Why savings and credit?

‘We were always struggling with food and money,' says Thabita, a farmer in Ethiopia. 

‘Our food production was never enough – our land is small and we did not have enough money to buy fertilisers to increase our production.

‘We had no culture of saving money. The money we got from selling our produce after the harvest was used to meet different household needs. In case of an emergency, we had to go to money lenders who would charge us 50 per cent interest. But now I have learnt to save.'

Positive change

Thabita's life changed when she joined a savings group, known as a self-help group, facilitated by Tearfund's local partner Terepeza Development Agency. With her savings she was able to buy good‑quality seed and fertiliser, and now she gets a very good harvest. She has started selling grain and maize flour, and she has been able to buy livestock. 

Thabita has also noticed a positive change in herself. She says, ‘I am much more confident, I can speak in public and express my opinions. I have learnt from others. One person taught us how to plant kitchen gardens, so I no longer buy spinach and other vegetables – I get them straight from my backyard.'

New opportunities

For people who have limited access to financial services, savings and credit groups provide an opportunity to save money safely and securely.

The money saved by the group is then offered to the members in the form of loans, allowing them to invest in small businesses and meet other needs.

The loans are paid back, usually with a small amount of interest, over an agreed period of time.

The groups govern themselves, and everyone has the opportunity to contribute to meetings and learn leadership, financial and other skills.

Mutual support

Alongside the financial component, most savings groups emphasise the importance of relationships, trust, mutual support and personal development. 

Group members often talk about increased confidence and skills, the ability to relate better to one another and the emotional and practical support they receive.

Similar approach

Globally, there are many different types of savings and credit groups, but most have a similar approach. Members agree on basic rules, or by-laws, about saving, borrowing and group management. These by-laws help groups to operate in a transparent and democratic way.

Some groups, such as village savings and loan associations (VSLA), have agreed saving periods (known as saving cycles) of 9-12 months. After each cycle the money saved, plus any interest earned on loans, is shared out among the members. Others, such as self-help groups, take a longer-term approach. There is no set saving cycle, and as money is paid back it can then be lent to other members of the group.

Many groups develop a social fund that can be used to support members in times of personal need, either as a gift or an interest-free loan. With the agreement of all group members, this fund can also be used to support needs in the wider community.

Savings and credit groups work well in both urban and rural settings, and they can easily be integrated into other initiatives, such as church, agriculture, business or advocacy programmes.

When people lack access to money, influence, knowledge, skills or social support, it is difficult for them to find ways out of poverty. At their best, savings and credit groups provide opportunities for people to have greater access to all of these things.

Self-help groups

As well as savings and credit, self‑help groups emphasise the power of trusting relationships, mutual support and collective action. 

The groups, financed entirely by member savings, are usually made up of people from similar backgrounds who share common interests, goals and challenges. 

Facilitators help the group members get to know one another, work out how they want to run their group and develop a habit of regular saving.

The facilitators arrange training on topics such as leadership, financial management and small business development. Training might also be provided in disaster risk reduction, sustainable agriculture, health and sanitation, advocacy, literacy and other skills, depending on the needs of the group.

Over time, many groups use some of their resources to form cluster-level associations (8-12 groups) and federation-level associations (8-12 clusters). These associations support and train the groups, and provide a strong voice for advocacy. 

As members grow in strength and confidence economically, socially and politically, they discover that by working together they can become powerful agents of positive change in their lives and communities.