Building Financial Capability of Savings Groups Members in Western Kenya
Applying the lens of financial education to savings groups highlights that the SG methodology itself is a powerful tool for teaching members the basics of saving and borrowing. Saving is good for borrowing, increasing capital available for loans, and borrowing is good for saving, with loan interest increasing the dividend members receive at the end of the cycle. The intertwined nature of savings and borrowing within SGs poses a challenge to a basic message of financial education: Borrow Wisely.
While the evidence does not point a serious problem with debt management, there are indications that members could improve their financial stability through a better understanding of how to borrow prudently and make the best use of loans.
Another observation relevant to financial education is that SG members do not budget or plan ahead with any regularity. They don’t anticipate their income or how they will spend it; they don’t save outside of the SG.
Members lack a vehicle for short-term savings where they can keep their cash safe from temptations and family pressures. Members report numerous occasions on which they are holding more cash than they feel is secure, including money received at share-out but awaiting investment, and surplus cash that exceeds the maximum allowed to be saved in a given week (or month). Some SG members use the box for short-term savings. However, in Nyamira, they are increasingly using M-Pesa to store their cash, and report holding it there for as little as one day and as long as three months.
Consumer protection for SGs is a growing concern. Most internal threats (e.g. elite capture and fraud etc) are addressed by the groups’ constitutions and there is little evidence of actual external threats (e.g. aggressive lenders or vendors and pyramid schemes etc). However, with evolving delivery strategies, a compelling consumer protection issue is emerging. The increasing use of fee-for-service remuneration for the trainers raises questions about the power of SGs to negotiate contracts, exercise rights and responsibilities vis-à-vis the contracts and resolve contract disputes.
The use of formal financial institutions elicits diverse opinions. On an individual level, an estimated 20% of SG members have accounts or have taken loans from formal institutions. Many report leaving MFIs in favor of the SG. However, at the group level, the need to manage excess liquidity on a short-term basis is very real. Whether banks offer the appropriate solution to this group problem is not clear.