Ugandan visitors at UNH; Bill Maddocks in Center

A few months ago I mentioned a Rotary – Friends Forever program I was working on to introduce visiting young Ugandan adults to entrepreneurship and we did that last week. Among these dozen visitors were two entrepreneurs – a woman who made women’s handbags and a young man who made musical instruments. And what they really needed to know was how to finance these businesses because they each had virtually no capital.

Recognizing I knew little about how to finance businesses in Africa, luckily I discovered a great resource right in our backyard at the University of New Hampshire, Bill Maddocks. Bill, who is the director of the Sustainable Microfinance and Development Program (SMDP) at the University of New Hampshire’s Carsey School of Public Policy, taught us all about Savings Groups. As part of the program he facilitated a simulation/game for all of us and we learned first-hand how to run a Savings Group.

What is a Savings Group? A Savings Group is a group of 20 to 30 people who commit to saving money together and loaning money to each other. Not only do these Groups provide a safe way for people to save, they provide loans with fair interest rates and reasonable payback terms (unlike the many loan sharks that surround them.) The Group also provides insurance against unforeseen circumstances (e.g. sickness, injury) that interrupt savings and loan commitments. And, finally, the group members share all the “profits” generated by the Group. Various forms of Savings Groups have been around for centuries and are used today by millions of people around the globe who do not have access to credit. (You may be surprised to know that Savings Groups are alive and well right here in the U.S.) Traditionally known as ASCA (Accumulating Savings and Credit Associations) the modern versions are more functional, fair to all the members, and easy to learn.

How Does a Savings Group Work? Bill Maddocks, who is an international expert on starting and running Savings Groups, taught us in a couple of hours how to operate a basic Savings Group. Here are some basics I remember –

1. Savings Groups have 20-30 self-selected members, meet and save regularly (often weekly), and break-up after a specific period of time, often one year. Why disband? Because it lets individuals in the group disconnect from other individuals who do not follow the rules or who do not actively participate and help others. (This is brilliant, isn’t it?)
2. Each Group develops its own rules and rules are simple and mostly involve money obligations. For example, how much will each member deposit or save each meeting; what is the cash penalty for missing a meeting; what is the maximum loan amount; what is the standard interest charge and how will the loan be repaid; and what other fines can be charged to the members.
3. Groups elect officers including a President, Treasurer, and Secretary. All decisions are by consensus – the group must decide together it is okay to loan money to a person. All meetings are held in a circle.
4. Cash goes into a heavy steel box with three different locks and each officer holds the key to one of the locks. Also, each member signs her/his name to a slip or ledger when deposit or loan is made and Treasurer stamps or co-signs the slip to verify the amount. The Treasurer counts the money and keeps the ledgers. Today there is even a smartphone application that handles all the accounting, which many Groups are using. (There was quite a discussion about the safety of anyone holding onto a steel box filled with cash and Bill noted that more and more small banks are welcoming deposits from Savings Groups and that three signatures are still required to withdraw funds.)
5. Every few rounds or weeks each member deposits an extra “social” deposit equal to one round’s savings deposit. This money is built-up to help members who get sick, or hurt, or who cannot meet their obligation for some other acceptable reason.
6. At the end of the term the money collected gets redistributed to all the members based on their share and after personal obligations are subtracted. By the way, most Savings Groups do allow different levels of savings or units of “ownership” depending on the means of the member. For example, perhaps I can only meet the basic weekly savings amount of one dollar and you can deposit five dollars. You would have to commit to the five dollars savings for the whole term (1 year) and I would commit to the one dollar. However, your payout at the end would be five times my payout.

At the end I was intrigued to hear one of the Ugandan young men ask, “If I wanted to go around and start-up Savings Groups can I charge a fee and make this a business?” Bill told him, “Yes, and other people are doing just that.”

I had not even thought of doing that – I hope another Ugandan entrepreneur is born!