Importance of savings

Savings deposits not only strengthen the structure of incentives that are made available to the joint liability solidarity group members, but also perpetuate the length of outreach (Navajas et al. 2000). In effect, appropriately well-designed savings products for poor entrepreneurs are as important as accessing credits for development projects, if not more important than the credit access discussed in section 2.4.3.2. In Cameroon, for instance, it has been reported that rural poor households sometimes give their savings to moneylenders for safe storage at a zero nominal interest return (Shrieder and Heidhues 1995). Robinson’s (2001; 2002) enquiry into Indonesia’s microfinance programs affirmed the Shrieder and Heidhues’ (1995) research findings in Cameroon. Robinson’s works of 1992, 1994, and 2002 in Indonesia uncovered that the rural poor sometimes are desperate for a safe place to store their money, and may not necessarily want to borrow money. Therefore, there is a need to extend savings services (both voluntary and mandatory) to those poor household savers, particularly in the rural areas of any country. Savings not only offers security, but also provides income returns when invested prudently. For this and other reasons, Robinson (2002, p. 304) states:

In 1996 the Unit had more than six times as many savings accounts as loans, and the value of savings was nearly twice as much as that of loans. At the end of 1996 the ratio of clients who saved in the units but did not have any outstanding loan to those that borrowed and saved in the Units was probably about four to one.

Robinson’s (2002) findings, which corroborate that of Zeller’s (1999), have criticised the placing of too much emphasis on subsidised credit rather than on savings mobilisation. Zeller and Sharma (2002b) have argued that the absence of voluntary savings is the biggest default

in rural financial institutions, and their views have also been revalidated in other studies that conclude thus: many poor households could save and do so in substantial amounts too (Morduch 2000; Paxton and Cuevas 2002; Johnson et al. 2002; Otero 1999; Shrieder and Heidhues 1995; Robinson 2002). Zeller and Sharma (2002b) research has further argued that 95% of loans made available to small business operators in developing countries come from informal sources such as moneylenders, trade merchants, and ROSCAs to whom some of the NGO-funding agencies sometimes turn to for credit bailout (Rhyne and Jackelen 1991).

Due to these important findings, and the criticisms that have been trailing the GB’s group credit with joint liability contract innovation, ASA has since departed from the GB’s practice of providing liberalised credit to the group-based clients, toward designing programs that lay emphasis on the voluntary savings side with a view to raising capital internally for re-lending back to the group members. This strategy has made it possible for ASA to operate without necessarily imposing excessive costs on its clients while trying to approach the self-financing status (Morduch 2000; Martin 2002). More than anything else perhaps the strategy explains the reason why the United Nations Development Programme (UNDP) contracted ASA technical experts, among other competitors, to introduce their own methodological model to Nigeria. Similarly, the Dhaka’s informal SaveSafe has since departed from the GB’s method of subsidised credit dependency to develop attractive saving products that allow it to break even while maintaining or even improving credit outreach to the poor (Martin 2002, p. 6; Rutherford 1998):

SafeSave has found it necessary to depart from standard models in Bangladesh and make safe and flexible savings accounts, including the possibility of daily deposits, a key part of their service. In this they have drawn on lessons from informal institutions in Dhaka’s slum, as well as on successful experiences with deposits mobilization in Indonesia. ASA has similarly departed from the Grameen’s model to develop a simple management structure and accounting system…without imposing excessive high costs on clients (Rutherford 1998).

Although almost all programs modelled on the GB’s group loan with joint liability contract approach have deeper outreach, they have less breadth (lower outreach coverage) when compared with financially sustainable programs, for example, the BancoSol of Bolivia, and the Credit Union Bank’s programs of the South and Central American countries (Paxton and Cuevas 2002, Navajas et al. 2000). This will be further explained in Chapter Three. One

drawback here is that these subsidised loans programs for the poor have been found to reach people who are non-poor or people who have education, wealth, and social status in Bangladesh (Chowdhury, Mahmood, and Abed 1991; Zeller and Sharma 1998; Yaqub 1995; Chowdhury 1992), thus it is pretty much like the subsidised credit schemes of the pre-1980s for small marginalised farmers. Similar findings were also revealed in studies conducted in Nepal and India respectively (Gupta 1987), and it was much the same in Bolivia. In Bolivia, for instance, these subsidised loans do not reach the poorest of the poor, but only reach those poor who are immediately below and above the poverty line (Navajas et al. 2000), although the share of the poorest borrowers in the loan portfolios was highest for rural lenders when compared with their urban counterparts (i.e. poorest of the poor – Navajas et al. 2000). Desertions have also been reported on those programs in Bangladesh (Wright 1997; Hulme 2000b), and similar programs worldwide (Nagarajan 2001; Wright 1997; Hulme 2000b). In the light of the foregoing discussions, it is now time to review the role and place of microcredit schemes in Nigeria, using the SSE program as an in-depth case study.

2.5 An appraisal of the performance and weaknesses of some major intervention