The Rules of the Game

Savings_Group_Illustration

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.

 

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