#microsavings

Two interesting things happened to me at church Sunday.

First, my daughter asked me for two dollars so she could buy some cookies at the bake sale some of her friends were hosting to raise money for The Truth 365 (see yesterday’s post). Now that I’m doing my blog, she knows I’m a soft touch for small-scale charitable efforts. I didn’t have two dollars, so I gave her $20.

“Do you want something?” she asked. “You can write about it for your blog.”

I told her I already had written about it but she was welcome to get whatever she wanted.

I expected some change back.

In addition to the cookie sale, the girls had prepared some cupcakes, which they auctioned off to the highest bidder. My 12-year-old came down with two small gift boxes and a huge smile. “Somebody else big seven dollars,” she said, “but I had a 20!”

I didn’t even get one of the cupcakes. But The Truth 365 got $30 — my $10 plus the $20 I gave my daughter — to raise awareness about pediatric cancer.

Second, my Sunday-school class got into a discussion about microfinancing as a method of social justice. The class began with an informative presentation on the difference in the financial systems in the First and Third Worlds. The U.S., for instance, has a tremendous amount of financial infrastructure and protections in place, from social security numbers, which prove that people are who they say they are, to FICO, which analyzes the risk of loaning to an individual, and the FDIC, which backs savings accounts. Those protections simply aren’t in place in Third World companies, making borrowing money much more difficult and keeping it much less secure.

Microfinancing companies — Kiva may be the best-known to the average American — step in to help fill the gap for poor entrepreneurs in Third World countries, essentially crowd-funding small loans.

“Poor people, with access to savings, credit, insurance, and other financial services, are more resilient and better able to cope with the everyday crises they face,” says the Kiva website. “Even the most rigorous econometric studies have proven that microfinance can smooth consumption levels and significantly reduce the need to sell assets to meet basic needs. With access to microinsurance, poor people can cope with sudden increased expenses associated with death, serious illness, and loss of assets.”

I love the notions of microloans. It pushes lots of my “giver” buttons: I like the idea of giving overseas, because I know my dollar goes farther there than it does in the U.S. I like the idea of being able to select who to help based on their gender (many microfinancers focus on poor women as a way to empower them), their location or the kind of business they want to fund. I love the idea that a small amount — Kiva allows people to lend as little as $25, and many projects on the site can be fully funded for less than $1,000 — can make a huge difference, thereby allowing generous people without great means to feel invested in someone else’s work.

But I’ve also seen studies indicating that microloans don’t make the kind of impact for which they’re designed, and those studies concern me enough that I haven’t made microloans part of my giving (though I suppose if they’re loans I really shouldn’t be thinking of them as giving anyway).

I’m more drawn to microsaving, which takes the concepts of credit and repayment off the table. The Bill & Melinda Gates Foundation has gotten into the microsaving game in a big way as part of its international-aid mission.

If you’ve got several minutes, the 2014 Gates Annual Letter is worth reading. It outlines “3 Myths That Block Progress for the Poor.” They are:

1)   Poor countries are doomed to stay poor. 

2)   Foreign aid is a big waste.

3)   Saving lives leads to overpopulation. (I’ve heard the other two before but never this one, and I can’t begin to express how much it unnerves me to know some people would use this as an excuse to avoid helping others.)

I don’t see a to donate directly to the microsaving work that the Gates Foundation is doing (I suspect that work is already well-funded), but the letter does show how three development organizations are saving lives in poverty-stricken countries. One of those is the Global Polio Eradication Initiative, so that’s where I’m giving today.

Feb. 10: Global Polio Eradication Initiative, via Rotary International

Over the weekend, the Washington Post ran a story about the growing attention being given to microsavings.  Here at Five Talents, we were delighted to see the story because it affirms the work we’ve been doing for years.  It also communicates a powerful truth: that learning to save can transform one’s life – even in communities where women and men do not have access to traditional banks.

“There’s a common, misguided, knee-jerk reaction that if you’re poor, you have no assets to save,” Dean Karlan, a Yale economist, told the Post. “People who are poor obviously save less, but they still save.”

We’ve seen this for years in our Burundi program, which by June 30 will have helped more than 10,000 women and men join savings groups and build wealth where, previously, they had none. Other Five Talents programs – including ones in South Sudan, Myanmar and Bolivia – also feature the group-led savings model.

In the case of Five Talents, however, these savings “circles,” as the Post calls them, are far more than glorified piggy banks. They are microcosms of self-government and hubs for compassionate community involvement.

I saw this first-hand during my recent trip to Burundi.

Each group has a constitution (a list of rules) that is created and agreed upon by the members themselves. The rules cover everything from the number of women and men who may participate in a single group, to conditions regarding savings deposits and loan disbursement. Group members also determine their own interest rates and penalty fees.

This self-determination does wonders for members’ self-esteem, and it encourages discipline and order that members can then model in their individual homes.

Even more amazing, though, is what these groups are able to accomplish for others in their community. Most savings groups in Burundi create an emergency fund, which they will only tap when the group collectively identifies a needy individual in their community – often someone who is not even a part of their circle.

We need to keep in mind that the women and men in these groups have their own challenges to overcome – cobbling together a living by selling palm oil or growing a few vegetables; caring for a sick child; repairing a hole in the roof of their hut. Yet they are choosing to set aside a portion of their savings for others in their community.

One of the most powerful examples of this that surfaced during my trip came when a woman named Monica told us how a savings group had taken her under their wing.

She is a mother a four, and when a man carried away her eldest daughter, who was pregnant, a few group members went out and brought the young woman back to safety. Later, they also paid 5,000 Burundian francs (about $3) for the baby’s medical care and provided Monica with seeds for her subsistence farming when she could not afford them.

Even though Monica had not been saving through the group, the members counted her as one of their own. “I was not able to feed my kids,” she said, but because of the generosity of the savings group, “now I am able to send them to school.”

Through their compassionate actions, the group members have added another story of transformation to the expanding narrative of hope and community development that we are seeing in Burundi.

Microsavings isn’t just about money. It’s not just a piggy bank that women and men living in poverty can use to incrementally increase their wealth. Microsavings is empowering individuals. And it is contributing to the development and strengthening of entire communities in some of the world’s poorest regions.

By Nicholas D. Kristof, NY Times, July 4, 2012 MASUMBA, Malawi--If you want to understand some of the best new ideas to chip away at global poverty, an excellent place to start is the Nasoni family hut here in the southern African nation of Malawi.

Alfred Nasoni and his wife, Biti Rose, have had seven children in this village of Masumba. Two died without ever seeing a doctor. Alfred and Biti Rose pulled their eldest son out of school in the fourth grade because, they said, they couldn't afford $5 in school costs for a term. And they farmed only part of their 2.5 acre plot because they lacked money for seeds.

Yet poverty is sometimes romanticized, and it's more complicated than that. Alfred, 45, told me that even as his children were starving, he spent an average of $2 a week on local moonshine and 50 cents on cigarettes. He added that he also spent $2 or more a week buying sex from local girls--even though AIDS is widespread.

All this hints at an uncomfortable truth: The suffering associated with poverty is sometimes caused not only by low incomes but also by self-destructive pathologies. In central Kenya, a recently published government study found that men, on average, spent more of their salaries on alcohol than on food.

It's a vicious circle: despair leads people to self-medicate in ways that compound the despair.

Yet there are escape hatches. In 2005, Biti Rose joined a village savings group founded by CARE, the international aid group. These "village savings and loans" are among the hottest ideas in development work. They now serve some six million people in 58 countries.

After recent financial crises, plenty of Americans love to hate banks, but many of the world's poor don't have that luxury: more than 2.5 billion people worldwide don't have a bank account, according to a landmark World Bank report, "Measuring Financial Inclusion."

The poor typically receive a pile of cash once or twice a year, at the end of a harvest, and then have no good way to save it. That increases the risk that some of it will be squandered.

In some African countries, cellphones are emerging as the new banking system. But here, and in much of the world, the solution is savings groups like Biti Rose's. She and 19 other members met weekly and each deposited the equivalent of about 10 cents. The money was then lent out to members, and CARE coached them on how to start small businesses.

With a loan of $2, Biti Rose started making and selling a local version of doughnuts, which she initially sold for 2 cents each. "People really liked my doughnuts," she noted, and soon she was making several dollars a day in profit. Inspired by her example, Alfred began growing vegetables and selling them; he turned out to be a shrewd businessman as well.

Seeing an upward trajectory in the family fortunes, Alfred cut out the girlfriends and curbed his drinking, he says.

Biti Rose and Alfred then had the resources to buy seed and fertilizer for all their own land and to lease an additional two acres as well. These days, they hire up to 10 farm laborers to work for them. In the old days, they harvested less than one bag of corn a year; this year, their harvest filled seven ox carts.

I think there's something going on here beyond microsavings and entrepreneurship. Esther Duflo, an economist at the Massachusetts Institute of Technology and co-author of an exceptionally good book called "Poor Economics," argues that outside interventions sometimes work partly when they give poor people hope. That's precisely what I've seen in many countries: Assistance succeeds when it gives people a feeling that a better outcome is possible, and those hopes become self-fulfilling as people work more industriously and invest more wisely.

For Alfred and Biti Rose, their hopes are now focused on their younger children (the oldest has married). Biti Rose never went to school at all, but she is planning to send her younger children to university.

She is also planning future purchases, including the first television in the area. But don't think Biti Rose is going to kick back. She sees the TV as an investment.