Saving Groups : when undeserved communities become their own bankers
The In-Venture team
Despite recent growth, Cambodia remains largely unbanked and only 20% of the population has access to a bank account in a formal institution. Because traditional banks and microfinance institutions require collateral, the poorest population are unable to take out loans to finance their education, start an economic activity or simply pay for medical bills. When in urgent need for cash, most people thus turn to loan sharks, who take advantage of these vulnerable situations to charge exorbitant interest rate that can go up to 50% per month. Poor workers can never recover from this kind of debts and often pass them on to their children.
To overcome their financial exclusion and start planning for their future, an increasing number of people are structuring into self-managed groups, which provide a safe place to save their economies and to borrow money from the other group members at low interest rates and with flexible repayment conditions. It is a stepping stone in the empowerment of poor rural communities and the development of local economies.
Some of these saving groups are specifically targeting segments of the population that are the most vulnerable; young people, women, farmers… In Cambodia, In-Venture had the opportunity to meet with two saving groups : the Lady Saving Group, dedicated to women empowerment, and the Friends Help Friends (FHF) Saving Group, focused on the young generations.
The FHF Saving Group started from scratch in November 2009 with 10 members and 200$. In less than 8 years, they have grown into a 380-member cooperative organization handling 600 000 $, and with many inspiring stories to tell. The group’s mission is to build the financial literacy of young people so they can manage loans and be able to fulfill their education and start a small business. The members can borrow money from the group with low interest rates (from 1.2 to 1.8%) and take up to 7 years to pay back. More importantly, no collateral is needed, as it is a system based on trust. Indeed, to join the group, new members need to be recommended by existing members who attest to their reliability. Members decide as a group to lend the money to other members, after they have filled a detailed form explaining why they need the money for and how they plan on repaying it. It is the golden rule of such a system that people should not worry about the money they save, and the experience of the FHF group confirms Professor Yunus’ postulate that the poor are solvable, since their repaying rate is exemplary.
Every Saturday, the group organises workshops in the F Café, a place collectively owned by all the members, which supports smallholder farmers producing organic coffee in the region. On these occasions, members share their experiences starting their business after borrowing from the group : from laundry businesses to yoga classes, including grocery stores and wood carving, the success stories of the members are numerous. Having proved the viability of its model, Kok Tha, chairman of the FHF Saving Group, confesses he now wishes to expand FHF to a foundation to help an increasing number of young people to fulfill their dreams.