Savings Groups, Financial Education and Relationship Sales

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Training our local entrepreneurs from Comalapa, Sacatepequez on how to start their own savings groups among themselves and other community members.

“What are your dreams in life?” I asked the group of eight SolCom entrepreneurs from Comalapa during a financial workshop focused on savings one Friday. One of the women, Doña Paula, took the opportunity to tell us about her childhood dream of opening her own tailor shop for her community to be able to put herself through school. She explained how she grew up in a household with four other siblings. Money was tight and the family could not afford to have all of their children in school. She was the unfortunate one to be chosen to stay at home and help her mother with the day to day household chores. Not accepting the situation as it was she applied to the local municipality program that was selling sewing machines on a payment plan to families in the community. The municipality at first denied the 9 year old Doña Paula saying that she was too young to be able to make the payments on the machine. They eventually came to an agreement when her uncle decided to be her guarantor for the machine. She then went on to use the sewing machine to repair community members clothing at a low price and was able to make enough money to make her monthly payments and own the machine outright.

To this day she has that sewing machine and has used it as one of her principal sources of income alongside the raising of chickens and the weaving of traditional Maya clothing. Doña Paula was not able to return to school, but she was able to save money from the profits of her small tailor business to help put her two children through high school who now both have stable jobs. Doña Paula’s story was an excellent example of how one can use a life goal as a motivator for savings, which was the topic we were discussing as part of the financial workshop component of my savings group project here at Soluciones Comunitarias.

When thinking about the best way to integrate savings groups within SolCom and the MicroConsignment Model I recognized a unique opportunity to use a different tactic to when entering into a new community. This realization came in part from reevaluating my project design during the Project Design course I took over the summer. Starting a master’s program has forced me to take a step back and really pick apart my project. Doing so has helped me better understand how savings groups can be mutually beneficial to community members and SolCom simultaneously. Relationship building is a key factor to success when trying to sell any type of product or service. At SolCom we want to build strong and trusting relationships in the communities where we work. To build and maintain those relationships we can use educational workshops and creation of savings groups to show communities that we are here to help them help themselves.

My process when entering into a new community has three phases. The first phase is to make that initial contact in a community and plan a meeting with the community members to give a 1-1.5 hour long financial literacy workshop. During the workshop I guide a conversation based on understanding where one’s money is coming from and where is it going. We compare income and spending and try to brainstorm ways we can all spend less money, which in turn means saving money. I take this opportunity to talk about SolCom’s water filters and wood stoves, both of which can help them save money in the long term. We then discuss the act of savings and purposefully setting aside money to be used in the future.

Why does anyone save money in the first place? As Doña Paula demonstrated beautifully with her personal example, I try to get the participants to think about their goals in life and frame them in terms of long term goals and short term goals. Their short term goals, such as Doña Paula’s purchase of a sewing machine, should help them to achieve their long term goals, such as her being able to save money to put her children through school. Having goals is a good motivator for saving money. Lastly we discuss ways to save money, including savings groups. The focus is on gaining an understanding of the financial options in the community and then having the participants make a comparison of their current options with the option of starting their own savings group. After this part of the discussion with the SolCom entrepreneurs they decided they are very interested in starting their own savings group. At the end of the workshop I ask participants if they are interested in learning more about savings groups and if so I plan a second meeting to discuss more about the savings group opportunity.

Phases two and three are the savings group workshop and the training of savings groups if at the end of the workshop they decide to start their own group. The hope is that through this process the community members see SolCom as an organization that is there to help them and not just sell them products. The trained savings groups will have formed a trusting and long lasting relationship with SolCom and be much more likely to purchase products in the future. Even better, savings group members tend to be thinking more about their future, planning their finances and are also much more financially capable to purchase the products. I can foresee members saving their money with the goal of eventually purchasing a SolCom wood-burning stove.

The opportunity for education has the most potential for social impact and strengthening our relationships with communities. Down the line SolCom can return to the savings groups and give various educational workshops similar to the financial literacy workshop. We can give workshops on nutrition, potable water, how to start a business, etc. the possibilities are endless! By first focusing on forming strong relationships and then taking advantage of the trust that is created SolCom can greatly increase its sales—and its positive social impact.

Combining Theory and Practice

theory and practiceThere is a delicate balance that exists between theory and practice when it comes to
international development work. Intellectuals and scholars can get together and talk about what they think is the best way to go about providing aid to a developing country, basing their decisions on complex formulas, reason and logic. However, without actually knowing on a personal level the people these theories are trying to help one can never truly get to the heart of the problem. Partly because, it’s hard to know what the problem is without being able to talk to people and understand their needs from their own perspectives. On paper a plan for helping a community may seem flawless, but then once tested in the field countless flaws may present themselves. At the same time practitioners need theories to guide their actions when in the communities because without those theories it becomes very difficult to know where to start with implementing a solution and then how to measure the impact and success one has on the community where they are working. Thus theory needs practice to identify needs and verify that the theory is correct (or at least on track) and practice needs theory for guidance and measurement.

Up until now my work here in Guatemala has been heavy on the practice and light on the theory. I have been researching best practices in savings group work and have been learning from what other people and organizations have been doing in the field. Luckily, many organizations publish their work for others to use, learn from and build upon. While I am sure these works were based in theory and developed through practice, I haven’t learned much about those theories hiding in the background.

My plan of attack has been trial by fire. I have reached out to, and had preliminary meetings with, seven different organizations since moving to the lake area mid-February and have yet to establish a single savings group. I have been developing a savings group model based on four other models that already exist and have been in use for years now. These other models are Asociación de Comunidades Autofinanciadas’ Comunidades Autofinanciadas (CAF)model, Oxfam’s Saving For Changemodel, Catholic Relief Serivices’ Savings and Internal Lending Communities (SILC)model, and Village Savings and Lending Asociates’ Village Savings and Lending (VSL)model. From each of these models I have been taking bits and pieces, many of which overlap among other models, and putting them together to create Soluciones Cooperativas (SolCoop). I hope to develop SolCoop into the model that Soluciones Comunitarias will eventually use to provide savings group services in the communities where they work.

However, as I have been failing to start savings groups within the organizations I have been in contact with, I feel it is time for a new approach. There are a number of reasons these organizations have not wanted to start a savings group, chief among them being that the members are already saving, or at least have access to savings services, in BanRural and other traditional style banks. The theory behind savings groups is that potential members do not have access to a reliable and affordable means to save their money. I have been going against this theory and targeting women’s weaving cooperatives that thus far have all had access to traditional banking services.

My new approach is to go back to the theory and gain a better understanding of where this type of development work came from. To do this I will be participating in the Masters in Community Development Policy and Practice at my undergrad alma-mater the University of New Hampshire (UNH). This program was started by the Carsey Institute at UNH and aims to help working professionals in the field of community development apply theory and policy to their practices on the ground. With the support of this masters’ program I hope to gain a fresh perspective to develop a more focused plan that can be applied to implementing and adapting the SolCoop model.

The beauty of this program is that it is tailored towards working professionals and allows them to continue their work while studying at the same time. I will be returning stateside on May 17th for the one month summer session focused on the community development project design and then come back to Guatemala mid-June to apply the re-vamped design to my current savings group project. The Fall and Spring sessions are all online, so I can stay in Guatemala working and studying.

Needless to say I am super excited about the opportunity to continue working with savings groups in Guatemala and study for a masters’ degree at the same time!

Introductory Meetings with Two Women’s Cooperatives

Talking with Juana, founder of Sanik, during my introduction presentation on savings groups.

I came to Sololá not only to watch the beautiful sunset behind the volcanoes and mountains surrounding Lake Atitlán, but also to reach out to the various women’s weaving cooperatives and other organizations that call this area home. My plan is to see if these organizations are interested in starting their own savings groups. The idea is that they are established groups of workers with some level of organization already in place that have the level of trust necessary to create a well-functioning savings group geared for success.

My first meeting was with Rosa, the owner of Lemá, a women’s weaving cooperative based in San Juan La Laguna that has worked with Soluciones Comunitarias in the past. We had a brief chat about who I am, why I am here, what a savings group is and how it could potentially help her and the women of her cooperative. She liked the idea and said she would relay the information to the rest of her team and let me know if they were interested. They agreed to meet with me to learn more about what their savings group would potentially look like and also to share with me their experiences using BanRural, a Guatemalan bank, to save and take out loans.

During the follow up meeting I learned that four out of the seven that attended are currently saving in BanRural, but only one is saving regularly and has been doing so for four years. I explained to them that by pooling their savings in a group fund they will have access to larger sums of money when needed. I also told them about the social capital and positive peer pressure that is inherently a part of a savings group. By having regular meetings it gives them the opportunity to discuss other issues within the community and with Lemá. Savings groups create a stronger sense of solidarity among the members and by seeing each member save one feels pressure to save as well and thus has added incentive to find the money to put away each month. This idea resonated with the women and they discussed amongst themselves shifting their savings from BanRural to a savings group. Currently they are still deciding as a group what they want to do and will make their decision next week.

I went through the same process with Sanik, the womens weaving cooperative founded by Juana, our regional coordinator in Sololá. Sanik means “worker ants” in Kakchiquel, the dominant Mayan language in the area of Sololá and especially in El Triunfo where the women live. They decided on this name because they feel like a strong group of workers dedicated to not just benefitting themselves, but their community as well. This concept of mutual beneficiaries is at the heart of every savings group.

At the first and only meeting I have had with them so far I could see the strong bond between the women as I explained this new financial option to them. They were whispering in Kakchiquel to one another and smiling and laughing, especially when one of the women decided I look like Jesus. From that point on I was no longer Andrés, and was the butt of all their jokes for the rest of the meeting. It was all in good fun and I felt like I was among good friends.

Their strong sense of community and trust was not the issue with starting their savings group, rather their very inconsistent cash flows that are completely dependent on the sale of their products. Thus their hesitancy to start a group came from the uncertainty of having money every month to save. I explained that it is better to start a group and at the very least have a place where they can save when able, than to not have a good option when wanting to save. El Triunfo is a relatively rural area and there are not any banks nearby where the members of that community can save and/or take out a loan. Understanding this dilemma, the Sanik women decided they want to start a savings group and will try to find a way to save even Q10 (about $1.30) each month. I plan to meet with them to guide them through the group creation process next week.

Meanwhile, I am continuing to reach out to organizations around Guatemala to who else is interested in starting their own savings group. Through this process I will be learning and adapting to each potential group’s situation and hopefully finding the best way for each group to save.

The Rules of the Game

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This is one of the illustrations I use when introducing the savings group concept to a potential group. (Taken from Oxfam’s Savings for Change Training Manual)

The savings group made up of the management team at Soluciones Comunitarias (SolCom) is officially up and running. The team had its first savings meeting during the monthly regional meeting at the beginning of February. Every member managed to save and they totaled 1500 quetzales ($200)! It was great to see their enthusiasm and excitement as each member put in their savings. The group has decided to only save at each month for the first 6 months in order to build up enough capital to create sizable loans for their needs. This decision was made on their own and not a part of the 11 key rules the CAF model recommends each group put into place.

These 11 rules are meant to help the group structure itself and be able to run effectively. In the group formation meeting in January the group decided on the following rules:

  1. Share Value. In order to save, a member purchases a share of the total pot. For example, if I want to save Q300 and a share is worth Q100, I would buy 3 shares. This rule helps simplify the transactions by keeping the savings at a base value. SolCom decided on a value of Q100 per share.
  2. Maximum Savings. To avoid having one member own the majority of the group’s savings, there is a limit set on the percentage of the total pot one member can own. SolCoop decided to set their limit at 50%.
  3. Maximum Credit. To avoid having a member take on too much risk, and to allow for multiple members to take out loans at once, there is a limit set on the percentage of the total pot one member can borrow. SolCoop decided to set their limit at 25%.
  4. Maximum Loan Term. To ensure the money is rotating among the group, there is a limit on the number of months one member may take to pay back a loan. SolCoop set their limit at 6 months.
  5. Interest Rate. Members who take out a loan have to pay that loan back with interest. The group decides this interest rate. Normally it is between 1% and 3%. Lower interest rates encourage lending while higher interest rates help grow the group savings. SolCoop decided on a 2% interest rate because they did not want to deter lending, but also wanted their group fund to increase at a good rate.
  6. Late Payment Interest Rate. If a member is late on his/her payment, a late payment interest rate is applied to each payment made until the account is current. The late payment interest rate decided on by SolCoop is 4% (double the normal rate).
  7. Savings to Credit Ratio. To avoid over-indebtedness and to help guarantee the loan, there is a limit to the amount of money one can borrow in relation to the amount he/she has saved. SolCoop decided to go with the recommended ratio of 1:4. This means if someone has Q100 saved, he/she can only take out a loan of up to Q400.
  8. Guarantors. These savings groups are a part of the informal economy and thus are not government regulated. There are no land titles or legal documents guaranteeing the loans given. However, the loans still need some form of insurance. This insurance comes in the form of guarantors among the group members. It is recommended that each loan have at least 1-2 guarantors that commit to paying back a members loan should something happen resulting in the inability for said member to repay. SolCoop decided to have the entire group guarantee each loan. This means a potential borrow needs 100% approval from the group on his/her loan.
  9. Meeting Dates. Savings groups have regular monthly meetings where the activities of the group take place, such as savings and lending, and any other activities the group decides to add to its meeting. SolCom already has monthly regional meetings in place that take place at the beginning of each month, so it made sense to add their savings group meeting as part of the regional meeting.
  10. Absence and Late Arrival Fees. Many savings groups decide to impose a fee for missing a meeting or arriving late. The money earned from these fees can be used for whatever the group wants. Many groups throw themselves a party at the end of a cycle using the money collected from these fees. SolCoop decided to charge Q10 for missing a meeting and Q5 for arriving late.
  11. Directive Committee. To facilitate the proper function of a savings group meeting, a directive committee is elected by the group. This committee is composed of a President, a Bookkeeper, a Cashier, and two members who are responsible for guarding the lock box and the key separately. The President is in charge of guiding the meeting and ensuring all the necessary actions take place. The Bookkeeper is in charge of keeping track of each members saving and lending activities. The Cashier is in charge of counting all of the money and ensuring that each action is correct.

Most savings groups have a lock box and a key to keep their money safe. The group elects one member to guard the lock box and another member to guard the key. SolCoop, however, has easy access to a savings account in a bank free of charge. The group did not like the idea of having to ensure that the lock box and key made it to each meeting because the group is spread out all over the country during the month. Instead, two members were elected to open a joint account in one of the local banks. Both members need to be present in order to deposit or withdraw money from that account.

Those are the eleven key rules the SolCoop savings group had to decide on to form their group. These rules follow the CAF model savings group structure. While other models may have variations on these rules, the basic idea is still the same. As we move forward with this project I will be assessing each potential savings group individually and deciding which approach applies best to that particular group. The project is still in the developmental stages and thus I am continuing to tweak and adjust the savings group model that will later be used when integrating this financial service into the Soluciones Comunitarias business model.

 

Trust is Key to a Savings Group’s Success

Guiding SolCoop through their first savings meeting.

Guiding SolCoop through their first savings meeting.

I came to Nebaj in search of a way to start my project working towards integrating savings groups within the framework of Soluciones Comunitarias’ (SolCom’s) micro-consignment model. I just happened to be doing most of my work at the restaurant El Descanso due to their solid internet connection. While there I learned that El Descanso was closely affiliated with SolCom, having been started by the same founder. Trying to adhere to the plan of inward-out, I decided El Descanso could be a great place to start a savings group.

While interviewing the employees everyone told me they liked the idea and would be interested in creating their own group. I then set up a meeting to further explain the concept and verify that everyone was still interested. This meeting, unfortunately, was tacked on to the end of their employee meeting due to the feasibility of getting everyone together. This meant everyone had to be in attendance. During the meeting I got the sense that they were not as interested as I had previously thought. When I asked for their questions and concerns I was met with blank stares. It took some poking and prodding to get them to voice their opinions and they still assured me they wanted to start a savings group at El Descanso. Looking back, I should have dug a little deeper to uncover their real thoughts, but instead took their answers at face value and moved forward.

When it finally came time to establish the group by deciding on the various rules and voting on leadership roles, only 3 employees showed up for the meeting. I was confused by this and went to investigate. Three of the potential members plan to leave El Descanso within the next few months and thus won’t be able to participate, and one other member told me she simply does not have time to attend the monthly meetings. With the original group only having 11 members, this brought the total down to 7, which is not enough people to properly run a savings group. With only 7 members it becomes too difficult to accumulate enough money to later lend to the members, and loans were the main draw to the group in the first place. I had to bring them to the brink of real commitment to uncover their actual feelings about creating their own savings group.

Being blinded by my desire to start my first ever savings group, I did not take the time to assess whether or not El Descanso was really a good place to form a group. Looking at it now I’ve realized that a restaurant is not the ideal place for a savings group due to its high employee turnover. The average restaurant employee is someone looking to make some money while they figure out or work towards their next steps in life. Very few waiters see their job as their career. This means they plan on eventually leaving thus breaking the solidarity of the savings group. With employees coming and going every few months it is near impossible to build the necessary level of trust among the members of the savings group. Without this trust the group will inevitably fail.

Where there is the level of trust necessary for the group to survive is with the SolCom management team’s newly formed savings group. They call themselves SolCoop (Coop being short for Cooperative, a very similar type of financial institution that many of the members have used in the past). With SolCoop all of the members are good friends on top of being long-term colleagues and a strong team. At SolCom the employees are working towards a common goal of helping communities improve their quality of life through the purchase of SolCom’s various beneficial products. Also, the SolCoop members view their jobs as their careers and thus are in it for the long haul. All of these ingredients form a great recipe for long-term success with their group.

At the last monthly regional meeting for SolCom we took the time to form the group, decide on all of the necessary rules such as interest rates, maximum loan terms, ratio of amount saved to amount available to borrow, etc. At the upcoming monthly meeting the members will have their first real savings group meeting and they will begin to save. This group has real promise and all of the members seem very excited to get the ball rolling. I am also excited to see the group progress and to continue playing a supporting role as I move forward with my project here. In my next post I will dive into the details of the decisions made by the group to help you better understand how a group is formed and what decisions need to be made at the outset to set the group up for success.

Contemplating International Development in the New Year

Question_Mark_Puzzle_PieceThe New Year always brings with it a healthy serving of self-reflection. Am I eating well, exercising enough, spending time with those I care about, working on my relationships, doing what makes me happy, etc.? Coming into this New Year I have been doing exactly that. I am blessed to be able to say that I am happy with where I am and what I am doing. While asking myself these questions I paused a beat when I got to “am I doing what makes me happy.” Thankfully, the answer was “yes”. I arrived at this conclusion by really thinking about the work that I am doing and the field of work I am pursuing. I love the amazing opportunity I have to work towards truly making a difference in the world through the work I am doing with savings groups. I’ve known for a while now that I want to work in international development and am fortunate that my first go at it landed me in the field of microfinance. There are so many types of international development and so many different ways to skin the cat named Poverty Alleviation (I don’t recommend giving your cat this name, too much pressure for the cat) that it can be quite difficult to choose the best path.

Through my studies at school and on my own time I have found that the trend in international development has been that when foreigners working for an NGO enter a developing country with the intent of alleviating poverty, they come with some type of donation, or at the very least some funding to get things started. The practice does not support a sustainable model and does little to help those in need over the long run. Don’t get me wrong, the projects are well intended, but I believe the money invested in them could be better spent. Savings groups, however, are a revolutionary type of international development focusing more on empowerment and financial education rather than donations or temporary projects. The idea is not to try to simply make their lives a little better by giving them, for example, a new stove. Instead it is an attempt to empower the poor and support them down a path towards self-sufficiency. This means providing them with tools and knowledge that will enable them to, at the very least, better manage their ever-changing cash flows to provide their families with the daily necessities, which could include purchasing that stove and thus increasing its overall value to the family.

This type of financial service has amazing potential to work towards alleviating poverty on a global scale. One of the challenges the poor experience is the uncertainty of tomorrow. Cash flows are so irregular it becomes very hard to manage money on a daily basis. Having a place to save and to access large (a very relative term) sums of capital helps mitigate that uncertainty. Financial stability is a luxury millions of people around the world lack and simple donations are not going to change that. There’s a reason the cliché “You can give a man a fish and he can eat for a day…(you know the rest)” exists. By supporting the poor to better manage their cash flows in the form of a savings group, they will be better off in the long run when the support has moved on. A key question that needs to be asked, and rarely is, when talking about development work is: “Does this project empower the ones it is trying to help to be able to help themselves in the long run?” Fortunately, I believe the answer to that question when I look at my own work is yes.

It is also important to recognize that development work is a two-way street. I have been learning just as much from those that I am trying to help as they have been learning from me. While guidelines, essays, papers and conferences all discuss and analyze the best way to offer this service to the poor, the best resource I have now is the experience I am gaining through this trial by fire process here in Guatemala. These are exciting times in the world of international development and I am blessed to be right in the heart of it trying to find the best path to take that will make the longest lasting impact.

Saving to Lend

My first meeting with the Descanso Staff

My first meeting with the Descanso Staff

Teo, the regional coordinator of the Huehuetenango region of Soluciones Comunitarias (SolCom), is afraid to take a loan from a traditional bank. After hearing countless complaints from her Guatemalan friends she decided it is simply not worth the hassle. One of her friends told her about how she tried to take out a loan and was confronted immediately with a complicated row of hoops through which she would have to jump in order to receive the money she needed. These hoops consisted mostly of paperwork. She had to prove her Guatemalan residency, supply evidence pertaining to the validity of her need for a loan, and ­–most difficult of all—she had to find a government-employed guarantor for the loan. After struggling to locate the necessary paperwork and proof, which she finally did, she was eventually denied the loan because she could not find the appropriate guarantor. In the end she was forced to borrow from family members and friends (note that this is exactly what a savings group is composed of) to piece together the necessary funds. It was a painstaking process and created unwanted tension in her relationships.

Teo also explained to me that the interest rates and fees for bank loans are too high. The lowest interest rate she has encountered was 6% APR. I expressed my opinion that a 6% interest rate is quite low, but she countered with an excellent point, saying that the interest she would pay on a traditional bank loan is money she would never see again as opposed to interest paid on a savings group loan which is reinvested into the group’s fund. Teo’s story gave me some insight into the options the typical Guatemalan has when seeking a large sum of capital. Learning about her desire to participate in a savings group, after hearing her explain why she won’t take a loan from a bank, was very encouraging. She was able to recognize the difference between a savings group (essentially a very small community bank) and a traditional bank. This made me feel like I was effectively able to express the benefits of a savings group during my pitch to the SolCom management team, who will be starting their CAF group in January.

The sense that I am getting from my conversations with people in Guatemala is that there is a high demand for loans, but there is not a viable option for obtaining them. In almost every interview I conducted during these first two months I found that the main reason for wanting to participate in a savings group was not, oddly enough, the opportunity to save. As soon as I would mention the potential for lending money to the members I would see a subtle peek of interest in the interviewee and most of the questions I’ve been asked were pertaining to the details of how the CAF model savings group loans were made.

Continuing with the lending theme, during my first meeting with the potential members of the Descanso CAF group I discovered that the group as a whole is more concerned with their ability to access low cost loans than the opportunity to save regularly. Questions such as “Will you be providing us with seed capital so we can start lending immediately?” and  “Can I take out a loan if I don’t save regularly?” came up, suggesting that this group has its sights set on borrowing and lending (which confusingly is the same word “prestar” in Guatemalan Spanish).

Organizing that first meeting with the Descanso staff was no cake walk. It took the majority of November to finally set it up for the last week of November. This was mainly because no one was able to commit to a date and Miguel, the SolCom boss who also helps manage Descanso, was swamped with work during that month. Knowing this is a painstakingly slow process I decided to take a different approach this month. I have set up individual meetings with the Decanso CAF group members to further explain the decisions the group will have to make in January. These mini trainings aren’t the ideal, but since it will be very difficult to get everyone together at the same time, especially during the holiday season, they will have to do. I am quickly learning that the theory of implementing savings groups and the actual practice on the ground are not one in the same. I have to be able to adjust and navigate the day to day obstacles that continue to present themselves. This is both frustrating and exciting and the best way to learn.

Overall, things are going well down here. I am staying in line with my plan to start savings groups within Soluciones Comunitarias first and then work outward. In January both the Descanso savings group and the SolCom management savings group should be underway (knock on wood). There is still much to be done in terms of training and figuring out the best way to ensure everyone in these groups actually understand the concept and know how to make it work. I am looking forward to tackling these challenges and learning from this amazing opportunity to try to make a difference in the world.