Monday, November 15, 2010

Village Savings and Loans

In a book titled, Portfolios of the Poor, How the World's Poor live on $2 a day, the authors make some startling observations.  Of the 40% of humanity (2.5 billion people, of whom 1.1 billion live on $1/day) who survive on this amount, two realizations changed their perspective on world poverty.  First, money management for the poor is a fundamental and well-understood part of everyday life.  [I imagine that the poor have much to teach the wealthy about money management and budgeting - actually, I don't have to imagine it.  I've seen it - both in Africa and in Grand Rapids.] The second realization was that most households in this category rarely consume every penny of income as soon as it is earned - they manage their money by saving when they can and borrowing when they need to.  [The US has been at a negative savings rate - with Americans spending more than they earn - for some time, until just recently with the economic crisis.  Then suddenly people are able to save.  Very interesting dynamic.]

A major frustration among this group of people in poverty is the poor quality or low reliability of the instruments that they use to manage their meager incomes - for both savings and loans. In West Africa, it is very difficult for the poor to get loans, not to mention micro businesses, and even SMEs.  Bank interest rates in Ghana vary from 37-43%; the average in microfinance institutions is 50-60%; the more informal way of saving, often called a susu, has interest rates up to 120%.  Not to mention that if you save with a susu, you normally have to pay the susu man, so you are paying to save instead of being paid to save (as with typical savings accounts in banks).  And it's not unusual for the susu man to run away with the money, leaving you with nothing.

A VSL group in Dodowa
Another VSL group in Akropong
Hopeline Institute, the partner with whom we work in Ghana, has a program that addresses this dilemma very well.  It is called "Village Savings and Loans" (VSL) and they are currently using this methodology in 94 villages.  Each village has a group of 25 persons who have organized themselves, appointed executives, adopted a constitution, all for the purpose of saving and loaning to themselves.  The money goes into a box, held in the box keeper's home, with three different padlocks on it, and each key is held by three other members of the group.  The group saves by buying shares - they decide among themselves how much a share can cost (usually around 25 cents to $1) and each person can only buy 5 shares per week; these shares are marked through stamps in a book.  Once this has gone on for several weeks, people can begin taking loans at an interest rate decided by the group (usually 10%), at no more than three times their savings.  VSL groups are designed to last for nine months and then the share out happens, where everyone cashes out their shares and the interest paid (as well as fines) is divided among group members.   So you can imagine if the share is $0.50 and every person buys five each week for 36 weeks, that is $2250, a good amount for loans.  Additionally, each group charges a social fund fee, usually around $0.20 each week, which goes for sickness, death, or other things that may happen to a group member during the nine months.  While the buying of shares is optional, the social fund is not.  I was quite surprised that most groups still had most of their social fund money by share out time (around $180 US) and they use it for celebration at the end of their work together.

Last week, we also had our second batch graduation of the Small and Medium Enterprise(SME) class with Hopeline.  As a reminder, a person might start working with Hopeline through a VSL group, then move to a micro-finance solidarity group, where a little business training is given and the loans are a little larger than with the VSL.  Then a business owner might move to the SME training, where they receive more in-depth training about running a business and develop a business plan for their business.

Mariama Issah is part of a VSL in Abokobi.  She owns a provision shop and graduated last week from our SME class.  The women in her VSL group is so proud of her that she went through this class.  She stated at the graduation that she is not very educated and didn't think that she could do it but is very proud that she did and she's thankful that she now has a white friend!
Rev. Philip Tutu, national leader of the Global Leadership training for Willow Creek, commissioned all SME graduates as marketplace ministers.  This was a powerful time where business owners committed themselves and their businesses to God, to serve as ministers in the market, working to restore it as Jesus redeemed it.
This precious woman wept throughout her entire statement at the graduation as she shared how she was ready to quit her business and took this class out of desperation.  Through this class, she has felt God's call on her to view her business as a ministry.  She shared the joy in discovering that the work she does can have value in God's eyes and that she has worth as well.  She vowed to view God as the owner and her as the manager.  Praise God!
The second SME class for Hopeline Institute. 

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