Objective:
To explain to interest groups the steps and key considerations when forming a Savings and Credit Group.
Method:
1. Explain why savings are important. You can use a diagram similar to this:
Discussion points:
Being able to cope with emergencies is probably the most important thing to most people, particularly sickness and funerals. Without savings people have to borrow money or sell some of their assets to pay for these expenses.
2. Describe an example of poor people managing to save together and evolving institutions such as credit unions or village banks.
This description comes from West Africa:
“In the centre of the village is a building made of concrete blocks with a door and a window, which can all close safely. There are one or two rooms inside with a table, some chairs, a filing cabinet and a safe. This is the village bank. Pinned up on the wall inside are some big charts with all the rules and regulations of the village bank. These include loan policies, interest rates, membership rules, etc. There is also a notice board with the minutes from the latest meeting of the management committee.”
Important features of this village bank are:
The villagers decided for themselves how their village bank would function and they are entirely responsible for it.
The people running the bank have been trained and have all the technical skills needed.
The village bank is financially independent and is properly managed to ensure that income earned from loan interest covers the costs.
Experience in West Africa has shown that village banks can work successfully even in remote areas, where there are few economic opportunities and where many people are illiterate. It may even work best in such areas because although people are poor, they identify closely with their villages and are prepared to work together.
This example is from Sri Lanka:
Groups of 5 - 15 women have been joining together to save money. They choose who they want to be with in the group and decide on their rules about membership, e.g., only one member per family, must trust each other, etc. The women hold regular weekly meetings, which last about 15 - 45 minutes. They must bring a minimum of 5 rupees (< Birr 1) to each meeting to add to their savings.
The only equipment each group has is a small steel cash box with a key, pens, pencils, ruler and file, passbooks for members and 3 ledgers. They always record members’ savings in the ledger and the passbooks at each meeting.
They use their accumulated savings as a loan fund to help members when they are facing an emergency. These loans never exceed 100 rupees and are usually used for medical emergencies. The group sets the rules for the loans - usually they have to be repaid quite quickly.
3. Review the general principles of savings and credit groups:
A group of people
Having a common interest or bond
Who agree to save their money together and
To lend their money to each other when needed for good purposes and to improve their living standards.
4. Discuss the steps a group may need to take to set up a savings and credit group:
Arranging a founding meeting to decide on the name for the savings group or “village bank”, the rules that will be adopted and the equipment that will be needed (cash box, calculator, books, etc.)
Arranging a series of training meetings for bank group members.
Applying for a grant to cover the cost of equipment, if it is needed.
Electing officers and buying equipment.
Deciding how money will be kept and managed safely.
Commencing savings activities and learning to complete savings passbooks and group financial records.
Learning how to manage giving loans from group savings.
Encouraging members to learn how to plan and make budgets for their enterprise ideas.
Commencing lending activities after a minimum of 6 months savings activity
Establishing system of health checks for the “bank” or savings and credit group.
Saving Together!
In this planning phase, the group may be most interested to consider the kind of rules they may adopt, e.g. who is allowed to join, how often they would meet, where they would meet, how much saving must be brought to each meeting, what they will do if someone misses a meeting or cannot manage any savings, etc.
5. A group which successfully establishes its rules and procedures could apply to the CDF for some capital to increase their lending ability, e.g., to purchase livestock. They would need to have been operating as a savings group for at least three months to qualify for such support.
