Savings groups: a revolution in microfinance for the poor

  • Annikka BERRIDGE, FAHU Foundation
  • Speakers
  • Grace MAJARA, CARE International
  • Roy MERSLAND, Universitetet I Agder / CERSEM
  • Linda NAKATO, Universitetet I Agder / CERSEM
  • Hugh ALLEN, VSLA

    Annikka BERRIDGE opened this session, saying that savings groups have proven to be low cost mechanisms for reducing poverty. By putting the power to transform one’s life in people’s own hands, savings groups are seen as revolutionising microfinance for the poor.

    Hugh ALLEN, VSLA, continued by explaining what savings groups are. A core element of savings groups is that they are based on simple and transparent procedures, which are created and managed by its own members. The groups are local and independent: they do not rely on donated or borrowed capital. Loans are paid back at the end of an operating cycle and the total cash in hand is shared among the members, in proportion to their savings. With almost no operating costs, all interest income is retained within the group. Savings groups are mainly focused on the very poor and have proven to be a successful and self-replicated microfinance system (mostly in Africa). However, savings groups only offer a limited range of services and cannot provide large, affordable loans for large asset acquisition or long-term investment. 

    Grace MAJARA of CARE International presented how CARE has been integrating digital solutions into savings groups in order to promote financial inclusion. She presented Chomoka, a mobile application used by savings groups to manage their records, access banking services and gain advisory support from a trusted network of facilitators. These facilitators train and support the groups in using the application. Challenges for the digitisation of savings groups, according to Majara, include issues around data ownership and the limited usage of technology, due to: 1) Strong gender and social norms that limit usage of technology especially among women; 2) High costs of gadgets lowers ownership; and 3) Low literacy levels.

    Roy MERSLAND and Linda NAKATO (Universitetet I Agder / CERSEM) presented their ongoing research that should ultimately contribute to better understanding of how development actors can contribute to poverty alleviation in a cost-effective way through the use of savings groups. Nakato presented her research on the effects of financial linkages to savings groups through savings or credit. Results show that savings linkage leads to an increased drop-out rate but enhances group performance, while credit linkage is associated with group stability but leads to a reduction in group performance. The policy question for practitioners is to weigh up carefully if and how groups should be linked.


    The discussion was kicked off by a question about the possible difference between self-managed and non-self-managed savings groups when it comes to the continuity of extra add-on activities. Allen clarified that supplementary activities or services that take place in saving groups tend to be short-term. Hence, they should be seen as an opportunity to learn and not necessarily as an ongoing activity within a group. Add-ons could range from educational, entrepreneurial or service oriented activities, such as malaria prevention programmes, agricultural strategies or HIV/AIDS initiatives.

    The next question was about the available data and studies on the different regional savings groups between regions. Mersland referred to the SAVIX database (, which is freely accessible for practitioners to craft their own queries. The database contains data which is voluntarily shared by existing programs in real-time and currently covers information about 6.5 million members and 270,000 savings groups. 

    Next, an audience member asked for clarification about the difference between traditional groups managing cash and savings groups. Allen stressed that the main difference is that savings groups are based on a standardised constitution, signed by all its members. Savings groups also have a highly tightened set of procedures, which guarantees that everybody knows what is going on. This element of transparency is distinctive to savings groups. 

    The discussion moved forward with the question of what would happen with savings groups if they would lose NGOs’ support. Allen referred to a research where 330 savings groups in Mali, Kenya, Tanzania, Uganda and Cambodia have been followed for over four years. After five years the survival rate was 89%. Also, the average capitalisation was doubled, group participation went up as did the average size loans. These results are reassuring in terms of sustainability, however, there is no sense of trajectory (i.e. at what point a steady state can be noticed in terms of savings and returns).

    This discussion was followed by an audience member stating that it is worrying to see that credit linkage leads to a reduction in savings per member. He wondered which circumstances may benefit savings groups when it comes to credit linkages. Mersland argued that you cannot just look at the savings going down, as you should also take into account that other benefits may occur. Nevertheless, given that these possible benefits have not yet been studied, Mersland stated that it is better to be careful when it comes to credit linkages. Allen added that having continued savings in the group is a function of how much money is available as external credit to the group. Consequently, once the amount of credit gain within a group becomes very large, the motivation to save money in order to access credit and make an investment is going to drop.

    The discussion was finalised by an audience member asking why savings groups only focus on the poor and are not open for everyone to benefit. He added that the consequence of NGO’s limiting their work to remote areas and to the very poor, makes it difficult for banks to put savings group into their business proposition. Berridge commented by saying that savings group are an intervention that can work for a lot of people. However, given that the prospects for the very poor are bleak, it is hopeful that savings groups have been so successful for them.