A Glimpse into Informal Finance: Self-Help Group Savings and Lending

In September, I had the opportunity to attend a meeting of a rural based self-help group in the Rift Valley through the assistance of the Chelma Advisory Institute, a grassroots non-governmental organization. This particular self-help group consists of twelve women who first joined together during their participation in Chelma’s microcredit program. 

This was my third trip to the rural communities of Nakuru. I first worked with the women of this group as a SHARE Institute international intern in the summer of 2010 to help create a microcredit pilot program. Even though their loan period ended in June 2011, the group continues to meet at the home of a different member each month to expand upon and continue their group activities. A few examples of the businesses and activities that the collaboration helped to create or improve include poultry, tailoring, basket weaving and the production of soap to sell door to door in their village. 

I was honored to be welcomed again into their community to learn about their merry-go-round savings program that the group organized to sustain their group activities and to give members the opportunity to gain access to small scale loans. Due to the remote location of the group and the lack of household or business items (that are required security by most Kenyan microfinance programs) owned by the members, the majority of the group does not participate in the Kenyan microfinance industry other than the Chelma Advisory Institute. 

Since February, each member has contributed an estimated 1,300 Ksh to the group for loans and group activities. A total of 17,100 Ksh has revolved, meaning the group members have been able to borrower from a sum of 17,100 Ksh. The loan size is much smaller than most microcredit programs ranging from as low as 500 Ksh to 3,000 Ksh. The loan duration is one month and the interest is 5% flat rate paid when the loan is disbursed to the member. 

This is a form of informal finance has existed across the world, especially as low income individuals have traditionally been excluded from formal finance. Even now as the Kenyan government and the financial sector is attempting to increase financial inclusion of low income women, many Kenyan are opting to continue to save and lend within their own community groups. Such individuals do sacrifice the opportunity of receiving continual training and borrowing larger amounts of capital available within the microfinance industry, but the groups who do operate their own lending programs do benefit from their increased decision making power regarding loan requirements and terms.                                                        

For many rural communities, most microfinance programs are often located in urban areas or establish requirements, including interest rates, fees and payment terms, in which many women and men are not capable of servicing. For many reasons described above, this particular self-help group has decided to become their own form of development on their terms in order to save together and lend to one another to continue to grow their businesses, educate their children, and support their group activities. 

 

Informal Finance: Group Based Savings and Lending Summary

Monthly Group Savings: Amount: -Every month, each member contributes 100 Ksh. Details: -Amount collected is contributed for group based loans offered to every member.

Monthly Group Contributions: Amount: -Every month, each member contributes 60 Ksh.  Details: -First, 20 Ksh is contributed by each member for the purchase of 12 tea cups for each member. -Second, 35 Ksh is contributed for meals at the meeting. -Third, 5 Ksh is contributed by each member to purchase mobile time that is used to communicate with the NGO personnel regarding training or loans.  Method:   -First, for the purchase of the cups, a lottery is drawn once per month. One member per month takes the money (240 Ksh) to purchase cups. This ensures that the every member is able to host a monthly group meeting in which each member is able to drink a cup of tea. Is also contributes toward the domestic needs of each woman and their families.  -Second, for the purchase of the meals, one member takes the sum (420 Ksh) to purchase food for the following meeting.   -Third, for the mobile time, the secretary of the group uses the sum (60 Ksh) to organize training or contact the NGO. This person is elected by the group.

Monthly Group Based Loans: Amounts available each month: -500 to 3,000 Ksh Details:   -First, loan duration is one month.   -Second, interest for each loan is 5% of the loan amount. Interest is paid when the loan is issued. -Third, if a member cannot pay, the member is loaned the amount needed to pay off the current loan. Method: -All money collected at each meeting must be re-lent to the group members.