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Saving clubs are critical in the mobilisation of resources

Sanderson Abel
Lower income people can save only small amounts individually, which are usually not enough to invest in productive activities. However, they can alternatively save as a group. By saving as a group, these lower income earners can accumulate a larger amount of money more quickly by pooling their savings in a common fund which can then be used by the group or a member of the group for productive investment.
Such savings set-ups can start off as an informal group and then maybe move towards a semi-formal set up.

These informal and semi-formal group saving methods can then build the potential of linking up, either with other savings groups or with the formal financial system, such as banks, in order to have access to more flexible services.

Forming a savings group with persons of very different backgrounds may be much more difficult and is not encouraged hence the need to have members with the same attributes.

Friends and neighbours, people of the same ethnic background, gender, age group, religious or social group, or those with similar incomes and expenses may be more inclined to form a savings group than those who have little in common.

This would allow the members to come together with those they trust or have similar potential to save. This makes it easier for the group to define their objectives given their similar background.

It is important to understand that group savings should be mobilised for productive uses that will directly or indirectly increase members’ incomes and their ability to save.

The group can choose a common goal, such as saving to buy fertiliser for all members, or each member of the group can choose his/her own savings objective, depending on his/her priority and capacity. Members can also benefit from the soft loans that can be accessed from the pool of savings.

There are many advantages of group savings; By saving as a group, the lower income people can help each other learn basic financial skills. As a group, they can more easily receive literacy and money management training from group promoters or trainers from NGOs, and also learn from other more literate members. Low level of literacy and numeracy skills make it difficult for them to keep track of their savings and to manage their money.

Group savings help the group members to be protected against vulnerability to risks like bad harvest, food shortage, sickness, flood, income shortage, etc. By saving as a group, these risks can be shared between the members. Individual members can rely on other members for help in time of need. Group savings can be used like an insurance scheme to help members deal with these emergencies when they arise. Sometimes individuals do not have access to safe saving facilities, such as banks. By saving as a group, the low income earners can create a safe place to put their money.

Some group saving methods does not require storing at all, since the money is immediately redistributed after collection. The group can also buy or make a cash box that will be safeguarded by several members which will periodically be deposited at the bank.

By saving as a group, the low income earners can protect themselves from accusations of being selfish, since the savings belong to many individuals, not just one. The threat against a single member of the group is a threat against all members.

Saving requires discipline since it means withholding something for future use instead of consuming it right away. All group members must have discipline and agree on a common set of rules to follow. If the rules are not enforced, then all members suffer. Groups solve this problem by using peer pressure or punishing those members who do not follow the agreed rules. This may include a fine for late payment or for missing a meeting, and even expulsion from the group.

For group savings to be a success there are various attributes that the group should have and these include

• Members have a common bond.
• Members have clear objectives.
• Members have agreed upon rules to follow.
• Members are honest and work hard to achieve their objectives.
• Members hold regular meetings and participate in discussions and decision-making.
• Members demonstrate leadership.
• Members keep accurate records of their activities and meetings

As the group savings grow, the group or its individual members may find advantages in linking-up with other financial institutions or with a bank. For example, a savings group which has mobilised a large savings fund might find it beneficial to open a group account in a local bank to safely store its surplus funds, or to access loans.

Opening an account with a bank has advantages to the group since the account allows individual small savers to pool their savings in a single larger account and leaves much of the account handling costs up to the group rather than the bank. Since small savers are much more interested in the safekeeping of their funds and easy access to them, they are also often willing to pay more for that service.

Sanderson Abel is an economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. He can be contacted on [email protected] <mailto:[email protected]> or on 04-744686, 0772463008