Martina Crailsheim, Director for Saving Group Linkage at VisionFund International challenges the finance sector to think again about how risky refugees are when it comes to loaning them money.

Let´s be honest. Working with poor, financially excluded populations is a risky proposition for financial institutions. Yet with VisionFund’s mission to support and lend to vulnerable people to support them on their way out of poverty, we’ve learned some strategies to help reduce our risk and still benefit more people.

With our target populations of rural, vulnerable, women, and the financially excluded, we face many barriers, one being the sheer distance and the time spent traveling on bad roads and inappropriate products that do not fit their needs. This keeps potential clients from reaching us, and us being able to share financial services with them. They have no savings. No collateral. Ag is their main livelihood activity, which means unstable income flows.

Still, there is good news. Savings groups are an amazing proven solution to help the rural poor; and World Vision and other NGOs have been increasing the number of groups created. As groups become more mature, with members gaining confidence in saving, borrowing and repaying, there is a need for members to access more capital for larger loans or more loans to help more members. Either way, having an influx of capital can really enhance and enrich the groups.  


Finance For Transformation
 

Finance for Transformation (F4T) is VisionFund’s approach to accelerate that change for rural women and men by loaning additional capital into savings groups. For the rural poor, access to financial services is severely limited; however, joining a savings group is a proven method to generate savings, credit and resilience for economic strengthening.

VisionFund is providing loans of up to US $1,000 into cashboxes[1]. The program works with World Vision and other non-governmental organisations and links to their already established groups. These are the keys to success:

  • Lend to the whole group, and the group then on-lends their funds at their own need and pace; work with mature groups
  • Come to the client with digital onboarding tools, the client doesn’t have to spend money and time to come to us
  • Use mobile money to allow cashless transfers making it more efficient and secure
  • Hire local staff from the community who understand their needs and are trusted members of the community
  • Provide financial literacy training, to make sure our clients understand the responsibilities of the financial service they are using

 

Finance for Transformation: Five keys to success
 
  1. Loan to the group, not individuals
    Savings groups are a proven methodology. Members know and trust each other. Financial services traditionally focus on the analysing the individual client and their capacity to borrow and repay. Which, in rural areas, that ability might be low. With a group, the whole group guarantees for each other, giving VisionFund confidence to lend into the group. Savings groups document their internal transactions in individual passbooks and group ledgers verifying the capacity of the group, so that additional capital can be offered to the group.
     
  2. Mature Savings Groups
  • Group must be beyond the second cycle and at least two years old
  • Continuous membership with group retention rate at least 85%
  • Good record keeping (passbooks, group ledger must be in order)
  • 100% of the group members agree to take the loan
  • 75% of group members plan to take a loan and invest in income generating activity
  • Group has gone through financial literacy training
     

3)   Digital Solutions
      
Use a cashless and paperless approach as much as possible. This means:

  • Clients are registered at their group meeting place, without having to travel to a branch office
  • Documents and pictures are sent digitally to the branch where the loan decision is made
  • The loan is disbursed via mobile money
  • The repayments are made using mobile money
  • There is no cash in the hands of staff

Digitising the passbooks and the general ledger: Various NGOs offer digital solutions to improve savings group record keeping which allows the group to enter all their information on an app, instead of using paper. Where this solution exists, access to information helps VisionFund analyse the group, including capturing the clients’ GPS location, to better serve our clients with the best products.

4)   Hire Local Loan Officers
Local staff who live in the community can establish “satellite offices” and provide digital methods that allow them to work and stay in the field. This saves branch costs, which are brick and mortar set ups in the town.

 5)  Train in financial literacy
Additional money brings additional responsibility. In order to ensure our clients use the funds to the best of their ability, VisionFund offers financial literacy training. Compulsory before getting a loan, we use a picture-based storytelling methodology to train groups on the important of savings and beneficial use of the loans.


Major findings
 
  • With a loan from VisionFund, the savings group increases their annual share out by 60% on average.
  • Across Africa, the savings group linkage loan has higher repayment rates than other products given to individuals or smaller groups
  • From data in Uganda, the savings group linkage loan had the highest repayment percentage during months with COVID restrictions in place (March 20 – August 20), making it a very crisis resilient product
  • The savings group methodology allows members to access small loans as low as US $5, helping more people start their micro businesses
  • F4T complements already existing methodology of rural saving groups and boosts theircapacity with additional funds


A field officer from Zambia noted, “After getting a savings group linkage loan the group has experienced unprecedented growth both in their business and savings. They now have confidence that their money is 100% safe in the digital cash box. The box keepers are enjoying peaceful nights compared to the physical cash box which they used to keep under the bed.”

[1] Product features such as max loan size and interest rate may vary according to country context.

LEARN MORE ABOUT SAVINGS GROUP LINKAGE LOANS