It seems as if promoters place an indelible stamp on the savings clubs that they form, a mark that’s hard to dissolve once seared into a newly forming group’s consciousness. Despite the self-determination that is promised to eager new members, promoters don’t foster self-determination. Instead, they foster efficiency: their efficiency, meaning the efficiency of the promoter. It’s far easier to take short-cuts than to encourage the longer routes to true self-help.
“Charge 3% per month as your interest rate” is more economical from the point of view of the promoter than “Let me counsel on the benefits of low, medium and high interest rates and then, please go ahead and take the time to decide the interest rate that is best for you.” The same holds for loan duration. Better to say, “the group in the village over the hill has decided on four month loans. It’s long enough to pay the fund back for the purchase of a goat, but not too long to put the group at risk.” Voilà. The group decides on four-month loans.
This is the principle of psychological anchoring hard at work. Nowhere is anchoring more evident than in the annual share-out. Hearing a recommended cycle of savings and lending with a specific month in which to share out, say June, just in time to purchase seeds and fertilizer or to rent a plow, a group would be hard pressed to come up with good reasons for a different cycle or a different month of the year.
Take this example in Nicaragua, a country, incidentally, that advertises itself as Socialist, Christian and in Solidarity – see billboards and customs forms for proof. Needless to say, December is a very good month to share-out in this Christmas-oriented culture. But is it? It turns out that one group decided, after the group formation project had closed, that it was not such a good month. In fact, it was not such a great idea to share out at all. They realized that many people migrate to Costa Rica in February in search of work. These folks need money to cover transportation costs to and from Costa Rica. If the savings group could hold out until February, it could charge non-members a higher interest on loans than it ordinarily would charge to its own members. A business opportunity!
With much discussion, those in favor of greater gains won out over those who wanted their share-outs as planned in mid-December. “We now just keep growing our fund. It’s the most profitable thing to do. Our non-member borrowers have a choice to borrow from very high-priced “coyotes” or to form their own group, which comes with its own costs. They like to come to us.” The group leader continues, “When the time of loans becomes less, we can share out then, but maybe we never will. Why wouldn’t we keep looking for good lending opportunities?”
This gritty group is rare, though, and only “post-project”. Only when a project ends, it seems, can a group be liberated from the initial doctrine of its promoter.
This makes one wonder about fee-for-service programs that keep a promoter in place endlessly. How can a group break free? (Hint: it’s difficult.)
First Published 2nd July 2013 by Kim Wilson
Reader Comments (2)
As you do so often Kim, your comments remind me of past experiences. When I first entered credit union-land, the standard loan interest rate was 1% (of outstanding principal) per month. This particular rate had become an entrenched pillar of credit union 'philosophy', rather than any business reality.
It took me quite some time to discover why it was 1%, as opposed to any other arbitrary number. In the original entirely manual bookkeeping system -- even before handy calculators -- the most efficient way for a volunteer treasurer to process the interest calculation within the volume of monthy loan repayments was to simply move the decimal point two places on the outstanding loan prinicpal and bingo!
It took damn near a decade to convince credit union leaders and managers they should price loans according to a number of common sense variables, including the cooperative's income needs, loan risk profile, etc.
Despite having moved on, whoever taught all those treasurers the convenience of 1% had certainly left their mark!
Fri, July 5, 2013 | Greg Pirie
In every walk of life there are customs, culture, rules, etc. Look at banks and financial institutions, they are mostly identical in any one country. Most groups will ask the promoter about their experience because savings groups are usually new to them. I see no problem in setting the direction initially. In my experience older groups usually start to introduce new changes after the first cycle, but these are also based on the situation surrounding them. People are not as ignorant as is sometimes assumed. If they choose to continue with a rule then its usually because it still works for them. The success of savings groups and the very low dropout rates even after graduation just show that. For promoters its important to continue to provide guidance on basic rules otherwise why be there at all? The reason a model is called a model is because it follows a certain set of rules.
Thu, July 18, 2013 | Stella Tungaraza