What's the Difference?
A friend wrote me this morning and asked, “To put it simply, what do savings groups offer that micro finance doesn’t?”
Great question! Here was my quick answer.
“Let’s define terms. If by micro-finance, you mean micro-credit, then the biggest difference is that savings groups offer savings.
If by micro-finance, you really mean micro-finance, then a generally accepted list of the advantages and disadvantages of SGs would be these:
Advantages
- Proximity, and low barriers to entry. No paper work, photo ID, applications, fees, bus ride into town, to access services.
- Commitment savings. Members agree to save, and other members put gentle or strong pressure on everyone to save at least the minimum.
- No money leaves the village. Interest is returned to members. Near zero administrative costs.
- Extremely fast disbursement. Get money when you need it.
- Individual loans - no joint and separate guarantees like Grameen style institutions require.
- Flexibility. Everyone knows when child is sick or breadwinner dies, and group allows people to repay late.
- Use as platform. Groups are an excellent platform for training, social marketing, collective purchase of inputs, access to social services.
- Social fund: most groups keep a separate fund to help out with births, funerals, and such.
- “Special sauce”. Groups have something in the area of democracy and empowerment that goes beyond what formal institutions can offer.
Disadvantages
- Amounts that can be borrowed are low relative to MFIs, especially in the first year or two of a group’s existence.
- In most situations, group membership is not taken as evidence of credit-worthiness by formal institutions although this may be changing slowly.
- Groups do not support long-term savings nor long-term loans. That’s an argument for using multiple services, not replacing groups by MFIs, though.
Readers, what would you add or subtract from those lists?
