The Informal Economy
According to a recent report by the Bill & Melinda Gates Foundation, 60% of the world's population participate in the informal sector - these are the legions of subsistence farm owners, market traders, street food sellers, seamstresses, and cobblers we see when we visit a poor country.
Since the 1970s, international development practitioners, including many International Rotarians, have supported the idea that with a small loan, those running "microbusinesses" in this informal economy will begin to prosper. Over the past several years, however, a growing body of evidence shows that while those with the best established businesses are prospering, most loans are used for immediate needs - food, medicine, school fees. For those living on the edge of survival, repaying these often costly loans is very difficult.
Savings Groups lead the way in the informal economy. 
The Informal Economy
According to a recent report by the Bill & Melinda Gates Foundation, 60% of the world's population participate in the informal sector - these are the legions of subsistence farm owners, market traders, street food sellers, seamstresses, and cobblers we see when we visit a poor country.
Since the 1970s, international development practitioners, including many International Rotarians, have supported the idea that with a small loan, those running "microbusinesses" in this informal economy will begin to prosper. Over the past several years, however, a growing body of evidence shows that while those with the best established businesses are prospering, most loans are used for immediate needs - food, medicine, school fees. For those living on the edge of survival, repaying these often costly loans is very difficult.
Savings is More Important than Credit.
For centuries, and invisible to us outside tight-knit local communities, many of those too poor to profitably lend to, are saving in informal rotating savings circles they organize and manage themselves. In their simplest form, a group of twenty or so agree to put a fixed amount in a collective pot every week. Each member in turn takes out the total collected that week until the cycle is completed. If the agreed on amount is $1 per week, each will receive $20.
These groups work because they are based on mutual trust and support. To not contribute after you have received your payout is "social suicide," one Nepali woman told me.
According to the World Bank, half a billion people in developing countries participate in informal savings circles. This is nearly four times the number of microfinance borrowers (134 million.) That's the good news, but over two billion save the bit they can" under the mattress, not in savings circles or financial institutions. These are the ones that most need our help.
NGOs, building on these rotating savings traditions, developed a simple cooperative model, the Savings Group that reaches "under the mattress" savers. About twenty women in a village save what they can each week. Then they take out loans from the group fund that they repay with interest. Savings plus interest is returned to the women when money is scarcest in the village. As Oxfam America's Director of Community Finance I lead "Saving for Change" where trainers from twenty-five local NGOs organized 35,000 of these groups with three quarters of a million women members in more than 10,000 villages across five counties. There are one million savings groups worldwide. Check out the videos from Mali, Guatemala and the Dominican Republic to understand how savings groups work and the difference they have made in these women's lives.
Saving Groups in Mail
Guatemala Savings Groups
Savings Groups in Dominican Republic
Savings Group Testimonials in 90 Seconds
Our Big Idea
Although it is said that "credit is a human right," for the poorest, saving is more important than credit. Who better to train more groups than those who already run groups? They live in the village and know the language and culture; they are passionate about helping their communities and are brimming with ideas for how to accomplish this. What the leaders of these groups need to train more groups in their own and neighboring villages, is a small financial nudge - $1 to $3 per day, and the chance to exchange ideas and set objectives with others doing the same work. As funding has dried up for savings groups, these group leaders are on their own. It wouldn't take much to encourage them to do more.
Experience and Expertise Are Available to Help Rotarians Serve Those Beyond the Reach of Microfinance
Both the Savings Group model being tested in Guatemala and the model building on traditional savings circles in Lynn, MA should be widely replicated. Our hope is that Rotary will take a key role in replicating projects such as these in many countries and immigrant communities. Within the Rotary Action Group for Community Economic Development (RAGCED) and Grassroots Finance Action, there are experienced savings group practitioners who are eager to work with International Rotary clubs interested in launching projects such as these. We know how to design, implement, and evaluate these projects.
Contacts:
Jeff Ashe - CEO Grassroots Finance Action - jeffaashe@gmail.com
Rob Scarlett - Minneapolis City of Lakes Rotary Club - therobscar45@gmail.com
Follow Grassroots Finance Action on YouTube. - https://www.grassrootsfinanceaction.org/
IF YOU WANT TO LEARN MORE ABOUT IMMIGRANT SAVINGS CIRCLES AND SAVINGS GROUPS READ:
· Excerpt from "In Their Own Hands: How Savings Groups Are Revolutionizing Development"
· "How to Achieve the American Dream on an Immigrant's Income"
Editor's note: Read the entire article by author Jeffrey Ashe by clicking here.
About the Book - In Their Own Hands - a foreword by Frances Moore Lappé
My curiosity was first piqued in learning of the meteoric rise of savings groups: in the world’s poorest countries, in just six years, membership in village-level savings groups has leaped from one million to ten million members. If there were a speed record among global social movements, the rise of savings groups may have broken it. Remarkably, much of this speed reflects the work of villagers voluntarily teaching other villagers, with only minimal donor help.
Frances Moore Lappé is the cofounder of the Small Planet Institute and author of eighteen books, including Diet for a Small Planet and, most recently, EcoMind: Changing the Way We Think, to Create the World We Want.