Categories:
    Income
  • Entrepreneurship
  • Training
    Financial services
  • Saving groups
  • Seed funding
  • Microloans
  • Training
Status:
Ongoing
Expected Completion On:
Jan 2021
Start Date:
Feb 2019
Cost:
$5,000/year plus $54,000 for seed funding

Increasing Access to Financial Services

Access to financial services is a challenge for rural families.

More than 5 million people around the world are members of community-led savings groups. Many rural populations have no access to financial institutions such as banks or savings and loans and even if they did have access, they may be unable to take advantage of those services. Savings groups focus on lifting low-income or disadvantaged families out of poverty by providing access to financial services including savings, loans, investment, and insurance. It is a well-established, worldwide program with many success stories such as those of women entrepreneurs whose lives have been transformed by getting access to micro-loans to start a small business. Members use the loans to buy seeds for crops, acquire cows to sell milk, open small shops, or set up other revenue-generating activities.

These community-led groups, typically 20 to 30 people, offer a secure place to save money, ways to borrow via micro-loans, a return on investment from loan fees, and insurance funds in case of emergencies (e.g., death or illness of a family member). They are typically composed of members who already know one another, have an established level of trust, and are accountable to one another. During regular meetings, members are required to contribute to the insurance fund, purchase “shares” for investment (which are then used as loan funds), repay or takeout loans, and record all proceedings. The funds and records are often stored in an iron box with multiple locks so no one person has the ability to open it.

5.4. Current Projects -  Savings Groups - Iron Box copy.jpg

This fund supplies the cash for the micro-loans. Loans are approved by the group and require five other members to serve as guarantors who must repay the borrower’s debt should the borrower be unable to make the repayments. The loans have a relatively high interest rate which, in turn, increases the pool of money.
5.4. Current Projects -  Savings Groups - Borrowing copy.jpg

There are a number of established savings groups in Ayalagaya. Unfortunately, the pool of money available for loans in most groups is limited, due to the small savings of its members. In Ayalagaya, savings vary from USD 0.50 (Tsh 1150) to USD 5.00 (Tsh 11,500). This dramatically diminishes the positive effects of savings groups as loans tend to be small (USD 2.00 or Tsh 4,600 to USD 50.00 or Tsh 115,000) and not all members will have access to loans at the same time. Furthermore, there is little assistance available to form new savings groups. While the government provides loans to savings groups, and even training to those approved for loans, in practice these are rare and fall far short of the need.

Karimu plans to address this challenge with two related projects:

  • Creating new existing savings groups
  • Providing existing and new savings groups with seed money by establishing a federation from which savings groups can take out larger loans which, in turn, will increase the loan funds available to their members

This project focuses on the 1st item. It encompasses:

  • Encouraging the creation of new savings groups (particularly for young adults who suffer from the lack of jobs in Eastern Africa)
  • Training new and existing savings groups in best practices based on guidance from a worldwide Tanzanian expert. Training includes not only learning the basic records keeping practices, but also includes training in the value of saving, borrowing wisely, meeting facilitation, conflict resolution, and gender equity.
  • Developing local community-based trainers to sustain the ability to establish new savings groups by the end of the project.

Once the savings groups are established in the best practice methods, Karimu will start the 2nd project gradually providing seed money to them, empowering the villagers to create a brighter future for the village and their children.

Expected benefits:

  • Increase the number of households having access to financial services
  • Increase the understanding of how to save and borrow money wisely
  • Increase access to loans for small business and community projects
  • Develop leadership skills to empower community members
  • Increase of overall income of families in Ayalagaya