Assembling the Toolkit – Savings Groups
In attempt to start filling out our toolkit of culturally appropriate financial solutions for African Americans, last week, Jessica, Kevin, and I spoke with Jeff Ashe who is an expert on all things related to Saving Groups. Ashe worked for years abroad figuring out the most efficient way to create wealth amongst rural and impoverished communities where cost intensive finance models (like microfinance) wouldn’t work. He found that Savings Groups filled this role.
What are Savings Groups?
What exactly are Savings Groups? Even if you’ve never heard of them, there’s a good chance they won’t appear too foreign. They are evolved from common sense, basic human nature, and cooperation. Their goal is to work well in demanding and diverse scenarios. Like your grandfather’s trusty hammer, their simplicity is the reason for their effectiveness. There are no hidden moving parts or outside influencers. It’s all right there in front of you.
While there is certainly room for variation, the Saving Groups Ashe worked with in countries like Mali all tended to fit a similar structure: the groups are made up of women who meet weekly, bringing a fixed amount that they had saved to be put into a locked collection box. Members of the group can take out one-month loans as they are approved by other members. All of the group’s money is split according to contributions at the end of an agreed-upon cycle (usually 6–12 months after starting). The share-out usually coincides with a time in the year such as dry season when there was a predictable need for cash. Records are mainly memorized, with all transactions carried out in front of the group. Organizers of the group are democratically elected.
Logic, fairness, and simplicity are some of the core themes of the Savings Group. Most importantly, Ashe saw how the groups also relied upon and benefited from an environment of trust. The reason why women frequently made up the groups was because they faced financial exclusion for a variety of reasons in many settings. In a Savings Group they rely upon themselves and the trust they held in each other to create financial opportunity. The only decision makers are the other women. This is one of the major reasons why these groups work so well－there is a culture of deep trust that holds each member accountable. Defaulting on a loan is the equivalent of defaulting yourself and therefore doing so comes with tremendous social pressure.
Because of the emphasis of Savings Groups on social bonds and trust, Ashe became curious to see how these same groups would perform back home in the US. After all, such conditions were by no means specific to Sub Saharan Africa. Trust can be replicated anywhere. The next population he observed interact with Savings Groups would be immigrant populations throughout the US, who struggle with xenophobia and the general difficulties of making it in a new country. Whether it was in Delaware, or Burlington, VT (whose mayor at the time was Bernie Sanders), Ashe saw the facilitation of several domestic Savings Groups with lots of success. Just as predicted, the key ingredient of communal trust was what drove these groups. While the root causes for financial exclusion may differ from those faced by women in Africa, the remedy was remarkably universal. The desire to persevere and the bonds they felt towards each other was the binding element needed to ensure that the groups ran smoothly. In some programs, the success evolved a step further. “By placing their lump funds in local credit unions, the groups essentially created a mini-bank,” said Ashe. From this, the otherwise off-the-books loans that take place within the group could be documented by credit bureaus. Over time, Savings Group members build up a credit score to the point where they can take out formal loans from any bank.
Whereas initially, capital was increasingly difficult to come by, just by trusting each other and remaining accountable, immigrant populations were able to shield themselves from a great deal of financial volatility while simultaneously increasing their access to capital.
Just as Ashe suspected Savings Groups to be transferable to immigrant groups, Jessica sees this system working potentially working for African Americans, but only under certain criteria. The basic problem facing African Americans is the same problem facing other populations where Savings Groups work well–financial exclusion. And one part of the atmosphere needed to incubate an effective Savings Group is also the same–a shared commitment to financial prosperity matched with strong presence of communal trust. “We do have a really deep history of pulling our resources together,” Jessica said referring to the black community at large. But she added an important distinction. “This group saving has only been associated with things like burial funds or insurance, and it has mainly happened through the church.”
Jessica’s hunch is that even if there is a strong collective desire for financial independence in the African American community, there are a few lacking components that are required for the instant success of savings groups: “my hunch tells me is that it may not be as directly aligned as one would imagine” For one, she thinks that the built in peer-pressure that brings necessary internal safety to these groups is not present. “We live in a very capitalistic, very segregated society and live by the american dream which is pulling yourself up by your bootstraps and making it.” While American capitalism might be creating pressure for financial well-being, this is ultimately pointed towards the individual pursuit, not peers. In addition, Jessica doesn’t think there is a true generational culture around facilitating these types of groups like there may be in Africa or in immigrant populations: ”Once again, maybe this might exist with special philanthropic activities like fundraising for your choir to sing at the Macy’s Thanksgiving Day Parade, but not with the broader idea of community led savings.”
“We may be able to find another stream of relationships in the black community where this would work though,” says Jessica. The way to supplant this, both Ashe and Jessica hypothesize, is through the church.“You have to have an institution that they will not find fallible, and there is probably not for black people any other institution that they will defend more than christianity,” Jessica says. Related to our earlier discussionabout instilling financial tools with cultural components, she also sees much potential in the quasi-celebrity status of influential ministers with household name churches behind them. These churches and their ministers hold tremendous sway in their communities and Jessica thinks they can mobilize something like a Savings Group where pure cultural tradition couldn’t. “I think it has to be a bigger church with a bigger name brand in order to convince people that this is a new way of doing things. You have to have a lot of press and lot of people talking about it.”
Ashe pointed towards an interesting example that supports the notion that specific cultural environments dictate the success of Savings Groups. In one of his case studies of immigrant Saving Groups, he found that AVON (the makeup company) saleswomen were the best at organizing these groups. Why? Because they were the most closely aligned with the culture of the group. These were the people who had already been immersed in the community, travelling from house to house as part of their job, who were best at understanding the needs and desires of others. Ultimately, they were the most persuasive at delivering a product that their customers trusted. Whether they were facilitating loans or makeup purchases made no difference.
The parallels between this case study and the African American community at large shouldn’t be hard to see. Right now, the landscape of financial services for blacks is organized by the equivalent of seedy used car dealers. There is an element of mistrust in these figures from the start and as such, the first order of priority in any financial solution, especially savings groups, should be finding the equivalent of the an AVON saleswoman.
As this example points at, Savings Groups, even if they end of consisting of just one component of the larger financial toolkit Jessica is developing, offer many important lessons for all financial tools. It’s for this reason that Jeff Ashe will be coming to NY in April to sit on Jessica’s Braintrust. We are excited to see Ashe’s cutting edge work in this sector cross-pollinate with other compelling solutions, most of which will be documented on this blog in the next upcoming weeks, so stay tuned.