A post on SR earlier this year highlights how savings groups in a set of communities rarely considered the timing of their share-outs.
Why is it that we organizers cling to the idea of a share-out at all? A stock refrain arrives: “the action audit”; “members join because of the share-out.” Let me challenge both of these rejoinders. First, using cash to clear the books is an antiquated way of keeping track of money. It is exactly the kind of primitive thinking keeps members from building their funds to a meaningful size to produce meaningful loans.
Second, members do not necessarily join because of the share-out. The share-out fantasy is a story we development practitioners tell ourselves. On a visit to East Africa this past summer it became clear that many members of savings groups did not even know they were to receive a share-out when they joined their groups. When share-out day came, they could not believe their eyes. Yes, they were thrilled with their bundles of cash, but to them, the money came as a genuine surprise.
So why did these members join and where did they think their savings went? They joined because of “the possibility of getting a loan” (which is different from “getting a loan”). They wanted the security of knowing they could borrow. For them the shares purchased or savings made was simply an access fee, which shows how important a borrowing window can be.
If a primary reason why people join groups is to access loans, might we reimagine the funds groups build? It does not make sense for groups to drain their funds to zero if borrowing meaningful amounts is a priority. It also does not make sense to have too much idle money in the fund. The share-out then becomes like a dam, releasing money to optimize the safety and value of the group fund, and to please share-holders. But, it does not need to drain those funds to zero to be effective.
Might we think of a share-out that rotates across members and across a period of time, not unlike a ROSCA? In no meeting would the fund deplete entirely, or even beyond say 10% of the value of the fund. Different members could liquidate shares according to a schedule deemed fair by the group. One could argue that all this seems complicated. But actually, it’s not at all complicated and certainly not more complicated than gathering in all the outstanding loans of a group and divvying up equity at a single annual event. Plus, a rotatating share-out has the added benefit that the group can develop a learning curve. Through regular practice of turning shares into cash during monthly meetings, members can master the art of liquidation, a mastery hard to grasp if practiced just once per year.
Share-outs for just one or two members per meeting would allow the group fund enough liquidity to supply loans of a meaningful size over a meaningful term throughout the year.
First published 23rd November 2013 by Kim Wilson
Reader Comments (7)
Kim, most interesting. Thank you for these thoughts. Even if a majority of members join a group for the possibility of being able to access loans, what about: (a) those who want to use the group to build up a savings pot (whether for a specific or unexpected event); or (b) those who do not want to borrow, or borrow only infrequently and small amounts? Are you arguing that "savings" groups should at inception decide whether or not they are savings or borrowing-driven and say to members that have a motivation different from the majority "well, go find another group"?
I do agree that groups, including ones that remain savings-driven, could explore rotating pay-outs for members. I certainly agree that groups should be encouraged not to share out everything in the pot come year-end, but to retain a decent proportion (half?) to start the next cycle with liquidity already there to which they can add and thus increase what are in effect retained earnings over time.
Tue, November 26, 2013 | Ian Robinson
Thanks for that provocative post. It provoked me, at least...
I have a deep, automatic negative reaction to anything that complicates group processes. I am quite confident that rotating share-outs would add complexity that I wouldn't want to deal with if I were a member.
Look: share-out is hard enough as is...
- What percentage of groups can actually compute the share out by themselves correctly, which involves figuring out the ratio of total cash to total savings, and multiplying that by the number of shares each member has? All this, under pressure of time. Many can do it, but even more cannot.
- What percentage of groups can deal with the members who ask to have their last repayment taken out of their savings?
- What percentage of groups can deal with that case, when the savings only partially cover the loan repayment, and the member has to carry forward a debt into the next cycle? (By the way, I could also ask, What percentage of fee-for-services trainers can do this correctly?)
- What percentage of groups can deal with the lost passbook, the numbers that don't add up, the peculiar and unpredictable situations that often crop up?
You want to add rotating partial share-outs to that? Two big advantages of the annual share out are the action audit aspect, and the chance to leave or join the group cleanly. You want to take them both away.
You say, "using cash to clear the books is an antiquated way of keeping track of money". Is it? Cash seems very clear and transparent to me. We all know the cases of the Lehman Brothers or Enron's that had great audits and then six months later they were bankrupt. If they had had to produce cash, the shareholders would have known sooner that they were houses of cards.
The solution is so simple, and is foreseen in every SG manual. First, do the share out, give all the money back. Second, members decide what special contribution they would like to make to keep the fund from going to zero. End of story. Why is that a problem?
PS Oh! What is this about? "The share-out fantasy is a story we development practitioners tell ourselves. On a visit to East Africa this past summer it became clear that many members of savings groups did not even know they were to receive a share-out when they joined their groups." I have visited maybe 200 groups and I have never found one that didn't know about share-out. But - I continue to be surprised! Maybe you will tell me in confidence who trained those remarkably ill-informed groups?
Tue, November 26, 2013 | Paul Rippey
Kim, Paul and others - if you haven't already seen the latest FinAccess findings report from FSD Kenya, I recommend you do. It contains some really interesting findings on groups. For instance, use of chamas (groups) is pretty much constant across the top four out of five wealth quintiles, but drops off sharply among the poorest quintile. Also, since 2006 there has been a rise in people using both formal and informal finance. Finally, only 17.5% of groups say "we periodically distribute all monies held by the group to its members." By contrast, 66.8% of groups say "we collect money and give to each member a lump sum (pot) or gift in turn" - which I assume is a ROSCA. 24.4% say "we save and lend money to member (and non-members) to be repaid with interest".
The link to the FInAccess report is www.fsdkenya.org/finaccess/documents/13-10-31_FinAccess_2013_Report.pdf
Tue, November 26, 2013 | Ian Robinson
Hi Ian and Paul -
Ian, thank you so much for these interesting resources. I did not know of these distribution percentages. What great insights. I think those of us who promote ASCAs know that it all about "us" and not really about "them" (the users). To your first question on should groups organize according to whether they borrow or save, it seems as if borrowers and savers need each other. So I would not advocate for that.
Paul, thanks for the cautionary note on share-out. I think a rotating share-out is possible because of the learning curve issue. It's hard to play the piano once a year, and easier to do with practice. Imagine if shares could be liquidated 12 times a year - that is 12 times more practice at the art of liquidation. Why not put regularity into payouts just the way it is put into savings and borrowing?
Mon, December 2, 2013 | Kim Wilson
Hi Again, Kim,
Fair enough - if you practice share-out every month you are more likely to learn how to do it. But - it still sounds like a nightmare, easier to let things slip - "We can figure out how much Mary should have put in after she took over from Betty at the next share out".
And - thanks for telling me discretely who was forming the groups without informing them about share out. I know that program and it is maybe the worst I've ever seen in oh so many ways. They are control freaks, but unlike some control freaks, they don't have good standardized systems that make sense. And - now that I have said all that, I promise I won't mention their name!
Mon, December 2, 2013 | Paul Rippey
Thanks Kim, for a characteristically robust proposition.
What I take issue with is assuming that 'we' somehow engineered the shareout and that we impose a rigid and constricting rule on groups that doesn't sync with what people really want. First some evidence. When we look at the 92,000 groups that have reported on the SAVIX we find that loans are only averaging 51% of total assets. So, while SGs may not have the most attractive loan products in the world, the average savings is way in excess of average per-group loan demand. People saying that they join to take out loans might easily be translated to mean that they join to be able to exercise the option, but don't, in fact, regularly do so (but regularly save and in increasing amounts).
There are two dimensions to this question that I think need more exposure. The first is that there is, in my experience, a strong demand for the share-out, which seems to meet people’s needs for useful lump sums of cash that are unencumbered by debt, at important times of the year. Indeed, in our research in Uganda the need for multiple lump sums at different times of the year may be the main driver of membership in multiple groups (an example of community-based choice that rather frightens us).
The second dimension is that most people who are SG member take advantage of multiple types of financial services, of which SG’s that share out are only one. While a time-bound SG has its advantages, it has its disadvantages, and other types of service may neatly dovetail to these different types of need. It isn’t really necessary that it be re-engineered (by whom?) to be something that’s really quite different. I'm not arguing against evolution, but against assumptions of need that remain to be clearly demonstrated.
Finally, and I think this is the most important point, we go in entirely the wrong direction when we seek to make SGs profoundly different: they are what they are and they aren’t what they are not, and I fear complexity (how else would I be able to stay in work?) for a purpose that is just as easily satisfied by multiple membership. The mistaken idea that we need to transform a very simple institution into something more complex because people’s needs evolve misses the point that what are profoundly transformed by an SG are the members who progressively discover their collective power, their personal capabilities, their connections to each other and the horizons that extend beyond the immediate boundaries of their communities. We tend, I think to focus too much on how institutions might change and insufficiently recognize that broader horizons lead people towards the ability to find and use other types of service, all by themselves and without too much counsel.
So, my comfort with the share-out is not derived from a need to lock people in some primitive mythology about simple and unchanging is best, but to note that mostly the share-out has sustained itself through demand (ask AKF in Bihar, where people save a lot more in their SGs than in their SHGs) and that engineering more sophisticated solutions on other people’s behalf, when they have suddenly discovered their muscularity and sniffed at ambition, is probably not needed.
Thu, December 19, 2013 | Hugh Allen
And, by the way does a Savings Group 3 Km from Arusha town centre, with $22,000 in assets and loans in the $500-2,000 range not offer 'meaningful loans'
Fri, December 27, 2013 | HUgh Allen