Savings Groups, An Example of Financial Inclusion

Author: 
Andrea Reyes, ProSavings Program Coordinator

Savings groups have been a useful tool for integrating rural populations into the financial sector. As I’ve shared in the past, the MIF has supported several savings group projects in different countries of the region - most recently in El Salvador, Guatemala, and Colombia - that incorporate income-generating activities and financial inclusion components. However, their connection to the formal banking sector still needs further exploration.

If we take the project in Colombia[1] as an example, where on average a group made up of 15 people mobilizes US$11,400 in savings and US$4,900 in credit during the course of a year (amounts I consider to be quite significant given my experience working with low-income populations), and we factor in the thousands of groups that exist in the country, it becomes clear that we are dealing with some very attractive figures. Then, why say that we want to pursue the financial inclusion of savings and lending groups? Is this not already a real example of financial inclusion?

According to Findex 2014 figures, although the level of access and use of bank accounts in Latin America and the Caribbean has improved in the last few years, it is still very low. If we zoom in not only on the level of formal savings (equivalent to 13.5% of the adult population) but on the percentage of people that saved some money, we find that at least 41% of the population is saving.

Savings groups do enable access to and use of financial products among their members, and in many cases this is all that people need. Additionally and most importantly, savings groups establish bonds based on trust and solidarity within communities and promote the participation of all of their members. This serves to strengthen self-esteem and social capital as a whole – which in my opinion has a greater impact on poverty alleviation than achieving financial inclusion alone.  

Nonetheless, I acknowledge that in some cases the services offered by a group may not be enough to satisfy the financial needs of its members. In such cases, a solution can involve establishing a linkage between these groups and the formal financial system.

In this respect there is not a lot of evidence, but so far findings point to the following:

  • Financial institutions interested in offering products or services to such groups must first understand the dynamics at play within them. In this way they can adjust the hours in which they conduct visits and their promotion and follow-up strategies to suit the needs and characteristics of the groups’ members. This way, entities would take full advantage of the opportunity to effectively reach this low-income segment.
  • In terms of products, it has been found that there is a demand for additional and complementary options for saving. However, in most of these cases, people look for products where they can store their money for a longer term than the duration of the savings group cycle (usually a cycle lasts between 8 to 12 months) – in other words, certificates of deposit. There are fewer cases that call for additional credit products; however, the existing demand among members is for larger amounts of credit, mostly to invest in their businesses.
  • Mobile banking is an attractive alternative to a group, mainly as a low-cost means of conducting transactions that overcomes barriers of distance; but at the same time, it is not a mechanism that replaces the group dynamic.

Soon we will be organizing a webinar featuring the results of an impact evaluation that we conducted on savings and credit groups in Colombia. Don’t miss it!


[1] The project “Income Generation and Rural Finance through Community Savings Groups,” implemented by Iniciativas Empresariales de Desarrollo Ltda. (IED) in the framework of the Non-Reimbursable Technical Cooperation Agreement No. ATN/ME-12970-CO y ATN/AS-12984-CO, funded by the IDB/MIF and by counterpart resources. 

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