Savings groups provide rural Africa with access to financial services

In rural sections of Africa, many people do not have access to banks. Instead, they get together as a community and lock their savings away in a metal trunk. Their system is working surprisingly well, so Alfredo Burlando, professor of economics at the University of Oregon, has been studying them for several years.

These community banks are called “savings groups,” and they serve an important function. People in small villages in Africa, far away from big cities, can’t interact with big banks in any way. This means they have no access to savings or loans and can’t accrue interest. Savings groups provide a simple form of banking to these rural villages.

“The concept of a savings group didn’t exist in East Africa until 20 years ago,” Burlando said. Because of their effectiveness, they have been expanding rapidly since then. “It just spread naturally,” said Burlando.

Savings groups operate on a community level. Once a week about 20 to 30 people meet, usually outside in a community area of their village, and deposit money into their account. All deposits are recorded in personal and group logbooks then locked away in a secure footlocker. The locker needs three keys to open, so all three key holders must be present.

Group members also have the option to take out a loan. Loan sizes are determined by the frequency and size of the member’s usual deposits.

After one year, the savings group redistributes all of the money gathered, including interest from loans. Group members can expect a return on their savings by as much as 15 percent. At the end of a one-year cycle the group dissolves, and a new one is formed for the next year.

There has been a high level of intrigue with savings groups, but very little scholarship. In 2012, Burlando went to Uganda and set up the first project and proposal to study the groups. He wanted to know how the groups function, how the poverty of many of the members affected the group, and if the system itself was doing good things for the people using it. “That’s ultimately what we care about,” said Burlando. “Did we find a way to help the ultra-poor?”

Burlando has a few projects set up for studying savings groups. The long term project involves starting a new savings group from scratch and studying its progress.

The data collection alone takes over a year, or one group cycle. Burlando is currently studying some of this data.

The second project involves lending more money to certain groups to see how they utilize it. This project has been done in collaboration with Norwegian Non-Governmental Organizations, and Ugandan banks, who are both interested in the outcome.

There are many undergraduate and graduate students involved with the project, from schools all around the world. In 2013, UO student Derek Wolfson went to Uganda as a part of Burlando’s team before he graduated. “I had a really good time. I enjoyed the research,” said Wolfson.

A major part of Wolfson’s work in Uganda was developing communication with the study subjects. The first few weeks were focused on translating the economic terms involved. “Some of these things are culturally hard to get through,” Wolfson said.

Wolfson believes going to Uganda was his most valuable experience at the UO. He now works in a similar field, and wants to help very poor populations. “The goal is to better involve these people in financial inclusion,” he said.

Burlando said he is planning to involve more students as the study continues. He was the guest speaker at UO’s Economics Club on May 4 and talked about his research.

“I thought it was really interesting,” said Patrick McClellan, a student in the Economics Club. “Personally, I wanted to go help him with it. It’s a different approach to development in an underdeveloped county.”

The ultimate goal of the project is to inform practitioners working in Africa. There is the academic side, which will ultimately produce a paper, and there is the practical side, which will result in talks at conferences and meetings with Ugandan economists. “We want the results to be known,” said Burlando. “We want to provide them with some answers.”

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Noah McGraw

Noah McGraw

Noah is the 2016-17 Senior News Editor at the Emerald. His earliest journalistic influences were Tom Wolfe, Eric Schlosser and Batman. He loves '70s comics, '80s action movies and '90s music.