Please 'Splain the Difference »



Janina Matuszeski (Oxfam America), Marcia Odell (Founder of WORTH Nepal), and Roy Jacobowitz (ACCION International) and I were part of a panel at Brandeis University called Microfinance: Does It work? Marcia, Janina and I are champions of savings groups, not credit groups. Each of us that evening struggled to explain the difference between credit-led groups and savings-led groups to newcomers. Even the reporter from the “HOOT,” got it wrong. See if you can find the mistake. Hint: Scroll to the passage about Oxfam. 

We found our gracious organizer had not realized that she had invited three fanatics of savings groups (Marcia, Janina and I) and one promoter of “financial inclusion” (Roy).

What is financial inclusion anyway? It has become a catchall phrase that can mean pretty much anything to anyone. My take is that inclusion is fine, but meek. We could extend “inclusion” to any field. Learning inclusion? (You get a text on breastfeeding while others get to go to college.) Water inclusion? (You get a stream of dirty run-off from your drainpipe while others get a river of sweet water from their tap) Housing inclusion? (You get a “progressive build” on the edge of garbage dump while others get a real home.)

So what is financial inclusion? Of course as with any kind of inclusion, second-rate access to lousy products does not equal quality or relevance. Quality or relevant inclusion in finance means more than access. It means protection from indebtedness, harassment, and deceptive and aggressive marketing. And when it comes to savings, quality inclusion means motivation, the gentle prod that says, “go ahead, refuse that purchase and salt a few coins away.” Savings groups offer all these benefits. If well run, they help members climb out of debt and reject the shaming practices of predatory loan collectors. Equally important, they offer motivation. Members depend on the nudges of fellow members to make sure they reach their savings goals. 

But how to communicate all this to a roomful of newcomers when the world of groups and finance has meant credit? Readers - any ideas on how to communicate the subtle, critical differences between savings groups and credit groups would be appreciated?


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Reader Comments (2) 

ooohh, did you know I was just grappling with this issue? You must be reading my mind!! I hate to tell you that the need to "S'plain the difference" is not limited to microfinance vs savings groups. It also is sorely lacking among the various types of savings mobilization (if that is even the correct term) methodologies!

I was invited to a 'Savings Cooperative Learning Network' meeting organized by Social Development (South Africa) where three presenters (I was one of the three) talked about their organizations. Apparently, the SHG concept was introduced by a German development organization to a few small NGOs in the KZN and Eastern Cape and two of the 3 NGOs presenting at the meeting are using that model with an emphasis on the integration of community development. So I was the odd man out. There were also presentations by people who talked about FSCs (financial service cooperatives), micro-financing (of the consumer type that is so common in South Africa) and even micro-franchising!! I left the meeting feeling a bit confused and overwhelmed by all the terminology.

All this to say that I was about to write something up for my colleagues to try and sort things out a little. Once I do, I will send it along for comment. I think it would be really useful for all if a matrix of sorts could be developed and it would be so much the richer with input from others. I did write something about 11 years ago that tried to make sense of the different microfinance methodologies (including savings-led), but it is terribly outdated. 

Thanks for bringing this up!

Wed, March 16, 2011 | Jill Thompson

Kim... When thinking about the slippery concept of ‘inclusion’, I am reminded of the 1972 Royal Commission of Inquiry into Social Security* that determined the aims of New Zealand’s social security system should include ensuring “that everyone is able to enjoy a standard of living much like that of the rest of the community, and thus is able to feel a sense of participation in and belonging to the community.”

Whilst I don’t want to characterise the broad field of microfinance as welfare, it seems to me there is a similar intent behind this idea of financial inclusion. In the even wider concept of ‘development’, I see the idea of inclusion as a primary concern -- working to assist those living in lesser developed countries to be able to live in an economic and political context similar to that of the US and industrialised West.

Cynically, I could say that microfinance works to include the poor in the same cycle of borrowing and repaying that typifies so many of us, with our mortgage, credit cards, payday loans, retail credit, etc. But assuming a more positive motivation, I like the idea of savings-led financial inclusion as being about the gradual acquisition of a usable financial asset, about creating a tool that can be repeatedly used to achieve improvements in the saver’s quality of life.

In the sustainable livelihoods analysis context, I think of savings as being one of the livelihood assets that can be used by the poor to alter their livelihood strategies.

When I cut my teeth on all this back in credit union-land, it was within what I consider the classic credit union context -- where the cooperative did not borrow external funds, relying exclusively on members’ savings to create the loan pool. Simple to operate, simple to explain.

In promoting the concept, I might choose to talk about balance sheet dynamics and the implications for asset-liability management, or, more often, I chose to recycle a credit union parable from the 1960s: That a savings and credit cooperative is like a three-legged stool, take any one leg away and the entire structure fails. The three legs of ideal member behaviour are: save regularly; borrow wisely; repay promptly.

In the 1980s we based the creation of a new savings product on these core concepts, making an explicit link between a member’s designated savings and their access to loans. No compulsion, merely providing the motivation to save -- to create the asset that could be repeatedly used to access credit -- and it’s still a cornerstone of NZ credit union services today.

*Its naming a peculiarity of our anachronistic monarchical system, a Royal Commission is a purpose-specific investigating agency created by government when it wishes to investigate certain matters outside normal parliamentary or political agencies, usually for the purpose of obtaining as public, as accurate, and as impartial an investigation as possible.

Fri, April 1, 2011 | Greg Pirie

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