Microfinance Savings Plans Trump ‘Easy Money’ Schemes

Ben Hess is a CRS international development fellow living in Guatemala and working with savings-led microfinance programs.

On November 17, Colombia declared a state of emergency to deal with the riots that engulfed various towns after an illegal investment company collapsed. Millions of Colombians had invested in pyramid schemes promising to pay interest rates as high as 150 percent a month. They included many of Colombia’s poorest citizens, who in some cases had handed over their life savings.

In addition to the offer of easy money, a Reuters article attributed the success of the pyramid schemes to high banking fees on regular savings accounts and low levels of financial literacy among the population.

Pyramid schemes, where companies prey on investors’ hopes for “easy money” by making false promises, stand in stark contrast to the savings groups that CRS helps form. When we introduce the concept in new communities, we do not promise rapid gains in earnings. We explicitly state that groups will not receive any monetary donation from CRS. We cannot guarantee unlimited access to credit at the best interest rate (since group members decide the interest rate, evaluate loan requests, and determine which ones should be funded and for how much).

So what attracts someone who may be distrustful of traditional financial institutions to a savings group? It’s not free money, fast growth in earnings, or guaranteed loans. Instead, savings group members tell us that it is the autonomy to make their own decisions, the potential for self-empowerment and solidarity with others, the opportunities to save money without worrying about hidden charges and fees, and the possibility of receiving loans for income-generating activities or to cover basic needs during difficult times. Although there is a great deal of sacrifice involved in putting aside hard-earned money, the atmosphere at savings group meetings is filled with hope for a better future—for the members, their families, and the community as a whole.

As Colombian Vice-President Francisco Santos pointed out, “Nothing is free in this world and that is not going to change.” Although he was referring to the pyramid schemes, he could have also been speaking about the savings groups. The money that is deposited in the savings fund is neither “free” nor “easy,” but the members’ diligence, sacrifice, and perseverance ensure that the fund grows bit by bit.

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