This week, the CED program has been in the process of transitioning the Nuru Savings Clubs. It is hard to believe that it has been nearly a year since they started. In the past seven months*, there have been 75 savings club loans issued, which total to an average of just under $100 each. All of these loans have been paid back in full with interest. We have had a few cases of late payments, but all in all the Nuru Savings Clubs have been a great success. We have used this past year to establish makeshift credit scores while the initiative is observed.

Self-selection plays a large role in many of Nuru’s programs and initiatives. In this case, we have used the Savings Clubs as part of a vetting process to gain access to credit. This process determines who “graduates” out of the group structure into an individual account. The individual account will allow qualifying member the opportunity to save and borrow individually. We have monitored how our members save; borrow; lend; repay; and even if they attend meetings. We are using all of this data to mitigate risk. The correlation between past financial behavior and future financial behavior is far from perfect. The lives of those who live in extreme poverty is highly unpredictable.

Portfolios of the Poor” by Collins, Morduch, Rutherford, and Ruthven gives an all-to-rare glimpse into poverty at a micro-level. Often poverty or extreme poverty is understood as those making less than $1/day PPP (or $1.50 or $2), but what does that actually mean? Portfolios of the Poor goes into a lot of detail to explain the common misconception that people in extreme poverty (or poverty) are actually making $1-$2/day consistently on a daily basis. In my experience and what is described in the book, a consistent daily income is the exception rather than the rule.

One of the biggest obstacles in the financial lives of the poor is the inconsistency of daily income and expenditures. Farmers may make on average less than $2/day PPP, but that doesn’t mean that they have a daily income. Most farmers here farm cash crops, staple food crops, or both. This means that most farmers earn their money seasonally, not daily.

When one depends entirely on a seasonal income, one must take a lot of factors into account. Imagine getting a paycheck for an unknown amount once every six months. I know that I would have trouble budgeting, and I have access to a bank account, online banking, and some training in accounting. A large amount of expenditures are also unknown. One relies on nature to put food on the table, but the same rain that waters one’s crops can destroy one’s home. Too much rain can ruin one’s crops.

Being from Southern California, I have never needed to be too observant of the weather. It’s sunny; it’s nice; and, our meteorologists have an easy job, but here, I actually really stress about the weather on a regular basis. Is it raining too much or too little? Will hail destroy our crops? (It is obvious that I am from California when I actually had to look up how to spell hail; and, yes, it hails in Africa).

There are so many factors that need to be determined, and so little few details are concrete. Microfinance serves an extremely important role in lives here. Savings and credit make up a huge part of our microfinance initiatives, and we are looking to develop insurance products as well, but it is certainly a complicated task that must be well thought out.

I will continue to discuss strategies that we are using to help our members deal with an uncertain future. By the sheer fact that our members are starting to save and plan for their futures, I consider this a big step forward along the path of escaping extreme poverty.

*If you remember from a previous blog post, 12 weeks of savings is required before a group can take out their first loan.