The last post (# 30) summarized the body of evidence such as it is for credit groups, touching very lightly on savings programs. Here I extend the body of evidence to include other research studies, specifically of the saving groups (SGs) independent of external lenders. The task is aided enormously by the excellent survey and consolidation of recent and emerging research results by my Freedom from Hunger colleague, Megan Gash. She has written a chapter (“Pathways to Change”) for the forthcoming book Savings Groups at the Frontier that comes out of the Arusha Savings Group Summit (October 4–6, 2011 in Arusha, Tanzania), expected to be published in November 2012.
Like Kathleen Odell in her 2010 white paper on microfinance impact research results, Megan casts her net widely to build a robust body of evidence, even as we wait for a wave of randomized controlled trials (RCTs) nearing completion. In Megan’s words:
The analysis is limited by the complexity of the studies reviewed; the collection spans a wide variety of program types, time frames, geographies and methodological rigor. The results speak best for impacts on the most common profile studied—an adult African female who has been in a basic savings group for two years. However, much insight is also provided regarding the impacts of longer membership. The scope was not exhaustive and does not include studies on traditional accumulated savings and credit associations (ASCAs), rotating savings and credit associations (ROSCAs) or the self-help group (SHG) movement in India. Overall, the current evidence suggests that while there are likely both financial and social impacts from participation, there is more impact in some areas than others, and that length of membership is an important aspect in demonstrating results.
Megan divides the findings into five general “domains” of short-term outcomes, which should emerge within one to two years of program participation. One of the five domains is “Strengthened Economic Capacity,” which includes six “areas”—asset accumulation, consumption-smoothing, IGA (income-generating activities) investment, income, management of finances, and savings. For each area, she assigns a “Likelihood of Expected Member- and Household-Level Impacts for Savings Group Participation” which can be high, medium or low. This is a very helpful innovation in the presentation of research results.
In the economic strengthening domain, Megan’s review leads her to assign “high” likelihood of impact for five of the six areas of the domain. Only “income” does not make the grade; in fact, income falls into the category of “low” likelihood of impact. This low likelihood, given the research results to date, is consistent with the results from studies of credit groups (see post # 30).
In summary, members of SGs seem highly likely to increase their savings and other assets, some of them to invest in IGAs, some to do a better job of managing their household finances, thereby stabilizing household consumption through the annual cycle. But these benefits seem much less likely to translate into substantial increases of household income, much less escape from poverty.
These results indicate that business and income benefits are surprisingly similar for SG members and their counterparts in credit groups. I say “surprisingly” because SG members are often living in more remote areas than credit group members. Therefore, lower cash flow to repay loans should make it more risky to take loans from the group savings, and business opportunities in which to invest loans or savings should be fewer and less lucrative. Moreover, the average size of loans from the common savings of SGs is much less than for credit groups receiving loans from outside providers. And the terms of the SG loans are often harder on borrowers—shorter duration and higher interest rate—even though these terms are self-imposed (through participation in group decision-making about terms for lending to members).
Yet Megan tells me the emerging results from current research in Mali indicate something like 90 percent of SG members take a loan from the group savings at some point. Moreover, she says that at least half of a random sample (41 “impact stories”) of SG members use loans to pay business-related costs, such as buying items for resale (remember my global estimate that roughly 50 percent of borrowers from microfinance providers are investing their loans in IGAs). And from a personal conversation with leaders of two Malian SG-facilitating organizations (they train women to form and self-manage their SGs), Megan reports that the most frequent or noticeable impact that both are seeing is that “women become more entrepreneurial,” not just in the sense of engaging in business but also talking to each other at group meetings about opportunities for better business.
That the apparent benefits are the same, whether the poor (women, in particular) participate in credit groups served by microfinance providers or in SGs depending solely on their own savings, can be interpreted in two ways (at least). On one hand, I could say that SGs seem to be remarkably effective in offering similar benefits at less net cost to members than for those in credit groups (this cost conclusion comes from Theme Two). On the other hand, I could say that the efforts of microfinance providers of financial services to credit groups are disappointing because the benefits seem to be no better than for SGs operating on their own. Both statements may be true. And in both cases, the major returns on investment (ROI) needed to generate important increases in household income are seldom seen (at least in the studies to date that measure change over only one to two years).
In the next post, I will explore the possibility that business education can make a substantial difference in the IGAs of credit and/or SG members, substantial enough to increase household income.