Report from Bogota Forum on Savings Groups
The Bogota Forum on Savings Groups, the first event of its kind in Latin America took place in Bogota, Colombia from December 4th to the 6th with the participation of over 200 practitioners eager to share and learn from experiences in Latin America and beyond. Participants brought great enthusiasm for a methodology that is starting to gain momentum in the region, especially thanks to the government of Colombia’s commitment (through the Banca de las Oportunidades) to expand Savings Groups as a means of reaching vulnerable populations. The 70,000 men and women reached by IED VITAL in Colombia, in partnership with the Banca de las Oportunidades, stand as an inspiration and a point of reference for smaller, yet growing programs in the region.
Although the Forum touched on a number of topics, from the importance of public-private partnerships to the use of technology and group sustainability, the main debate was bancarizacion—the idea of linking Savings Groups to banks and MFIs as a natural progression towards formal financial inclusion. Not surprisingly, organizations like the Banca de las Oportunidades, the FOMIN (Fondo Lateral de Inversiones of the Interamerican Development Bank) and Aso Bancaria Colombia see Savings Groups a stepping stone for providing formal services to the poor, arguing that the context of Latin America, perhaps different from Africa, is ripe for this integration. Citing examples of entrepreneurship (33% of VITAL’s groups are involved in a business activity) and related cash flow needs, the risks of theft, and the overall uncertainty of informal mechanisms, these organizations are not questioning if financial linkages should be promoted, but how.
Of course, not all shared the same feeling. In the words of Hugh Allen, practitioners should be careful to understand what Savings Groups are (simple, transparent institutions that allow people to save) and what they are not. Savings Groups should not evolve into complicated institutions with a wide range of products, serving a number of different needs and graduating clients to debt. Allen also counters the assumption that Savings Groups lack sufficient capital to cover their members’ needs; in fact according to an analysis of the SAVIX data, the ratio of loans to assets is merely 50%. Allen finally cautions that borrowing from an external institution might destabilize the group and quotes a study from Niger (authored by Paul Rippey) that shows that groups that had a bad experience with external lending suffered a loss of membership of 30%; those that had a good experience still lost 10% of their members, while those that did not borrow externally actually increased their membership.
The debate around bancarizacion did not start or end with the Forum; rather it has been, and will continue to be, on the forefront of discussions. With this in mind, presenters urged the audience to consider good practices if formal financial linkages are indeed the way forward for Latin America:
- Do not form Savings Groups for the sole purpose of integration into the formal financial system;
- Never promote financial linkages in the groups’ first year of operation; allow people to build cohesion and trust;
- Realize that no financial service exists in isolation; banks must develop products that are appropriateo the population they are serving and that respect the culture of saving instilled by the groups (focus on savings, not debt);
- Preferably link individuals, not groups. If a group is linked, ensure that the loan offer is commensurate with demonstrated group performance; exercise caution in terms of the amount of money offered and the multiplicity of sources;
- Structure loans as a lines of credit which better adapts to cyclical cash flows of poorer populations;
- And most importantly, NEVER FORGET TO ASK THE GROUP MEMBERS WHAT THEY ACTUALLY WANT.