A Universal Savings Goal
Most practitioners involved in savings groups focus on the process of forming groups or on measuring performance. Or, on offering important lateral services, those that go beyond savings and credit, such as malaria prevention. So, in a similar vain, we propose a savings goal. Yes, a goal we set in the same way that nutritionists suggest daily doses of vitamin A, or agronomists set the optimal space between rice seedlings, or engineers define the proper depth of a bore well.
In the U.S. experts recommend that every citizen (and we would suggest long term visitor as well) store up at least $2,000 in a safe place - cash in a vault, money in a savings account, or funds in a longer term instrument such as a certificate of deposit. What matters is not so much “the how”, “the what” or “the where”, but that these savings are accessible in times of emergency. In the U.S., emergencies range from illness, death, and job loss to repairing a broken car, the latter being critical to getting to and from a place of work. A recent study shows that half of Americans report they would probably or certainly be unable to cope with an emergency requiring $2,000. If US per capita GDP is $47,000 (adjusted for PPP), half of the country has not aside five percent for an emergency.
Let’s switch gears and take a peek at savings groups. How are they performing? To make things simple, we compute average savings per member in a region like eastern Africa. If we go to Savingsgroups.com, we see that the average savings for a specific Catholic Relief Service project in Northern Uganda is about $14 per member. The per capita GDP (adjusted for PPP) is about $1,300. So the average saver in a group is setting aside a little less than one percent. Less than in the U.S.
But wait, that’s no fair! CRS is known to work in the toughest areas and comparing the strife-ridden, impoverished population of northern Uganda with numbers largely coming from Kampala is wrong. So let’s move across the border with CRS to a project in Tanzania. Wow! Members in Arusha have saved on average $36, and $41 if focusing on groups more than a year old. The US State Department claims the annual per capita GDP of Tanzania is $552. That means members of older groups are saving 7%. Congratulations CRS! Members of your groups in Tanzania have saved more per capita than the average American.
Not so fast on the jocular back-patting, though praise for CRS is well-deserved. The story is not yet finished.
Banks require about $100 savings balance to earn a profit, at least in East Africa. (If the intermediation margin attributable to savings is 10% per annum, an account with $100 average balance yields $5 in revenue to the bank — enough to pay for ongoing IT and account maintenance costs and the odd call to the call center.)
$100 also happens to be about a month’s worth of household income for a family living at the $2 per day threshold. (Remember that’s $2 per person at purchasing power parity exchange rates; multiply by say 4 household members, divide by two-point-something to convert to market exchange rates, and multiply by thirty days in a month.)
We propose that groups in their second year try to reach this amount - $100 per member, to be adjusted for local economic conditions. Then members will have a buffer of one month should the main bread-earner suffer a month-long illness or experience a spell of unemployment. Savings of amounts less than this aomunt leaves the household in a very precarious situation. Members can keep these savings in their group - we hope they can actually access those funds when they need them - or pool them in a local bank or both.
Celebrations and prizes might reward members who reach this goal. The goal is worthy of festivity.
Let’s not use average savings balances only as a proxy for how “pro-poor” financial inclusion schemes are targeting their members; average balances should be a measure of how powerful savings are in members’ lives.