog-eared WEP manual. “I trained twenty-one groups using that manual,” I remember her saying. Voluntary replication became a central theme of our questioning.

Lessons in Microsavings

At the end of our first tour in Nepal, we brought together group leaders to answer some final questions about WEP, focused especially on their particular role in training others in the method. We learned that compared with the structured way that WEP staff trained groups, the member-leaders’ approach could hardly be more informal. Often, a few women from their village would approach a group leader, curious about what the group was doing. The leader would invite them to attend a meeting. On leaving the meeting, she would tell the women to round up fifteen or so others interested in saving and lending, and if they could pull together a group, she would train them.

I asked the leaders, “Since so many of you are already training groups, why not make a business out of it?” The immediate response was “No!”—almost in unison from all fifty women. One continued: “We would not be trusted; our motivations would be suspect. We train groups because women are asking for our help. How could we refuse them?” Later, when it came time to design a community finance program for Oxfam America, I would remember how much these women valued their savings groups. They inspired me to build the training of member-trainers into the design of Saving for Change.

WEP provided an answer to my growing uncertainty about how microfinance could reach villagers in numbers that could make a difference: not with loans that are often too big to manage and even more difficult to repay, but with financial services that meet the needs of village women. This was effective financing for women in scattered villages where financial institutions are weak and money is scarce, but it was also something more—a member-managed, member-owned model that spread through the enthusiasm of its local leaders.

Why did it work? Lisa and I reflected on this question after many days of research in Nepal. The answer was as simple as it was profound: WEP had abandoned the costly infrastructure that MFIs use to deliver loans—all the staff it takes to secure capital, make loans, collect on them, and prevent fraud. Due to the complexity of managing a loan fund, a typical MFI has, on average, one staff person for every 284 outstanding loans. The task of the WEP staff and the 250 some NGO partners with which WEP collaborated was much simpler: to train groups until they could operate on their own. Once a group mastered record keeping, the paid staff could focus on WEP’s literacy and empowerment agenda and move on to train more groups, whereas bank and MFI staff had to spend time making loans and tracking payments for as long as the group borrowed. Besides requiring fewer staff and for a shorter duration than an MFI, a model that transferred management to the group members introduced another important difference between WEP groups and institutional microfinance. Success became defined in terms of sustainability of the groups instead of the long-term survival and growth of the financial institutions—the locus of success was at the level of the member, not the organization.

WEP was based on the assumption that groups quickly learn how to manage themselves if asked the right questions. They called their training “appreciative inquiry,” an area in which Mac Odell, Marcia’s husband, was expert. Appreciative inquiry posed questions such as “What do you like best?” “What would ‘better’ look like?” “How could you achieve that?” “What will you do first?” “When?” “Who is responsible?” “How will you know that this has been achieved?” By the end of the appreciative inquiry, the women were already taking their first steps for putting their plans into action. Promoting savings groups is about training a few strong groups (the “positive deviants”) that will become a good example for future replication.


Reprinted with permission from In Their Own Hands: How Savings Groups Are Revolutionizing Development by Jeffrey Ashe with Kyla Jagger Neilan and published by Berrett-Koehler Publishers, Inc., 2014.