How Do Savings Groups Compare with Traditional Groups and Credit Groups?

What about “savings groups”?  Many don’t include these within “microfinance,” but Freedom from Hunger does.  They are part of our theory of change in the lives of the chronically hungry poor.

Aside from the intriguing example of the moneylender in the Santa Rosa (Philippines) market who doubled as a savings collector and guard, I’ve hardly acknowledged the existence of traditional savings systems, much less how modern microfinance compares in offering savings options.  There is a staggering variety of both informal and formal savings options throughout the history so well documented by David Roodman (chapter 3 of Due Diligence).  Such variety reflects both the strong demand and the difficulty of meeting it via sustainable mechanisms worthy of public trust, especially the trust of the poorer public who have good reason to distrust formal institutions.

In the absence of institutions controlled by true rule of law, the people we can trust with our money are those already embedded in our matrix of mutual social obligation – family and neighbors.  Traditionally, the zone of trust has often been widened by creation of various forms of cooperative saving and credit associations (SCAs).  The two main types have been RO(tating)SCAs and A(ccumulating)SCAs.

ASCAs are precursors of modern credit unions and also John Hatch’s original FINCA village banks.  Freedom from Hunger adopted and adapted John’s model because of its encouragement of members to self-manage and to accumulate their own savings.  This “internal account” enabled members to lend to themselves from their shared pool of accumulating savings and thereby augment and eventually replace borrowing from external sources.

Back in those old days, NGOs were the lenders to village banks.  They had every intention to graduate the village banks to independence and move on to help more of the poor.  My, how we’ve all grown gray with sophistication since then!  The internal account has mostly fallen out of favor among village bankers (CRECER in Bolivia and FINCA Peru are notable exceptions) as they’ve built self-perpetuating financial institutions.

Take away the external capital in the original village bank model (with its internal account), and you’ve got an ASCA.

Create a standardized, portable model combined with systematic training and support to disseminate the model, and you’ve got a modern “savings group” program.

Naturally, Freedom from Hunger gravitated to this approach—in league with Jeff Ashe even before he joined Oxfam America.  Together with the Strømme Foundation of Norway, we started Saving for Change.  Freedom from Hunger saw the savings group approach as a way to compensate for limitations of the now-standard microfinance business model for reaching out into the rural areas where the chronically hungry are disproportionally common.

Here’s the question: Do poor women (vastly predominant in the membership of savings group programs) perceive greater benefit in joining modern savings groups vs. traditional groups (e.g., tontines of West Africa) vs. credit groups supported by microfinance lenders?  Do these women get a better deal?

Fortunately, there is a lot of research taking place even as I write.  In particular, there is a real opportunity to find comparative evidence in Mali, where Oxfam America and Freedom from Hunger are working with Innovations for Poverty Action (IPA) and the University of Arizona’s Bureau for Applied Research in Anthropology (BARA) to conduct a randomized controlled trial to gather evidence.  The research design itself is not structured to answer my comparison question, but the coexistence in the same areas and even villages of Saving for Change groups, tontines, and credit and savings associations overseen by local credit unions offers a chance to get some solid evidence.

What are some hypotheses we might test with that evidence?  We can build hypotheses from the following facts on the ground.

First, regarding costs, all three types of groups have about 15–30 women members and require

  • frequent, regular travel to a meeting place,
  • time spent at the meeting,
  • deposit of a minimum of personal savings (more if they like)
  • getting along with and relying on each other.

All offer the opportunity to walk away occasionally with a “usefully large sum” of money (Stuart Rutherford’s exquisite terminology), but the details of getting there vary a great deal.

  • Most, if not all tontines operate as ROSCAs, meaning the chosen member takes the contributions of all at the meeting with the understanding that each member will have her chance in the rotation to get the pot and take it home.
  • Modern savings groups require that the money be repaid to the common pot with interest at a rate determined by the members (who share the interest revenue).
  • Credit union groups deposit their savings with the credit union and earn little to no interest on it; they get loans at reasonable rates (capped by the central bank of West Africa) but no share of the interest revenue (because they are not full-fledged members of the credit union).

Second, regarding external support (and control):

  • Tontines get none.
  • Modern savings groups get training and support from a local NGO agent for about one year.
  • Credit union groups have support from a credit union staffer in perpetuity.


  • Tontines have maximum flexibility.
  • Modern savings groups agree to follow a model structure and process for at least one year.
  • Credit union groups have some but limited latitude to flex within the credit union model.

In consequence, reliability of the services received by the individual members suffers most in the tontines from an idiosyncratic mix of tradition and personality and least in credit union groups, with modern savings groups somewhere in between.

Third, regarding explicit financial benefits:

  • The tontine member gets what is in the pot when it is her turn to take it home.
  • The modern savings group member has a relatively safe place to save; opportunity to borrow amounts limited by what has accumulated in the group’s savings pool, subject to peer approval and pressure to repay; and a share of the considerable interest revenue proportional to her savings on deposit.
  • The credit union group member has an even safer place to save but less ready access to the savings; opportunity to borrow amounts from a much larger pool of savings, subject to credit union limits on loan size as well as peer approval and pressure to repay; and little to no share of the interest revenue.

Fourth, regarding non-financial benefits:

  • Tontines may be fluid and unstable in membership, which limits the social solidarity benefits.
  • Modern savings groups and credit union groups are more stable over time and are served (in Mali) by field staff trained to provide non-formal adult education in various topics.  However, this “trusted intermediary” with an external institution is available to modern savings groups for only one year (in the standard NGO support system).
  • The credit union groups have such a person accompanying them for as long as the group endures.

We can guess which type of group women prefer to join, but ultimately they must tell us.  In many areas of Mali, they may not have the choice, but where they do, which do they prefer?

While waiting for their answers, I invite my colleagues who work in Mali (and others, too) to weigh in with their comments to correct this summary comparison and to offer what experience and evidence they have ready to hand.

I will suspend new posting for the remainder of the week to allow for a lively exchange (I’m counting on you!) on this topic.  This also is the last post of Theme Two (“A Better Deal from Microfinance Providers?”).  Then, Lynne Jarrell and I will offer a synopsis of Themes One and Two combined, a sort of evidence brief, before moving on to Theme Three (“More Profitable Business & More Household Income?”).

  • Laura Fleischer Proano

    Thanks for this comparison, Chris. As you suggest, many women in rural Mali do not have access to formal financial services, so credit unions are not even an option. While they may have access to tontines, more than 400,000 women have embraced Saving for Change Savings Groups in Mali. While we await rigorous evidence on the impacts of Saving for Change (forthcoming from the RCT led by IPA that you mention), Freedom from Hunger has gathered impact stories of Saving for Change members in Mali which demonstrated that the program provides both financial and social benefits for members. The key benefits cited by members in the research include:1
    • Easy access to loans to pay for children, health, business and food expenses
    • Ability to save for future needs
    • Growing their businesses
    • Increasing income through group income-generating activities
    • Learning about money management, business management, childcare and proper hygiene
    • Helping each other and working together peacefully
    • Gaining confidence and strengthening social ties with family, friends and neighbors

    A Freedom from Hunger study of the Peace Corps’ 11 year old Savings Group program in Ecuador found that members cited similar benefits:2
    • Disciplined savings
    • Easy access to loans
    • Friendship and support from Savings Group members

    As financial service practitioners, we often focus on the financial aspect of our work, but research on Savings Groups continually uncovers the strong social component of Savings Groups and how both the social and financial reinforce each other. While credit unions and tontines may provide some of these same benefits, I suspect that Savings Groups provide a wider variety which may better support the poor’s self-help efforts to overcome the many faces of poverty.

    As we have learned from Portfolios of the Poor, the poor use various financial instruments to meet different needs. Therefore, in response to your question about which option they prefer, a poor woman in Mali may very well prefer a tontine to buy cooking utensils, a Savings Group for health emergencies and to buy seed for planting season and a credit union for a large loan to invest in her business. It seems that our focus as practitioners should be to ensure that the poor have a range of good options that help them to meet their varied financial and other needs.

    1Miller, J. and M. Gash. (November 2010). Saving for Change Impact Stories Research: Extended Report. Freedom from Hunger.
    2Proaño, L.F., M. Gash and A. Kuklewicx. (June 2011). Durability of savings group programmes: A decade of experience in Ecuador. Enterprise Development and Microfinance Vol. 22 No. 2

  • Megan Gash

    I agree with Laura. Essentially, a woman would join all three groups if she could – meaning she has the money, the time, and the service is offered nearby. Much of their decision has to do with access to money, and all 3 of them give them that, so it’s a question of what they are willing to deal with otherwise. I think they prefer the modern savings group model over tontines because it is an improvement on the model. I’m not sure if that means they have adapted the tontine to the SfC methodology (because it is a lot of the same people), and the tontine ceases to exist as an option, or if they are members in both. I think the former. Also, credit unions have a lot to do with the proximity of the branch and the confidence and means to pay back a larger loan.

    And an interesting nuance is that for some groups, they split that pot and walk away with a large sum, but for others, they just put it back into funds for the next cycle and they don’t really gain a large sum at the end. This varies from region to region.

    Megan Gash

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