This group has been operating since 2006.
There are now many mature Village Savings & Loan Associations. Where are they going? What do they look like?
Mwanzo Mgumu is a 4th cycle association (originally incubated by CARE) in southern Zanzibar. The day we visited (on assignment with the Financial Sector Deepening Trust), 15 members were attending of all ages; 12 were women. This cycle they will meet weekly for 2 years.
People sit on mats facing different ways, with no common focal point. The shoes neatly circling the mats are costly; these are middle class villagers.
The association has 5 accumulating funds (major shares, minor shares, social fund, education fund and soap fund). Each has a money counter, a record keeper, a separate bag for collection of money, and a separate notebook for tracking account values. They also run a weekly ROSCA (‘upatu’).
Members can buy up to $2 in shares a week in the two share accounts. There are two cash-out dates; one before Ramadan, and the other two months earlier. Members must borrow at least $65 for 3 months once each cycle. At cash-out, all interest returns to the borrower who paid it. Late payments and penalties, plus balances in the other three funds are divided equally. No account information is stored in group memory.
Multiple cash-out dates and parallel ROSCAs are useful for mature associations. But Mwanzo Mgumu doesn’t reward members for their capital, and has evolved a dangerously opaque information system. Is our work really finished?
villagefinance 
This is great.
I’m wondering about the whole concept of proportional share out. It seems like that’s our thing, not their thing. “Reward members for their capital” is far from a universally espoused principle.
Anyway, thanks for sharing about that.
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Paul, thanks for this comment! I’m reminded of a remark by J.A. Paulos (A Mathematician Plays the Stock Market). “An old adage has it that those who understand compound interest are more likely to collect it, those who don’t more likely to pay it.”
Participants in the modern economy (‘us’?) live in a complex web of financial interactions in which we pay interest here, and earn it over there. We can be sure that members of village savings associations pay compound interest to various people and institutions inside and outside their villages. But how are they earning it? Certainly not by returning all the interest to the borrower who paid it (as in this case). Equal distribution of profit can achieve compounding. But it will attract less capital to the group, thus severely limiting the impact over time.
Everywhere in the developing world I see villages that have changed little in a thousand years. Fifty or one hundred years from now, will the residents of these villages be there out of choice or because they feel trapped? If compounding takes place in their villages, it will be out of choice. Isn’t that what we all want?
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I love the quotation about people who understand compound interest. I’m not completely sure what we disagree about here, in fact. I would argue that there are many things that might be desirable to people in a savings group. One might be rewarding capital by proportional distribution. Another might be helping the poorer members of the group through flat distribution. I’ve seen both at play, as I know you have, and I have both of those tendencies also, myself. I’m guessing that in many or most groups, the value of helping poorer members, of solidarity, of realizing that “next time it might be me”, of knowing there but for fortune go I.
As Amartya Sen has argued (at least I think this is what he has argued) development consists in raising the number of options that people can choose freely amongst. I like that. So, there is some value in teaching group members proportional distribution since it increases their options. Where I part company with banking-procedure-absolutists is that I’m not willing to say that proportional distribution is RIGHT, and all other ways are wrong. And proportional distribution, remember, is hard: it requires computing total savings and total cash, establishing a ratio between the two, using that ratio to determine the value of a share, multiplying that value by the number of shares that every member has, and then dividing up a large pile of old torn bills and hoping they don’t run out before you get to the last person. I’m not sure this is where we want to put our energies. Perhaps we should propose a rule like, count the number of school teachers or people of similar capacities in the group – if it’s fewer than three, just do flat distribution.
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Very interesting reflections! People should have a choice, and if what they really want is to give all the interest back to the borrower, or distribute the profits at the end equally, it is absolutely their right to do it.
But if they don’t know how to distribute proportionally, do they really have that choice? And is not development about giving them useful choices — of which I would argue that is definitely one?
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