Group Savings and Loans Associations - Impact Study
The goals of this study are to determine the impact of group savings and loans associations (GSLs) on their users’ livelihoods, and to assess the potential market for GSLs to inform a possible scale-up.1
The analysis and conclusions of this study adopt a framework to GSLs that is informed by transaction cost economics (TCE). The reader may not be accustomed to the use of some terms and concepts. Institutions are defined simply as ‘the humanly devised constraints that shape interaction’.2 They exist not only in the formal sector but in the informal sector as well. For example, the family is an institution, and a GSL is a financial institution. Perhaps the most important goal of any ‘savings-led’ financial institution - such as a GSL - is to enable safer accumulation of savings, and more active use of voluntary savings over time, by effective governance of the concerned transactions.3
Another way to put this is to say that the primary goal of GSLs and their governance systems is to earn and maintain trust over time. Trust is not understood here as an either/or proposition - either group members trust each other or they don’t. It is understood as a continuum, and also as a proxy for the amount of capital people will contribute. Villagers may not trust the GSL enough to join it even though they have many opportunities. Or they may trust it enough to join and contribute a minimum savings amount - but no more. Or they may trust it enough to save a little extra, but not enough to really believe they can withdraw money whenever they need it. They may doubt that their right to access money under the rules will be respected when that right conflicts with the interest of the leaders. When members feel they can get their funds out of the GSL predictably, according to rules that are reliably followed - then savings deposits, the loans funded by them, and the household impact that results from access to safe, flexible savings, will be maximized. This is a tall order and most GSLs are not there.
GSLs are distributed widely along the trust continuum, and good management and good governance matter to the quality of financial services they deliver. The incubation process matters, and post-incubation there is a ‘market’ among GSLs for support services created by effective demand for better governance.