Borrowing to Save: Savings-led Microfinance Part II
In my last post I wrote about designing for the extreme user, and Nuru’s holistic, need-based solution for our target “users”, those living in extreme poverty. This week I’d like to think about a different kind of extreme user – the individual poised to break away from extreme poverty.
If Nuru’s programs work as they should, an impoverished farmer will be able to feed her family through greater maize yields, access clean water, and improve her family’s health. Furthermore, the farmer will be able to save money and invest in her children’s education, or a new business to generate additional income. With the foundation, knowledge and financial means to continue growth, the farmer will be equipped to get out of extreme poverty. But development is not a linear formula. One factor is that there is a strong social obligation to help one’s family and neighbors, if able. The sense of community is strong, and the individual in Kuria does not exist in a vacuum. So as our farmer’s life and economic stability improve, she is also expected to help others financially.
Community solidarity is powerful: neighbors will bolt out of the house in a second’s notice, weapon in hand, if they hear the familiar cry that means a cattle thief has struck; it is also a kind of insurance in case of emergencies. But in the case of our prospering farmer, the requests are often disproportional to her actual gain, and this can limit her trajectory out of poverty. This is a common issue for Nuru’s Kenyan staff. Most people in the community think working with a foreign NGO means a fat paycheck, and many times it does. At Nuru however, our leaders are hired after an extensive, unpaid vetting and training process. Even after hire, the salary is modest to reflect our commitment to serving the community rather than self-interest. As a result, our own staff is often unable to save because the requests for help are many and the need is great.
Recently, many of our managers were pushing for large staff loans. I was concerned because I would expect Nuru staff to be the most financially disciplined as an example to others. The problem, though, is not always a question of financial discipline. It was explained to me like this: even if a distant relative you don’t know requests an emergency loan that you know will not get repaid, how do you justify saving for a business venture or to qualify for a loan when that relative’s child is dying? With a loan, however, people understand that your money is off-limits. There is usually physical evidence – a new business or construction on the house – and everyone knows a loan must be repaid. When saving is impossible, you borrow to save.
Is this a reason to grant credit? I don’t think so. But it does at least provide perspective, and focus my efforts on the right things. Maybe instead of more training on responsible credit we need to create savings solutions that work with, not against, community responsibilities. For example, using illiquid savings and including social obligations in financial planning. The Kurians have been keeping livestock as living savings accounts for generations. Maybe it’s time we caught on.