Most saving practises in developing countries (juntas, roscas, cuchubales, etc.) suffer from three main limitations: they don’t capitalize, they don’t generate any returns on savings and they don’t educate (there is no administration or it is very basic). They are just short term saving mechanisms but don’t generate long term wealth.
Educating to generate long term saving habits is the real challenge
In order for this to happen, practical education is the key. It should be about “learning by doing”.
However, we have identified 5 factors which are necessary for making this change real:
Saving should happen within a small group (15-40) where there are real bonds of TRUST among members. Without this trust groups will face problems sooner or later.
TRANSPARENCY in all transactions is critical to educate and reinforce trust. Participation of all members in the administration of the funds is important. Accurate accounting records should be always available to any member.
There must be effective mechanisms to maximize SECURITY in the process of saving and lending. Strict money management rules and the use of technology will play an important role.
Financial transactions should be as FLEXIBLE as possible to really match people’s needs at any time. Specially loans should be flexible in terms of amounts, term of the loan, payment method or loan destination.
Saving should be a very PROFITABLE activity. Without a very attractive return on savings, there is little stimulus to attend a long meeting and save regularly. Commission-free transactions and reasonably high interest rates on loans are key.
So, what happens when all the mentioned criteria are there?
"November 2015 I had the opportunity to attend the first interest distribution meeting of the group POR UN FUTURO MEJOR in Santa Elena, Ecuador. They were formed in November 2014 with 18 partners who bought shares for a total value of $ 220. In yesterday's session they had accumulated $ 4,470 in savings and distributed $ 2,044.8 interest. The number of partners has increased to 32. Throughout these 12 months they have disbursed 159 loans worth $ 30,845.9. Simply amazing!”
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