Thanks to Oikocredit USA for submitting this photo from their recent trip to Tanzania. To learn more about Oikocredit’s involvement in microfinance and savings groups, visit their blog.
Don’t forget to submit your photos, stories, etc. to us by clicking the submit content at the top of the blog, or emailing us at firstname.lastname@example.org.
"Oikocredit" means investing in people, a combination derived from the Greek word for "community". Oikocredit is one of the world’s largest sources of private funding to the microfinance sector, and has been in operation for 36 years, making it a microfinance pioneer. Oikocredit has 23 partners in Tanzania, the majority of which are SACCOs (savings and credit co-operatives).Oikocredit encourages local communities to save, although it is aware that personal savings alone will not cover the demand for loans, and thus provides MFI borrowers with external funding.
These photos show staff during meetings, outside the conference center in Dar Es Salaam, and on trips to partner Belita Fund. Belita Fund promotes savings and provides group-loans, individual loans, salaried loans, capital loans, and training extension in Dar Es Salaam.
William Creighton series
Continued: Note on NOT Linking Community Based Savings Groups to MFIs or Banks
William Creighton, Programme Director CRSPT Tanzania
Why do this linkage? Is it really to help the group’s members? Or is it to satisfy an academic question posed by practitioners who are happy to experiment with other people’s lives and money and who do not have to live with the consequences of failure. Promoters of linkages to MFIs or banks can move on to the next fashionable experiment, people living in rural areas cannot. The CBSG provide a service for a particular market segment, if some individual members want to move on they can as individuals and indeed should be encouraged and expected to do so. CBSG provide short term loans for certain situations. MFIs provide other loans for other situations. This is not an either or scenario - people can be and are members of groups for short term loans and a good return on savings and still have a larger loan with an MFI as an individual and based on their credit history within a group that can make this history known to the MFI. Loans from MFIs tend to be larger and for business type investment over a longer period. CBSG loans tend to be shorter and for cash flow smoothing. Or saving and working towards something specific e.g school fees.
Take this example. There is a mature group in its 4th cycle managing $10,000 usd. Of the total amount $8,000 is loaned out among members and there remains a balance in the box of $2,000. This $2,000 can be linked to banks or financial institutions in a number of ways
- As individual deposit accounts
- As a group deposit earning interest that will be withdrawn each year to coincide with the annual action audit
- As a means to leverage the amount by a factor of 3 bringing the group an additional $6,000. Consider that the group is already maximizing the amount of loans it has - $8,000 hence the need to deposit the balance $2,000 into another type of account. What benefit will the additional $6,000 bring? Will the amount be consumed since it cannot be invested? Can the local economy sustain the interest repayments (>30%) necessary on a $6,000 loan? Or are we simply creating a situation where people will come to depend on external funding and forget about the need to mobilize savings. Will people save to invest or borrow to consume? – this is a very dangerous path we are on in linking groups to external funding with everyone in the group liable for individual loans.
- Surely having to deposit group cash assets into a financial institution is another not very transparent charge adding to already high interest repayment rates.
- Who signs for the money in the bank? This is a practical issue regarding trust. Do all 25 members of a group sign a cheque or withdrawal slip? Or do the group “trust” say 3 individuals to manage money on their behalf? This leaves the deposit at risk of conspiracy of the signatories to defraud.
Agreed we want everyone in the group to lift themselves out of poverty. But ask yourself – how many people borrow their way out of poverty? We are experiencing the biggest recession in over 70 years in the developed world because people borrowed their way into poverty. Educated people with financial literacy skills, who understand borrowing and repayment, with incomes and cash flows, who are exposed to very sophisticated financial systems and instruments. They are now losing their jobs, possessions, houses because they as individuals borrowed more than they could repay. Fortunately they borrowed as individuals – not groups.
It is understandable that we would want people to develop as quickly as possible and leave poverty behind. But how much of that desire is driven by our own short term horizons, we have 3 year, 5 year programmes and then we disappear off into the well developed sunset. As Mother Theresa said “thank god for the poor, they will always be with us”.
Tomorrow will be the last installment of William Creighton’s series on not linking CBSGs.
More from William Creighton!
Continued: Note on NOT Linking Community Based Savings Groups to MFIs or Banks
William Creighton, Programme Director CRSPT Tanzania
Effectively groups are supported for one year and then left alone to go forward into the future. These are by and large groups of people who have had no previous access to any form of financial service and who now are introduced to a new methodology that works to meet the need for saving, investments, cash flow smoothing and income generation. As their capital grows they will and do evolve other mechanisms to take care of new needs. Social funds, roads funds, water funds, health and education funds. Bigger loans, business loans. And all without our (or any) external support after the initial one year intervention. Imagine – they don’t need us!!
Within any group there will be people at either end of the spectrum that ranges from savers to borrowers. There will be risk takers and those that are risk averse. To expose these neophyte groups and individuals to excessive risk of external financing before they are fully matured with a number of cycles of operation behind them is very risky.
It also raises the question of when any links should be made – if we take the VSLA/CBSG/CMMF/SILC/VICOBA methodology as being a one year support to the groups should we make the linkages to external finance within that year? If so we risk the group members being too immature to handle more cash than they have possibly seen before. If the link is to be made after two, three or four years of operation then the methodology is compromised. It is NOT a one year support to the groups.
Along the spectrum of risk takers (more inclined to borrow) and those that are risk averse (those that are inclined to save) there are many differing opinions. Why then expose the all the group members as co guarantors of another members risk? Why put all the group’s capital at risk for the sake of one members loan?
MFIs and banks will happily take the groups savings and put them on deposit at say 4% and then offer the groups 4 times this amount at interest rates of >30%. This is pretty typical of the situation in Tanzania. The MFI sits back and makes 25% or more safe in the knowledge that all the groups members are liable and their (the MFI) money is safe. Meanwhile the interest goes out of the community and onto the MFI balance sheet. Given that group’s funds can make up to 40% return on investment within the group setting this is a serious risk to savings mobilization and the ability of individuals to accumulate capital. If one member defaults on a payment for any reason all the other group members hard earned savings – already on deposit with the MFI – are at risk. Let’s not forget that MFIs have rigid repayment structures that do not consider delays caused by rains failing, animals dying, people getting sick etc. All they want is repaid in the full amount and on the stated date. Given the risks associated with delivering small amounts of credit into rural areas and if a MFI gets its fingers burned and decides not to engage with rural communities these communities will be further disadvantaged. Many MFIs have a bad image when it comes to rural credit with people citing examples where they have lost beds, bicycles, tables etc when they cannot repay loans. Poor people driven further into poverty.
With specialized procedures and knowledge MFIs are unknown quantities to poor individuals. They are remote with no knowledge of what is happening within the group or village. The levels of transparency of all transactions within the group are seen by all the members and it is not so easy to commit fraud and abscond with the money. Recently Tsh 600 million ($460,000) went missing in a “regulated” MFI in Dar es Salaam, stolen from the members by the leaders and with no chance of recovery. Is that what we want groups exposed to?? Elite cliques conspiring to defraud. Membership while quite often fixed within groups can be put at risk by any individual who knows he is leaving the area and who takes a large loan and absconds leaving the rest of the members facing a loss. A serious question is posed when groups having taken a large external loan cannot service that loan and then engage with another MFI to cover the first MFI loan. The slippery slope.
With the best will in the world it is hard, and especially hard for poor people, to refuse money when it is up to 4 times more than they expect or have been used to. People living under the strictures of poverty do not see cash flows or investments or interest or repayments – they see money, lots of it and right now. Too much of anything is a bad thing and the lure of money now, right now, blinds people to the future and anyway, “since we are all at risk I will get help from my co members if I default”. It’s that easy to destroy a group, all the cohesion, all the training, two or more years of planning a programme and one year of working with a group gone in an instant. Back to poverty while the MFI counts its profits and moves on. And more to the point a level of distrust with engaging in any form of finance institution well into the future or indeed with each other as one defaulter destabilizes the groups, causes losses to his neighbours and discredits the CBSG methodology. Maybe for one or two generations.
Better to links groups to other development issues if indeed such linkages should be made at all, such as health, environment, services or education. Even better to link to further financial literacy training and understanding of the various ways to access money. But as individuals!!!
Check back tomorrow at 9am for more from William Creighton.
Learn more about visiting Tanzania from this video.
Visiting Arusha, Tanzania
We are holding the ASGS in Arusha, Tanzania because East Africa is the epicentre of savings group activity. The conference venue–the Arusha International Conference Centre (AICC)–is located in the heart of Arusha city, which is the safari base of the world renowned “Northern tourist circuit” that includes Mount Kilimanjaro, Mount Meru, Serengeti National park, Lake Manyara National park, the Ngorongoro crater (commonly known as the eighth wonder of the world), Tarangire National park, and Arusha National park to mention just a few.
Easily accessible within three hours of Arusha, the parks of Tarangire and Lake Manyara are definitely worth seeing with the world famous tree climbing lions sitting in the trees overlooking the lake in the Lake Manyara National Park. A little bit further on is the Ngorongoro Crater, one of the wonders of the world and a true sight to be hold and then the world famous Serengeti, with its vast open plains full with thousands of animals of all different species that all come together to make an outstanding safari experience.
In the South of Tanzania, there are two of the most unspoilt national parks in Africa; the Ruaha and the Selous National Parks. These parks are so untouched that you feel truly at one with nature and with the ability to see all of the big five roaming free, Ruaha and the Selous are also worth visiting.
There is, of course, Zanzibar, the island of dreams that is just waiting to show you its rich history and culture. Stone Town has winding back streets with shops tucked away for you to explore. The beaches to the south and to the north are gorgeous and also unspoilt. Don’t miss out on a chance to learn about the history of spice trade and also take a trip to Jozani Forest, a truly remarkable place.
Back up north is a treat for mountain climbers. Mt Meru and Mt Kilimanjaro play host to hundreds and thousands of climbers every year and with a variety of ways to climb depending on your levels of expertise, these mountains could tempt you to try and climb them.
This is just the tip of the iceberg when it comes to Tanzania with more off the beaten track tours and excursions to choose from like climbing Mt Hanang, scuba diving with whale sharks to learning how to hunt with the Hadzabe Tribe near Lake Eyasi. Then also don’t forget that within easy reach is the Masai Mara in Kenya, gorilla trekking in Rwanda and white water rafting in Uganda.