Title Goes Right Here

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Savings Led Working Group
Linking Savings Groups to External Capital
Innovation, Challenges and Lessons
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Achyut Hari Aryal CONCERN WORLDWIDE
Linking Community Based Organizations (CBOs) with
Commercial banks- lessons from Bangladesh
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Concern Worldwide
Non-governmental, international, humanitarian
organization Dedicated to reduction of suffering
and ultimate elimination of extreme poverty in
the worlds poorest countries In 2008 worked in
30 countries and reached 10 million people
directly Long-term development work health,
education, livelihoods, HIV and AIDS
programmes Responses to emergency
situations Addressing the root causes of poverty
through its advocacy and development education
work using Right based approach
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CBO Model In Bangladesh

• A savings led approach savings managed by
• the groups (SHG)
• Groups federate to become CBOs
• Elect their executive committee (EC) of 9-13
• members every 2 years
• Manages economic (microfinance) and social
• activities for its members
• Registered as an independent organisation

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CBO Strengths

• An organisation of empowered poor in remote areas
  and urban slums
• Members own and manage
• organisation responsibility
• Groups collect and manage significant savings
• Internally resourced (2/3 of total loans
  outstanding comes from savings and CBO fund)
• Dividend concept, alternative source of income
  from savings

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Some Challenges we faced

• To convince the bankers to
• see profit potential of sector
• Rigidity of the bankers
• Peoples negative experience
• with CBOs in the past
• No interest in entering a new
• sector/venture
• Perception that the poor are
• not bankable and any
• organization serving poor is
• weak
• Collateral substitute

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How Commercial Banks were persuaded

• Do not support charity but fulfill corporate
  social responsibilities while making profit.
• Do not subsidize credit but charge regular rate
  and consider the CBOs corporate guarantee as a
  collateral substitute.
• Do not go with costly tiny loans to individuals
  but extend wholesale loans that suit CBOs and
  cost less.
• Do not think only big organizations are credit
  worthy. Those small and managed by poor people
  offer potential for credit transactions where you
  can utilize your priority sector portfolio to
  generate profit
• Do not trust only what we say. See and experience
  how successfully the SHG-Bank linkage in India is
  functioning
• Do not think you are alone in this new venture.
  We are behind you until you are confident to make
  loan transactions with the CBOs (Concern and its
  partner)

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Results so far

• 31 CBOs representing 30,000 members are linked
  with two commercial banks and 8 others with more
  than 10,000 members will be linked this year.
• The financial performance of the CBOs (as per
  recent report from Partner) that are currently
  transacting with the bank are very good (100
  RR). Bank doubled the amount of loans to the
  CBOs that repaid their 1st loan.
• All CBOs applied to obtain licenses from
  microcredit regulatory authority and some of them
  are close to obtaining such licenses.
• Over 5,000 extreme poor clients, previously
  excluded from membership, were recently included
  by CBOs as their members.

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Lessons Learned

• Appropriately designed advocacy and advocacy
  message plays significant role in persuading
  commercial sector to come down to MF sector with
  appropriate loan products
• In the country like Bangladesh where MFIs are
  mushrooming, encroaching the clients are very
  likely. Therefore, difficult to retain members
  with only the savings fund forever as they get
  easy loans (more than 5 folds) from an MFI in no
  time.
• Banks can not be persuaded by merely charity
  notion, we need to show how they can maximise
  profit while fulfilling their corporate social
  responsibilities.
• Local based training and regular mentoring helps
  even a small organisation to grows and sustain
• CBO approach could be one of the ways to helps
  develop replicable strategies for unlocking
  country-level capital markets for MF through
  attracting banks and MFIs

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Lessons Learned Contd

• CBO approach could also help develop Macro-Micro
  linkage, part of an inclusive financial sector
  development of the country
• To incorporate extreme poor, CBOs are willing to
  adjust their savings loan products, but access
  to flexible funds is a problem.
• CBOs are efficient in bringing social safety net
  programmes to their extreme poor members
• Flexibility in savings and loans services has
  helped to uncover the hidden. entrepreneurial
  talent of the extreme poor
• Participatory processes empowered the CBOs,
  improving their negotiation skills for better,
  more reliable services from Government and other
  service providers in their areas.
• CBOs are now in a position to leverage their
  savings fund for wholesale credit from banks and
  other organisations on better terms
• Win-win situation all three parties involved
  benefit commercial banks that look for profit
  while meeting corporate social responsibilities,
  CBOs that strive for sustainable service to their
  members and members who want capital

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Lauren Hendricks CARE
ACCESS AFRICA
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Access Africa
Access Africa
The campaign will lift 30 million people (70 of
whom are women) and their families out of poverty
by ensuring equitable access to a suite of basic
financial services (savings, loan, insurance,
remittances) over the next decade in sub-Saharan
Africa
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Addressing Systems and Structures
Advocacy on enabling environment G/P and MF
Technology
Predictable Finance Chain
Linkages with MFI
Basic Suite of Services
VSL Expansion
Capacity Building of Partners
Human Resources
Client Preparation
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Principles of Linkages

• Group is linked, not individuals
• Maximum debt to equity ratio
• Balloon repayments
• Limit collateral deposits
• Minimum age for linkage is 1 year
• Linkage is not automatic demand driven and
• performance based

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Providers
MFIs Uganda and Malawi Cooperative Banks
Rwanda Commercial Banks Uganda, Mozambique,
Kenya Mobile Providers - Pilot
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Products and Services
Basic Credit Rwanda Insurance Uganda Savings
Long Term products Malawi, Uganda Transactions
and short terms savings mobile solutions
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Delivery Channels
Intergroupments or Apexs Rwanda MFI
staff Malawi Village Agents Uganda Mobile
Devices
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Mobile Banking-Proposed Pilot Model
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Challenges

• Flexibility on the part of Providers in product
• development
• Breaking our NGO mindset Learning to
• partner productively with the private sector
• Keeping up Technology is moving fast
• Documenting lessons learned
• Going slow

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Rewa Shankar Misra The Mastercard Foundation
Reaching the Hard to Reach A Comparative Study
on Member Owned Financial Institutions in Remote
Rural Areas
Coady International Institute, St. Francis
Xavier University with support from Ford
Foundation
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Reaching the Hard to Reach Study
Study structure Seven case studies (India,
Indonesia, Niger, Cameroon, Ecuador and
Mexico) Three thematic papers Governance,
Networks and Linkages, Regulation and
Supervision Synthesis report, Literature review
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Definitions

• Member owned financial institutions (MOIs)
• Clients are both owners and users of the
  institution Member equity (shares savings
  internal capital) is a key source of funds
• Remote rural Un-served by formal financial
  institutions.
• Outreach six aspects breadth, depth, length,
  worth cost and scope (Schreiner, 1998)

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MOI Types and linkages
Studied linkages across four types of member
owned organizations Small time bound cash out
ASCAs e.g. VSLas Small non cash out ASCAs e.g.
Self Help Groups Medium sized savings-led
village associations (e.g. Lembaga Perkreditan
Desas, Financial Service Associations) Large
SACCOs, Cooperative Banks Jardin Azuayo,
Ecuador, Mixtlan, Mexico Typology by
Hirschland, Jayazeri and Lee (2008)
Federated Linked
Federated
Linked
Linked
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VSLAs in Niger

• Key features of VSLA in Niger
• 20-30 members, reached approximately 200,000
  members
• Interest charged internally to grow the fund
• By laws set by members and a member committee
  governs and manages the association
• A cash box and oral record-keeping systems to
  ensure safety of funds
• Key features of VSLA federations
• VSLAs have to place deposits with apex or
  federation
• Loans made to individuals rather than groups
• Interest rates charged by federation and
  association were equal
• Federations unregistered

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SHGs Federations in India

• Key features of SHGs
• 10-20 members, Interest charged internally to
  grow the fund
• By laws set by members a member committee
  governs and manages
• SHGs accumulate funds, written records help
  ensure safety of funds
• 5 million SHGs are saving linked to formal
  financial institutions, 1/5th credit linked
• Key features of SHGs linked/federated into
  Mutually Aided Cooperative Societies
• MACS registered under provincial law (the Andhra
  Pradesh Mutually Aided Cooperative Societies Act,
  1995)
• Individual SHG members are full voting members of
  multi tier MACS
• Internal funds of SHGs are not kept with MACS
• SHGs free to charge any interest rate to members

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SHGs linked with PACS, India

• Key features of SHGs linkage with Primary
  Agriculture Credit Societies
• PACS are registered cooperative societies or
  banks approx. 1 for every 6 villages (60 of
  PACS viable) 327,000 SHGs active borrowers with
  PACS
• SHGs are nominal (non voting) members in PACs
  allows SHGs to be recognized as registered
  entities
• Internal funds of SHGs placed with PACS in the
  case institution
• Case PACS was registered as a society and had no
  access to deposit insurance
• SHGs free to charge any interest rate to members

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Does Federating or Linking Help?

• Does it help the MOI, or others which may start,
  to achieve
• broader outreach, to reach more people?
• Does it help the MOI to be financially viable, by
  reducing
• risk and/or increasing net income?
• Does it help the MOI to offer more or better
  quality,
• services?
• Does it help MOIs to achieve deeper outreach, to
  reach
• poorer people?
• Does it improve the governance of the MOI?

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Key Findings Sources of Capital
Share of external credit/donated equity in total
capital highest in federated SHGs (MACs), lowest
in linked SHGs promoted by PACs Share of donated
equity (accounts not segregated for cereal banks
and financial business) highest for VSLA
(Maturity and quality comparable)
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Key Findings VSLA Federations Niger
Does the linkage improve viability? ? No
spread for VSLAs depth? No VSLAs reaching
poorest of the poor but networks not
contributing breadth? No services? No sav
ings locked in, minimal access (CD ratios
of 28-32), governance?
No Federation distance, written
records Safety of funds? No
VSLAs stop cashing out, No supervisio
n
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Key Findings SHGs to MACs , Andra Pradesh India
Does the linkage improve - viability? ? high
operating costs, subsidies depth? Yes inclusio
n of most remote (at 6 times the cost),
untouchables breadth? Yes services? No Mi
nimal access, liquidity constraints due
to multiple tiers, members prioritize
timely services governance? Yes Low caste
women in leadership Safety of funds? No No
supervision
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SHGs to PACS, Purulia, West Bengal, India
Does the linkage improve - viability?
Yes For groups and for PACS depth? Yes Inc
lusion of women, 1st time access for
remote populations breadth? Yes Universal
membership services? Part Minimal access
ensured, internal funds locked
in governance? NA Safety of funds? No
No deposit insurance, weak supervision
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General Lessons

• Key concerns for associations
• Convenience and liquidity, or ready access to
  savings, internal funds
• (voluntary, demand deposits)
• Repeat and timely access to increased amounts of
  credit
• Linkages, federations have helped to improve
  access to
• credit
• But federations present a more complex solution
• Case federations highly dependent on subsidy
• Do not necessarily contribute to group viability
• Sense of ownership and control highest at the
  association
• level
• Weakens at the federation level

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THANK YOU