Savings for the bottom of the pyramid: self-reliance models

  • Bernd BALKENHOL, Université de Genève
  • Kalpana SANKAR, Hand in Hand India
  • Hermann MESSAN, UNCDF


BALKENHOL opened the session by welcoming the audience. He explained that the session focused on the institutional angle of savings for the bottom of the pyramid, while the session later that day (see Savings for the bottom of the pyramid: institutional outreach) is about cross cutting issues on savings mobilization.

Hermann MESSAN talked about the UNCDF MicroLead program. The program supported leading financial service providers (FSPs) and technical service providers (TSPs) with savings-led methodologies to expand their operations and services to underserved markets. The goal is to reach 2 million low income depositors by 2017. Self-reliance models that are explored within MicroLead are village banks, credit unions and savings groups.

Messan explained how the three self-reliance models were put in perspective by using a six dimensional analytical framework that looks at:

  • length: the time frame of the supply of microfinance; 
  • breadth: the number of clients and scalability; 
  • depth: poverty outreach; 
  • worth: willingness to pay; 
  • scope: number of financial contracts supplied; 
  • cost: the sum of price costs and transaction costs.

Savings groups have a high willingness to pay as their members are those who set the services, terms and conditions. Saving groups have a deep poverty outreach, given that it is easier for small informal groups to reach those with the lowest income and rural areas. When it comes to breadth, saving groups will usually have 20-25 members, but are easily scalable. The downsides of savings groups are the length and cost. Although people are willing to pay for the services provided by savings groups, the costs are high. Moreover, the type of services is limited and traditional: internal lending and savings.

Credit unions score high on the willingness to pay and the scope of services is much broader and more regulated that of savings groups. Higher regulation decreases the cost. The length and timeframe is longer than in savings groups, but scalability and depth are lower. Village banks are in between credit unions and savings groups. Messan emphasized that introduction of technology can decrease implementation costs for all these types of self-reliance models. Financial education is better provided by savings groups, as credit unions and village banks are restricted by regulations. Rural areas are better reached through informal models.

Alan MOORE represented ILCU, an Irish foundation that provides financial and technical support to develop and strengthen Savings and Credit Cooperative Organisations (SACCOs). He explained that SACCOs are local initiatives owned by members. Main services are savings and lending. Each member has one vote, regardless of their deposit. A voluntary board is elected with democratic procedures by the members. The goal is to benefit the members. However, the SACCO must cover its costs.

Moore analysed what makes SACCOs work. The first important point is the local ownership and local cohesion. A top-down approach is less likely to be successful. Leadership is also essential, requiring good management skills. Bookkeeping of all financial transactions is essential. The number of members is essential for scalability and viability. Stakeholder engagement and support is important. At a local level, the local community, the local and religious leaders should support and promote the SACCO. Physical presence is important. This gives confidence to people to deposit their money in this institution. Portfolio size is important to be able to lend money to members. The auditing function is critical. The presence of an apex body is very important, as it can set targets for SACCOs and can assist in lobbying with the government to promote best practices.

SACCOs are a low cost model as interest rates they charge are lower compared to financial institutions. Moreover, SACCOs pay dividends to its members. On the operational side, there are limited financial services that SACCOs provide compared to commercial banks, but these services are closer to the local community. Moreover, SACCOs target all social levels and do not differentiate. Finally, SACCOs promote democratic procedures and develop local capacities. Misuse of money, non-repayment of loans, incompetent governance, lack of accountability, supervision and audit, poor understanding of business model and operational procedures, and weak management are the most common reasons SACCOs fail.

The vision of Hand In Hand India is to alleviate poverty through job creation and integrated community development. The goal of the NGO is to create 5 million jobs by 2020. Kalpana SANKAR stressed that poverty is multidimensional. Clients are living on less than USD $2 per day. All clients have a bank account allowing them to save regularly. Clients use their savings for consumption smoothing and can take micro-loans for income generating activities (IGAs). Because clients save in groups, this improves local cohesion. Currently, the NGO has reached 1.1 million people. All clients receive financial literacy and business training. All clients are eligible to save but those who seek microcredit need to first have an assessment of their financial skills and enterprise feasibility. Sankar emphasized that households must be assisted through skill training and the development of improved marketing networks to expand activities in more rewarding sectors.


A representative of the Sapienza University of Rome shared the findings of a study on the growth of savings in village banks in Uganda. According to the study, the growth of savings did not depend much on the size of the loan but on the timeframe of the program. Although it was expected that a higher level of literacy would encourage savings, findings suggested that literacy increases consumption. Last, business development training seemed to increase savings. The question to the panellists was whether they found similar results in their experience. Sankar agreed that the longer the tenure, the more people will save. She emphasized that training is very important to increase savings levels but she has not found correlation between savings and education. Messan added that savings do not need to be in cash. When people become more literate, they take into account other variables, such as inflation, and start saving in gold, in kind, and in foreign currencies. In rural areas, people invest in livestock or start building properties in order to move to a higher social status. Some clients also diversify risk by saving in multiple savings groups.

Then the discussion focused on the importance of governance and leadership within self-reliance groups. Messan added that regulation in addition to investments from formal stakeholders, e.g. commercial banks, are critical for the formalization of self-reliance groups. Moore added that apex bodies, trainings, as well as, the ethos and philosophy of members are crucial for SACCOs after the donors are gone.

The discussion then shifted to the optimal size of SACCOs. Moore explained that if SACCOs grow too big, there is risk of losing the sense of community ownership. However, the whole society should be engaged in SACCOs. Both the poor and the middle class should be involved to make a SACCO a viable national entity. Rural SACCOs should be able to link with their urban counterparts. He gave the example of African national teacher credit unions where members do not belong in the same community but are united by having the same job. Community activists can help promote SACCOs and attract members from different socioeconomic status.