By Vanesa Corrales Microfinance Focus, November 28, 2011: Stuart Rutherford is the author of The Poor and Their Money, and founder of SafeSave, a microfinance institution in Bangladesh. On the sidelines of the recent Arusha Savings Groups Summit, Rutherford spoke to Vanesa Corrales on the frontiers of the Savings movement.

Microfinance Focus: Saving is called the forgotten half of microfinance. Why microfinance institutions keep away from it?

Stuart Rutherford: First one is regulation. In some countries it is not allowed. Second is cost. Lots of MFIs believe that to mobilize savings is too costly. Third, there is an inherited assumption that what people need is loan. Behind that lays a common popular conception that poor people can’t save because if they can’t eat properly, they can’t save.

Microfinance Focus: From which level of poverty do you think people can start saving?

Stuart Rutherford: If you are handling money you can save no matter how poor you are, you can save. There are some people who live in the end of their lives on charity, fed by their families, these people don’t touch money. There are also remote areas in Africa, Asia and also South America with subsistence farming crops, they don’t touch money, and obviously microfinance is not for them. We are talking about financial savings and if you don’t deal with money you don’t have the capacity to save. But everybody else in my experience, the vast majority of them do.

You got those active savings and almost everybody no matter how poor is involved in active savings. You keep your money back. It is true that sometimes you may convert your money savings into something else. You may get your income and you may buy a sack of rice with this rather than to convert it in formal money.

Microfinance Focus: In urban areas where the community feeling is not so strong as in villages and people are moving, how can we adapt the saving methodology to this scenario?

Stuart Rutherford: It is not so much difficult to adapt savings groups in urban areas, to run a savings group we need trust. Trust is essential. The question is: where does this trust come from? There is a tendency for us to assume that trust comes from prior knowledge.  But trust is rather verb than a noun. Trust is something you make. Trust come from revealingly keeping of promises and savings groups work because everybody says for instance that we have to put 20 shillings every week, and we do and next week we put 20 shillings, so we build trust. And we don’t have to get to know the people.

If I take you in the slums of Bangladesh which has very big and poor urban areas you will see traditional savings groups not the one’s that the formal banks use, you will see ROSCAS and ASKAS working extremely well and they often don’t know each other but what they do know is that they are partners in that ROSCA are putting 20 taka every week.  Trust is something that must be made and remade and comes from repeatedly keeping of promises.

About how to help people to save - just give them the reliable chance and they will. In Bangladesh I have a little MFI and we work in very poor slum and we just offer people the opportunity to save. We have officers who go around and visit our clients every day. Every day we go to their shop or house and we ask if they would like to save something, so if they have got some money there they do and if they don’t have that, they do not save. After few weeks if you come back you will be astonished about how much they manage to save. When you have been doing this for a bit, you become used to me and I become used to you and we built trust between us because trust is based on promises. I am a staff member and I promise you I will come and visit you each day and I do and when you want to withdraw your money it will be there and you will be able to take it and you test it. You will alone come to the office and you find it is true and we build trust. No groups, nothing illegal, we can’t call the police if you don’t pay we lend you money and we come every day to visit you. In my experience, poor people and especially women are always looking forward to save.

Microfinance Focus: Is that possible in big urban areas where people move so much?

Stuart Rutherford: That is a very nice point, and that is why a lot of saving clubs have a very short life.  That is a risk and people know it. Therefore most well run ROSCAS have a life of 3 or 2 months. The main reason is to eliminate this risk. Get 20 people together in a formal ROSCA and if they are running for 20 years they will be in a trouble but if they do it for 6 months they can transform a bit good savings.

Rickshaw drivers in Bangladesh generally don’t know each other and they come from different villages, but they all park the rickshaw at the same place at night. They started a ROSCA. Each day at the end of the day they come back to park their rickshaw and they give 20 taka to the guy who runs it. Every time the 20 taka are amounted to buy a new rickshaw they buy a new rickshaw and they have a lottery. These people do not know each other, they come from different villages from Bangladesh but they feel working and putting the 20 taka.

Microfinance Focus: Do you think that now microfinance institutions are more committed to savings?

Stuart Rutherford: Generally speaking they are when the legal environment allows them to. Even when the legal environment doesn’t allow them to, they may be still interested in and they might be in look out for ways of doing it to get them around the law or maybe lobbing in the governments to change the law. Grameen used to believe that savings wasn’t important for poor people. At the beginning of this century they change their mind. They happened to have a legal identity, a legal registration that allows them to collect savings. When they changed their mind about savings, which happened around 2001-2002, they opened up to possibility of savings introducing very new savings products to the clients in the groups. In case of savings if you look at Grameen Bank’s balance sheet now you will see that for every 100 dollar of loan they have 150 dollars in savings. So, people are saving much more than they are borrowing.

Now, other big and medium size MFI would like to do that but they can’t because they are still NGOs and the law stops them to collect savings except in some limited situations. But they are interested in having some changes. So that would be an example to say yes in many countries around the whole world MFIs have been more interested in developing savings products. Because savings is a product that clients are demanding and also they think that savings is a very good way to fund the loan book. They can get all the money they need for lending from savings.

Microfinance Focus: Can Savings Groups be sustainable?

Stuart Rutherford: There are a number of ways in which savings groups as individual and as movement can be sustainable.

What helps Individual Savings Groups and what gives them the chance to be sustainable is because people need them. We don’t have to go to a well rounded savings group to see that women are sitting there because it’s a nice NGO, but they are there because they want to save, they know they help them manage their lives. There is a demand there.

The other level is ever improving levels of management skills in techniques. There is a huge amount of progress made in the last decade in the methodologies of savings groups, book keeping and all this issues. This is all greatly tiny details but it’s important. On the other hand provided that demand stays there, they are likely to sustain, provided that they are getting better and better and more efficient and less and less costly. But it doesn’t mean that each individual group will sustain. Here I want to make the comparison with genuine informal ROSCAS.  Informal ROSACAs start , they spread and they stop again and again, because people move on somewhere else, each individual ROSCA doesn’t last forever but the mass of ROSCAS there are in the community goes for years and years.

There are two quite different strategies with regard to sustainability. There is the strategy that bank uses which is called strategy of permanent and growth. If you are a bank you have to be permanent, you cannot afford to break up. You have to keep on growing; otherwise you lose your place in the market.

But in saving groups, there is a tiny difference which is a strategy of replication. The bank continues to give service and continues to grow and savings groups continue to give a service because although savings groups as individual entities have a short life but as a movement they are there.

Microfinance Focus: In microfinance all the products and methodologies seems to focus on women in groups. Is it because it is cheaper than individual methodology?

Stuart Rutherford: There is some truth in that. Again let’s go to Bangladesh. There is no doubt that in Bangladesh where microcredit is developed in 1980s they were lucky because two things happened at the same time. Number one, the microcredit organizations themselves found out that it was easier to get repaid from women than from men. So it was better for them if they focused on women.  At the same time in the wide world of development, all the World Bank and big donors were planting in the idea of the other forgotten half: women and development. So without wanted to sound too cynical, it was very convenient for BRAC and Grameen to learn that it was safe to work with women and to present that in tune with the world development goals of improving position of women in society.

It sounds cynical but I just want to add the non-cynical side of this: it did work. Women in Bangladesh did become more self-confident, did become better in saving money. No doubt it is a result of being in microcredit groups. Go around in microcredit groups in Bangladesh, pick up the old ones and ask if they handled money before the microcredit group. The man was always handling the money, they stayed at home instead. They didn’t understand money, then gradually they became members of these microcredit groups and they started handling money. So she came to understand concept as interest, value for money. And now in many families it is the woman who is the money manager and she is doing it better than the man.

So these things are presented as a sort of social success but sometimes it has been exaggerated. Sometimes it is true. It has helped women to come out in public space and at individual level it is very important especially for women. If you are poor, when you join your Grameen credit group or your BRAC credit group it might be that it is the first time in your life that you are member of a social entity because you were too poor to go to the school. You never learnt about institution, you are always in the household, the only institution that you use is at a private household level. Take a woman like her and give her the chance to sit in a Grameen bank credit group, it is a tiny new experience just exposing women to social entities, to ways of interaction with other people, which is quite different than to be focused in a household.

Microfinance Focus: And in which methodology do you think they improved more?  Which one do they prefer?

Stuart Rutherford: It’s a hard one. Well, context is very important here. I think in the early days in Bangladesh the group was very important. I think it would have been hard to kick off microfinance within individual plans in the early days. The advantage of the group offer was very important in those days. Now it is very different. In Bangladesh the MFI that I run don’t use groups because I know that women are fed up with groups. Because loans of MFI are not so big and if in a small family if your husband or son asks you for large amount of money for the business, you have to join three or four of these things and to attend three or four of these mornings’ meetings per week. So they would much prefer individual service.  In my MFI we don’t have groups, we don’t make people responsible for each other’s loans, this idea of liability is horrible. So context is important and certain times groups might have a strong value.

Here we are talking about the retail part of the industry, when the funds come from outside or savings portfolio and so on. There is the other part of the industry - savings groups; they have to have groups because that is how they can make capital. If you are dependent of pulled capital for financial services, you have to have a group. You don’t have to meet every week and go through this ritual of boxes and so on, but you have to have at least a bunch of people to be pulling savings. But the retail industry is free of that, because they can find funds everywhere and can accept savings from individuals and provide loans to individuals from their resources.

Increasingly we are seeing the individual lending and individual savings accounting bigger and bigger share of MFIs, and over the last ten years lot of MFIs started up from scratch as providers to individuals, so they jumped the old group thing, especially in not so quite poor environment as in East of Europe, this is because here the role of the group is less useful.

Microfinance Focus: First was credit revolution, now savings revolution, what is the next one?

Stuart Rutherford: Some people think about insurance revolution, but I am a little bit skeptical about that. Insurance services are for people little bit richer, with a little bit resources. It is not a reciprocal service. Now, very poor people are not likely to be willing to made whole serious investment in these risks, not if it is not reciprocal. If someone were to invent general purpose insurance and if you could buy an insurance policy that pay out everything, then you can make a version for poor people, but it is impossible.

What I would like to see next will be, what I call, general purpose money management services. What I see when I talk to poor people around the world is that they need help managing their money. Poor people need to be helped to save and borrow money, because it is hard for them to have to spend junks of money to buy dinner, to buy a bicycle, bury the father etc. You need to assemble lump sums through life. All loans are simple advances against future savings. On the whole loans and savings are actually the same thing. In one case you make the payment first in other case you make the payment afterwards. The whole point of doing it is formalized sums. I would like to see the industry focusing on that fact. Poor people need to form lump sums of all kind of sizes and periodicity, some of them regular, some of them irregular and they need financial tools for that.

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Additional Resources from MicroSave:

MicroSave Briefing Notes “Portfolios of the Poor”

MFP 097. Stuart Rutherford on “Portfolios of the Poor”. A conversation with Graham A.N. Wright. Part 1

MFP 098. Stuart Rutherford on “Portfolios of the Poor”. A conversation with Graham A.N. Wright. Part 2

MFP 099. Stuart Rutherford on “Portfolios of the Poor”. A conversation with Graham A.N. Wright. Part 3

MFP 100. Stuart Rutherford on “Portfolios of the Poor”. A conversation with Graham A.N. Wright. Part 4

MFP 119. Stuart Rutherford: Listening to Clients: a Market-led Approach