Community based saving groups drive vulnerable households out of povertyFeb 10, 2015
“Before joining the savings group, I could hardly afford food, was not self-confident and too shy to talk to people.” Marie Claire said.
Marie Claire is a young Rwandan woman living in Muhoza sector in the Musanze district. She is one of the 30 members who formed a community based savings group. She used to be a shy girl living in poor conditions. She couldn’t even afford her own food and clothes. Getting a small loan from a formal financial institution for better livelihoods wasn’t easy for Marie Claire because loan conditions are prohibitive for the poor.
In Rwanda, only around 42% of adults (18 years or older) have access to formal financial institutions (FinScope 2013). While the Government of Rwanda set a target of 80% formal inclusion by 2017, significant barriers to formal financial inclusion still exist. In particular, poor people’s lack of awareness or understanding of how financial products can improve their lives as well as their lack of collateral pose major challenges. Savings groups can address this challenge by lowering these barriers and making the access to the financial domain easier and less intimidating.
“With the first loan I got from the savings group I invested in farming beans. After three months I harvested and sold my crop. After paying back the loan I bought metal sheets (for my roof). For the second quarter I asked for another loan and invested the money in maize farming. After the harvest I was able to pay back the loan and bought more metal sheets. The following quarter I had my shares and from there I was able to build my own house.” Marie Claire said.
UNDP-UNCDF’s Building an Inclusive Financial Sector in Rwanda (BIFSIR) programme supports the Government of Rwanda in their efforts to boost financial inclusion, especially for youth and women in rural areas. With support from BIFSIR a local NGO PAJER (Parlement des Jeunes Rwandais) formed a number of savings groups across the country. Marie Claire’s group has 30 members (20 are women) with total savings of RWF 470,000 (about US$ 650). The average loan size is RWF 8,000 (US$ 11). The money is small is but it made a huge difference in their lives.
One of the objectives of BIFSIR is to make sure that the beneficiaries of the scheme see the participation in the savings group as the same as when working with any other formal financial institution. In simple terms it means that when you get a loan, you need to invest in something so that it can generate income to not only make profits but also to pay back the loan because the loan should be paid back within 3 months maximum. When the money is paid back it gives the savings group the capacity to have more money to enable all other members to have access to their loans. The areas of the investment ranges from agriculture, agribusiness to other commercial activities.
The results are extremely encouraging. PAJER notes that over 90% of the members have not defaulted. People have been able to build capacity to pay back their loans. Formal financial institutions are contacting the members seeing them as potential partners. Savings groups also serve to empower communities to help them get out of poverty by starting own business and improving daily livelihoods. With support from BIFSIR over 10,000 people were served by savings groups from 2013 to 2014 being able to enter the financial sector. Women are financially and psychologically empowered through participating in the group. Among the 10,000 new members 76% were women and in most savings groups women outnumber men.
“Now I can eat what I want. I can afford clothes. I have confidence in myself. The group members nominated me as their secretary. Even though everything is not yet perfect there is no problem. I am so happy that I now have my own house. It feels so good!” Marie Claire said.
The BIFSIR programme is jointly funded by UNDP, UNCDF, and the Republic of Korea supporting inclusive finance activities aiming at scaling up financial inclusion opportunities and entrepreneurship for the vulnerable population in Rwanda.