Creating a Resilient New Normal for Savings Groups

I can’t recall how many stories I have heard and reports I have read about the devastating economic impact of COVID-19 on jobs and small businesses across the world. It has become very clear that as with every other crisis, the poorest and most vulnerable people are being impacted the most by the harsh realities of the pandemic containment measures put in place by governments.

Community level surveys conducted across Africa and Asia by World Vision (WV) and Vision Fund found that local realities paint the same grim picture as the global predictions. The financial resilience of individuals, households, savings groups and microbusinesses has been significantly eroded due to the major downturn in economic activity. This has led many people, groups and small businesses to default on loans, sell off assets and use what little savings they have to meet the basic needs of their families on a day-to-day basis. This reality is further exacerbated by the fact that most developing nations provide minimal or no access to formal social safety net programs.  

From crisis, opportunity for grassroots transformation

In the midst of crisis, however, there often comes opportunity to accelerate innovation in partnerships, programs and technologies. Building on the experiences of tackling many other crises, World Vision and Vision Fund are seizing the opportunity to help transform the financial system at the grassroots level. We are employing a range of financial instruments that aim to bolster community-level financial institutions - primarily savings groups - and promote financial resilience to future shocks.

Why focus on savings groups? Each savings group represents the sole safety net for many households, plus the source of financing for approximately 15 to 20 micro businesses. And savings groups provide much more than a place to save and borrow money. The social benefits of savings groups are equally important in terms of peer support, access to information and potential for learning. With the increased social pressures placed on households resulting from the current crisis, savings groups present a double benefit to poor communities.

Financial support: Digital cash transfers + flexible loans for savings groups

To help savings groups remain strong and resilient, we have focused on two primary financial interventions – digital cash transfers and flexible loans.

Throughout the past year, starting before the pandemic began, WV has distributed digital cash transfers in the form of mobile money to around 4.8 million people, providing a broad-based safety net for basic consumption needs. In the months following the COVID-19 lockdowns, however, we re-directed some of this cash towards savings group members to ensure that these community-owned microfinance groups could keep going. Our experience from responding to other crises has shown that without such cash injections during a time of economic downturn, loan defaults, erosion of savings and sales of livelihood assets increase significantly.

In addition to the cash injections, Vision Fund has provided recovery loans directly to savings groups so they can access additional capital with flexible loan repayment terms. From our experience with providing loans to savings groups in both refugee and host communities in the Western Nile Region of Uganda, we have learned that:

• During the lockdowns, savings group members continued to borrow money, but they borrowed less.
• Groups with external microfinance loans continued to pay back.
• As restrictions were loosened and business picked back up, savings and borrowing also picked up again.

We have seen that employing both financial instruments (digital cash grants and flexible loans) with a savings group results in a much greater likelihood of maintaining local level economic activity and production of food for consumption purposes within vulnerable groups. We have also learned that the social collateral provided by the Savings Groups means that the additional debt from Vision Fund is quite manageable.

Digital support: A mobile app for savings groups + financial and digital literacy training

The next piece of the puzzle is the rapid expansion and adoption of digital technologies to manage financial transactions more safely, efficiently and with minimal need for social contact or group-based community activities. World Vison is piloting the use of a mobile app called DreamSave, developed by Dreamstart Labs, which enables a savings group to manage their money and keep their accounts digitally, at minimal cost and with limited need for technology and mobile bandwidth.

The promotion of digital apps also requires investment in both financial and digital literacy at the local level. From our experience, we have found Savings Groups to be the perfect vehicle for such training. When people see how digital tools can benefit their savings groups, families and businesses, the result is rapid adoption of technology.

From emergency measures to rebuilding local economies

While this approach may primarily be an emergency measure to maintain financial resilience at the community level, it also sets up a firm foundation on which to rebuild local economies once the pandemic is over. We will need that foundation to create a resilient new normal for savings groups and avoid millions of people slipping further into extreme poverty as a result of this crisis.