Borrowing to Save: Savings-led Microfinance Part I
The Community Economic Development program is established on savings-led credit and good financial planning. To that extent, we have programs that encourage saving and financial planning before taking out a loan. It is a reasonable path for individual economic development.
But design thinking teaches us to profile “the extreme user”. Design thinking is described as a process that combines empathy, creativity and rationality to meet user needs. It is a powerful tool for creating impact in development as well as a driver for business innovation, and is an important part of our foundation team toolkit. Why the extreme user? Designing for extreme users often provides insight into issues and needs that aren’t yet apparent in the mainstream.
My next entries will explore issues facing the extreme CED “user”. These entries are more thoughts and questions than answers, so any comments or ideas are welcome.
Nuru works in remote, rural areas of extreme poverty. So it makes sense to start with the extreme poor. Living in extreme poverty, as defined by the World Bank, is living on less than USD1.25 per day (adjusted for purchasing power parity). But economic definitions don’t capture the desperation, the lack of choice, options and opportunity experienced by 1.4 billion people – the poorest of the poor. It is the most severe state of poverty, the level at which basic survival needs are not met: food, water, shelter, sanitation and healthcare. Imagine having no option for basic healthcare and adequate methods to dispose of human waste. Imagine if your choices were bitterly limited to choosing which one of your children gets to eat each night during the hunger season. This reality jettisons much of the capacity to save and plan that the CED program seeks. You can’t save if you don’t have enough to eat, and you can’t plan if you are struggling just to survive.
So we started with the agriculture program, providing a loan of high quality maize seed and fertilizer. Combined with improved farming methods, Nuru members were able to harvest a yield high enough to feed their families, repay their loans – and save. Is this borrowing to save? In a way. But improved yields rely on more than just the loaned farm inputs. Before the loan is given, farmers form groups to receive training and help carry out the group-based farming methods. Attendance and participation are heavily enforced. Training includes an investment in the group and the planning required to carry out the farming methods, as well as the expectation to save enough maize to feed the family until the next season. A lot is expected to qualify as a Nuru member, ensuring that the farmer who receives an agricultural loan is a farmer who has invested, planned and saved.