Promoting Inclusive Markets and Financial Systems
The MasterCard Foundation works with visionary organizations to provide greater access to education, skills training and financial services for people living in poverty, primarily in Sub-Saharan Africa. As one of the largest, independent foundations, its work is guided by its mission to advance learning and promote financial inclusion in order to alleviate poverty. Based in Toronto, Canada, its independence was established by MasterCard when the Foundation was created in 2006. For more information, please visit www.mastercardfdn.org or follow us on Twitter @MCFoundation.
The Evidence-Based Story of Savings Groups: A Synthesis of Seven Randomized Control Trials
There is widespread agreement that financial inclusion for the very poor is a critically important aspect of economic development. Access to reliable and affordable financial services is essential not only for growing businesses and improving living standards, but also for managing the unpredictability of daily life. Yet, an estimated 2.5 billion people across the world have no access to formal banking services. A variety of services have been developed to address this gap, including microloans, low-balance savings accounts, mobile-enabled payments and financial services, and various micro-insurance products. Since the mid-1990s, a number of international development organizations have promoted a savings strategy called Savings Groups (SGs). An SG may consist of 15 to 30 people, usually women, who meet on a regular basis to contribute to a common fund that is then used to support loans to group members as needed. The interest on the loans provides a return on the savings investment. At the end of a set cycle (usually nine to twelve months), the savings (with accumulated interest and fees) are “shared out” among group members and a new cycle begins.
SGs are relatively easy to establish and require very little infrastructure, with a knowledgeable facilitator and a strong, heavy lock box being all that are required to get started. In addition, group members who have learned the methodology can teach it to others, starting new groups within and outside of their own communities. For these reasons, SGs are seen as a powerful strategy to create savings and borrowing capacity, even for the very poor and for those living far from bank branches.
Today, there are approximately 7 million SG members in 300,000 groups across five continents. While SGs are most widely observed in Africa, there are also increasing numbers of groups in Asia and Latin America, and a handful of groups in North America and Europe. Their popularity has been recent; from 2009–2013 alone, the number of members has grown from 1.5 to 7 million. This tool has been taken up around the world as a savings and borrowing strategy for the poor, often providing financial services to populations with little access to formal institutions. As SG practice has evolved, the groups have been used as a platform to introduce additional development services, such as education or health, or to link to additional financial services, such as formal accounts or mobile money transfer.
The rapid growth in SGs raises a number of questions about how well these groups are serving their members and acting as an effective development intervention overall. In response to these questions, many SG programs have been studied extensively from various perspectives, including the profiles of group members, members’ saving and borrowing behaviors, the effectiveness of different group formation strategies, and whether and how group membership has affected members’ incomes, wealth, education, health, and so on. Research questions have focused on impact and outreach questions, as well as delivery method (operational) and effectiveness in delivering additional services. Since 2008, several evaluations have been conducted using a tool called the randomized controlled trial (RCT). Because the RCT methodology provides insight into causality (see Section 2), interest in these results is active and widespread. It seems appropriate at this point to consider the collective information provided in the elatively substantial body of evaluation research that is now available. To that end, this paper surveys the results from seven prominent RCT evaluations.