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Two rallying cries propelled the second wave of microfinance. First, in the 1970s it was ‘proved’ that poor people repay their loans; and second, we ‘learned’ that you can lend money to poor people and make money doing it. These statements may motivate people, but they are impoverished reflections of history.

The first wave of microfinance began in 1864, and rapidly spread over much of Europe, delivering both credit and savings in villages the banks would not touch. Reflecting on nearly 50 years of village finance practice, the journalist Henry W. Wolff wrote in 1910 that “… there has been found to be no more regular and more scrupulous repayer than the small man.” (People’s Banks, p. 27)

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Saving at home is convenient, private and predator-free.

In a study of 301 households that belonged to village financial institutions (VFIs) in 37 villages in Cambodia, my team from the Canadian Co-operative Association asked what would cause them to deposit more savings? By far the strongest response was: “the managers must show more respect for the rules.” (Towards Safety & Self-Reliance, p. 51.)

The rules to which they referred were not complex: they expected the managers to refrain from Continue Reading »

Krong Pailin, Cambodia. In the rainy season a 1-2 km trip can take much of the day.

Rural microcredit rates have risen sharply since the dawn of the microfinance revolution. Most modern rates range from 12-60% annually, with unsubsidized rates below 12% being extremely rare. The alternative for most poor borrowers is either no credit at all, or much higher informal rates.

At the dawn of the microfinance revolution, during the 1860s-90s, the Raiffeisen banks of rural Germany charged 5½% (per annum, declining balance) on small farmers’ loans, Continue Reading »

Arusha Women's Market. Villagers save at home from one harvest to the next, losing a lot of their savings.

The second afternoon of a three-day strategic planning workshop for a rural credit union in Kilimanjaro region. Five board members and the manager have just completed a pilot market survey in their village. Their board room is spacious and airy – though one wall is missing, and a kid goat sits comfortably under the manager’s chair.

They report back on what they have learned.

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No 'village bank' for us!

NGO projects often discourage villagers from joining more than VSLA or other savings association. Why?

While consulting with MicroSave in 2008 I visited Mazarpara village in Lower Assam with Abhijit Sharma of the Indian Institute of Bank Management (Guwahati). In this economically active but poor village near Guwahati ‘accumulating savings and credit associations’ (ASCAs) started over 3 decades ago. The average household (among 72) held investments Continue Reading »

At the Arusha Savings Group Summit, Bram Thuysbaert (Yale) and Beniamino Savonitto from Innovations for Poverty Action presented early evidence from a 2-year study of the impact of CARE’s savings associations (VSLAs) in Uganda, using randomized control trials. The results were unexpected.

The study compared ‘treatment’ villages where savings associations had been formed with ‘control’ villages where they had not. Conference delegates were told that members’ investments Continue Reading »

A member-based perspective on Village Finance.

SMDP Tanzania 2011, scheduled to take place in Arusha from Oct 10-14, is a program uniquely designed for village finance practitioners. A basic banking rule of thumb is that there are 4 savers for every one borrower — with enough demand for savings to finance that borrower. SMDP Tanzania is the first program to truly embrace the needs of poor savers!

My colleagues at SMDP will cover VSL from a technical perspective. The course on ‘Village Finance’ will inject a fresh, field-based and member-based perspective on program design and strategy Continue Reading »