Overview of community managed savings and lending
Projects that deliver microfinance—that is, credit and other financial services for poor and low-income people—usually involve microfinance institutions (MFIs) with professional staff. Recently, there has been a move amongst some practitioners to promote community-managed mechanisms, lead by savings mobilization.
Such funds are referred to by a variety of names, including revolving funds (RoSCAs), self-managed village banks, accumulating savings and credit associations (ASCAs), and community-based microfinance.
In 1999, CARE International started to promote the CMSL model outside Niger and there are programs now operating throughout the developing world. While each country has its own distinct variation on the basic methodology, they all stick to the basic set of principles:
- Savings-based financial services with no external borrowing or donations
- Simplicity, flexibility and transparency of operations
- Earnings from interest charged on members’ loans retained in the group and local community
The Mpendulo Savings employs CARE’s methodology, which is based on a traditional rotating savings and credit association (RoSCA) system similar to South Africa’s stokvel groups. We like to think of what we do as ‘modernizing’ this stokvel system.
How does it work?
Mpendulo Savings approaches community members with information about the project. Those interested form self-selected groups (minimum of 6 and a maximum of 20 members). Once a group has formed, Training Officers provide workshops in the saving and lending methodology. These sessions are usually held at one of the member’s homes in the township. After a group has been together for about six months, Mpendulo also offers business training.
The Savings ‘Kit’
Each group receives a kit (a metal cash box) containing a savings book for each member, calculator, blue and red pens, ink pad, stamp and ink, ruler, daily savings book and attendance, fines and balances book. The box has 3 locks. Three different group members hold the keys to the locks, while a fourth member keeps the box. This ensures no one can get into the box easily.
The Share system
All members deposit their money with the group using a flexible share system. It allows group members to save different amounts each meeting according to their situation. The value of one share is set by the group and members deposit their savings by buying from 1 to 5 shares. For example, if a group chooses R20 for a share value, then the member must save a minimum of R20 each meeting and a maximum of R100. If the value is R50, then the minimum is R50 and the maximum if R 250….and so on. All transactions for member’s savings and loans are recorded in individual books using a rubber stamp to indicate the number of shares a member has saved.
Return on savings through interest on loans
The pooled savings then becomes a loan fund from which members can borrow, repaying with interest. Taking loans allows group members access to their savings when they need money AND it enables savings to grow. The group also decides on who can take loans and for how long. At the same time, no one is forced to take loans. ALL interest stays within the group’s fund. Mpendulo Savings never takes money from, or gives money to, any group.
The End Result
After 10 to 12 months, the group conducts a “share out” where each member receives their savings. The interest accumulated from loans is distributed in proportion to the amount that each member has saved throughout the cycle. This provides members with a lump sum of cash, usually for Christmas. The group starts up again after the holiday period.
Once a group has been in operation for a year, they graduate from the project’s direct oversight. Training Officers still visit the ‘graduates’ to collect data, but essentially the group will sustain itself and manage its own affairs without continued assistance from the project.