Categories:
  • Financial Services
Status:
Ongoing
Start Date:
Feb 2019
Cost:
$7300

Increasing Access to Financial Services

Access to financial services is a challenge for rural families.

More than 100 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 create a financial safety net for their members and aspire to lift their 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, 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 savings groups are self-governing. They elect management committees and adopt a constitution that stipulates insurance fund contributions, share prices, loan interest rates, and fines for things such as late loan repayment, missed attendance, or other infractions. The members share in the profits of the group derived from loan interest payments at the annual share-out meeting where savings and profits are divided according to members share purchases.

The groups are commonly unbanked.The funds records and constitution 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.

5.4. Current Projects -  Savings Groups - Borrowing copy.jpg

There are a number of established savings groups in Ayalagaya and there are local success stories. 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 which is commonly required for seasonal planting or school fees. Furthermore, there is little assistance available to form new savings groups except by word of mouth. While the government provides loans to established 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 through its Financial Services Program which will:

  • Create and train new and existing savings groups.

  • Establish a savings group federation to provide funds across member savings groups.

  • Provide seed money to the federation from which savings groups can take out larger loans which, in turn, will increase the loan funds available to their members. Karimu introduced financial assistance to individual savings groups in 2021 as a bridge between graduation from the training and availability of loans from a fully operational federation.

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, and budgeting.

  • Developing local community-based trainers to sustain the ability to establish new savings groups by the end of the project.

From program inception through year end 2021, Karimu has trained or is training 11 groups comprising 255 members in Ayalagaya. Prior to training, existing savings groups scored an average of 48% on the Village Savings and Loan Association evaluation tool. The tool is a composite measure of operational transparency, record keeping accuracy, management committee effectiveness, and member participation. As of the end of 2021 we are seeing an average score of 85.5%! Members are saving an average of $121 each annually and our groups are seeing an average return on savings of 19.7%. Benchmarking with all of Tanzania (as reported through the SAVIX Information System) both our savings per member and return on savings are above average.

Expected benefits:

  • Increase the number of households having access to financial services

  • Increase the understanding of how to save and borrow money wisely

  • Increase the financial safety net available to households during crisis

  • Increase access to loans for small business and community projects

  • Develop leadership skills to empower community members

  • Increase of overall income of local families

Learn more about Karimu Financial Services Program .