Three hours drive southwest of Phnom Penh, in a small village in Kampot province, several dozen women sit on rattan mats. A cooling breeze drifts across the dry rice fields, borne off the sea where most of the men of this village make their living as fishermen.

It is midday Friday, and time for the weekly gathering of the village’s first savings group. Over the next hour, each woman will pay in her weekly savings of 5,000-15,000 riel ($1.25-$3.75), and then those who need to borrow will explain to the group their financing need. Every amount paid in or out is written in the group’s ledger in full view of the members.

This is the first of two savings groups in the village. When it started in January 2011, just 10 villagers were interested. “That’s because people had had a bad experience with an earlier savings group – another NGO came to set up one and it failed,” says the president of the group, a 38-year-old mother of five. “I was a member of that group and I can tell you that proper records weren’t kept and there was no transparency – nobody knew who was borrowing what.”

Traditional village-level savings groups per se are nothing new; what is different here – and in hundreds of villages across Cambodia and tens of thousands of villages around the world – is the model: known as Saving for Change (SfC), it is being used in 13 countries.

SfC has a number of central principles that have driven its success.

First, the groups are small and self-selected, ideally between 15-25 people, because that makes it easier for the members to meet.

Second, the group operates independently. The members decide which person will maintain the ledger, who will be group president, who keeps the cashbox and who holds the key to the cashbox. The group also determines the interest rate that members pay to borrow funds - typically two percent monthly.

Third, the NGO that helps set up the savings group never injects funds; instead it trains villagers to run the savings group themselves, then monitors and advises the group over the following year. That means villagers generate all of the funds used, and each member has the training and a vested interest in ensuring that each person saves, borrows and repays properly.

Finally, the group decides how long the money will stay in the cashbox. In this group the members are repaid in full once a year, their payout comprising their savings plus the interest earned on loans over the year. A payout in January allowed one woman in this group to buy pigs and another to buy fertilizer. A third chose to spend the money improving her home. All intend to re-join the next cycle of the group.

“Villagers would rather put money into the savings group than have it sit at home where it earns nothing,” says the president of the group. “Plus saving together means that we can take small loans when we need without having to find collateral.”

A Powerful Model

Many rural villagers cannot access financial services from microfinance institutions (MFIs) despite the growth in the sector. That means they have few options for savings, and their borrowing choices remain limited to family and friends, or to moneylenders who charge very high interest rates (eight to ten percent a month). Savings-led microfinance (SLM) initiatives are well placed to satisfy that need, and particularly SfC, whose model has been refined to meet the needs of Cambodia’s rural poor. Brian Lund from Oxfam says SfC has been tailored for the Cambodian market and is ready to be scaled up.

SfC has a number of inherent strengths: training costs are low – around $20 per member; the groups very quickly operate independently and effectively; and the groups themselves provide a platform with which to introduce an array of development initiatives of interest to the community. Over the past nine years, SfC has brought inexpensive access to microfinance to tens of thousands of Cambodia’s poor, providing a way to save and to access affordable loans that they can use to generate other sources of income or cushion their families against shocks. And because villagers lend to each other through a group model, default rates are very low.

Around 80 percent of the money that is loaned out is used for productive purposes, such as buying inputs for agriculture or starting up a business. The rest tends to be spent on health or household consumption. Very little stays in the cashbox for long. Then at the end of the agreed savings cycle, all of the money comes back in to be divided between the members.

Besides providing access to financial services, SfC boosts social capital, self-confidence and group empowerment, says Lund, adding that it has the potential to increase the effectiveness of the work of NGOs seeking to help communities become more self-sufficient. He says: “Some of the most inspiring things I’ve seen have been in these groups – such as seeing a group of women sitting after the formalities and talking about how their children are going to go to school, and then the next week learning about mosquito nets and deciding how they will help their whole village.”

The benefits to women in particular have been significant. “In Cambodia there are nearly 85,000 women who themselves decided to be in the groups,” he says. “And around 22 percent of these women have taken up some level of leadership role either in the group or outside of it. So there is certainly a changing dynamic, and that’s a positive thing.”

However, says Socheata Sou, Oxfam’s SfC Project Officer, SfC is not the whole answer. The performance of groups is entirely reliant on members realizing their ability to save. At one end of the spectrum, even the absolute poorest in rural communities are interested in saving. What is clear is that they can and do save if the opportunity is there for them – the chance for self-determination is hugely valued by them. But nonetheless thought needs to be given about how they respond to livelihood shocks beyond their means. At the other end of the spectrum, as group members become increasingly confident in their financial management skills, the more entrepreneurial amongst them seek loans that are beyond the group’s savings. These entrepreneurs are well placed to take up MFI services. And, she says, these challenges can be met.

For Socheata, the most important aspect of a group’s performance stems from the quality of the training services that its members get from the NGO. SfC has been refined to just seven training sessions but it is crucial that the trainers conduct all of them and that they conduct them well. “Sometimes trainers think they can introduce SfC using fewer trainings – and that’s not a smart move,” she says, explaining that groups with less training consistently perform worse. In other words, sustainability – a problem inherent to any group structure – can be a challenge for SfC, which is why training is so important. But, Socheata says, given good quality training, SfC groups can rival any development initiative in terms of sustainable outcomes.

After training is complete, groups are largely self-sufficient although NGOs generally continue to provide a low level of support and take the opportunity to monitor selected SfC groups so that the service can be continually refined and good ideas shared. Once a group has been established for six months or more, Socheata says, members seem comfortable in taking the initiative to invite other development opportunities that interest them.

Training the Trainers

Oxfam does not train villagers directly. Instead it relies on local partners by training staff from those NGOs interested in providing the service to the communities they work with. In Cambodia SfC is implemented by 14 partner NGOs and more are looking to sign up. The group interviewed for this article was established by Save Cambodia’s Wildlife (SCW), which later provided members with additional training on climate change adaptation and alternative livelihoods.

SfC fits all manner of development NGOs. Padek, for example, which has worked with the rural poor since 1986, recently completed its first year as an SfC partner. Padek started running village self-help groups in 1995, but they didn’t always work. Under the old savings model, says Executive Director Kep Kannaro, Padek injected $20 per member once the group had survived six months. But problems arose during times of drought or flooding leading to default rates of up to 15 percent, because “when people get money from organizations like Padek, our experience is that they don’t worry about repayment because they see this as Padek (“charity” or “free”) money”.

In 2012, Padek approached Oxfam to help set up SfC, making it the first local NGO in Cambodia to choose to pay for Oxfam’s technical support. Padek is now a leader in SfC with 10 staffers having helped 1,300 poor families in five provinces. They have now accumulated over $40,000 in savings. The goal is to reach 7,000 families by 2016.

Kannaro says SfC has proved significantly better than the former model: default rates are negligible and, he adds, SfC encourages people to rely on themselves for solutions rather than outsiders. Given that most members are women and that 70 percent of the groups’ leaders are women, he adds, SfC has also proven useful for women’s empowerment.

One of the things Padek’s trainers like to point out is how important it is for villagers to plan goals – they prove much more motivating than “saving for saving’s sake”. That reinforces the idea of villagers planning to control their own future. “So, is it for their children to go to school, or to buy a bicycle for their business?” he explains. “We encourage people to save as much as they can in the group, but we also encourage members to plan.”

An equally important advantage that SfC provides is to be a robust platform for other development opportunities that Padek brings to the community. Once established, groups are a great place to introduce learning on how to improve livelihoods. They are also valuable for sharing crucial information like health messages about bird flu or dengue that must reach many people in the village as quickly as possible.

Kannaro says: “We work with these groups because it really increases the effectiveness of our team when they have to deliver trainings or messages but also because groups are great for getting information back from the community. Even the quietest person can have a voice in an SfC group.”

Chan Theary, the Executive Director of RACHA (the Reproductive and Child Health Alliance), says SfC is proven as a development platform for the focus on mother-and-child health as well as in related areas such as HIV, water, sanitation and hygiene. RACHA started a five-year rollout of SfC in 2008; by 2013, its 14 SfC staff had established more than 1,800 groups with nearly 29,000 members across five provinces. Their savings have since surpassed $1.2m.

RACHA has observed that its members spent a far higher proportion of their loans on health-related items – 12 percent versus three percent elsewhere – and scored measurably better health metrics. It seems villagers are spending money on transportation to health clinics as well as user fees. “We promote a healthy community so it’s not a surprise that they use more for health. It’s very important that they can access capital to support their own health,” she says.

The improvement in health metrics is also because each savings group’s social fund is in part used to pay the fuel costs incurred by the Village Health Support Group members – who are trained by RACHA and who also belong to the savings groups – in attending regular training sessions at commune health clinics. In that way, the health workers improve their knowledge and share it with members who in turn share it with the whole village, creating a virtuous circle of mutual assistance that benefits everyone. “[As a result] the villagers access more information on topics like family planning, they increase [the number of] deliveries at health facilities, they have more access to antenatal care and [we see] increased vaccinations for children,” says Theary.

SfC has proven a perfect complement to RACHA’s work, she says, adding that the NGO wants to extend the programme to Myanmar and hopes to launch there in 2015. Looking ahead at the Cambodian programme, Theary would like to see more buy-in from national and local government to allow SfC to fulfil its potential. A greater emphasis on improving livelihoods would mean the poorest villagers would not need to migrate to find work.

Social Safety Nets

SfC brings another important benefit: savings groups typically set aside about one percent of their savings as a social fund. As Lund points out, “it is an example of a social safety net funded by the poor for the poor that really works - and it’s doubly important when you consider it’s often the smallest of shocks that can keep families from moving out of poverty or indeed send families spiralling back down.”

That link to social safety nets is of particular interest to HE Dr Sann Vathana, the Deputy Secretary-General of the government’s Council for Agricultural and Rural Development (CARD) and the Head of the Secretariat for its Social Protection Coordination Unit.

HE Dr Sann sees community-based savings groups as among the range of informal ways that people assist each other, although in Cambodia’s case the traditional foundations underpinning mutual help have eroded since the 1970s and 1980s civil war and onwards and also due to the sometimes iniquitous behaviour of current markets.

Given those drivers, and given the government’s efforts to boost social protections, he says, community-based savings groups “fit very well into the social protection policy of the government”.

“Those who can afford social protection will access it based on their formal contributions, and those who cannot will rely on the state [and community] for support until they develop such capacity over time,” he says.

A number of elements bridge the gap between those who can afford to pay and those who cannot, and one of those is community-based savings. Despite the potential benefits, he acknowledges that the still small scale and focus of community-savings groups can limit their usefulness. And, he adds, “[they] could be overwhelmed by major, repetitive and community-wide shocks and emergencies”.

HE Dr Sann would like to see savings-led microfinance groups considered within the government’s formal strategy, and says more work is needed to understand how groups succeed in differing circumstances of poverty across the country. It is this knowledge that will provide the best insight into how groups can be most effective.

Looking further forward, HE Dr Sann and NGO leaders are asking more questions about the potential of savings-led microfinance: given that the poor really are saving and lending for their own futures, are we doing enough to make sure their investments are succeeding? As groups get stronger, can they ultimately help to fund local risk mitigations such as insuring against crop failures, paying out in the event a breadwinner dies, or funding community-based health insurance schemes?

Connecting the Markets

The Cambodia Microfinance Association (CMA), an industry representation body, says there were 40 MFIs operating at the end of 2013, and that 1.56m people borrowed $1.35bn – making the average loan nearly $850. On the other side of the balance sheet, 900,000 depositors placed nearly $445m with the MFIs for an average deposit of $495.

But in this increasingly competitive market, few MFIs are able to absorb the transaction costs and risks incurred with the very small loans often needed by the poorest, and even fewer are able to offer them savings products. Lund argues that SfC has the potential to bridge this gap between the services currently provided by the market and those needed by the poorer customer base.

“We are seeing several ways in which this bridge is possible,” he says. “SfC group members are becoming increasingly financially literate and conscientious; the more entrepreneurial of them are graduating from SfC loans to MFI loan products; and they are accumulating savings beyond their immediate needs and are seeking new term-savings products.”

The socially oriented business model of AMK allows it to operate amongst the more pro-poor of Cambodia’s MFIs. AMK has an extensive reach, with its agents already linked to 12,000 villages.

Kea Borann, AMK’s Chief Executive Officer, is an advocate for savings plans.

“Success comes quicker when people change how they view the concept of savings,” he says. “Most people in savings groups currently save to lend for the short term – but they need to consider depositing money for long-term goals” – what he calls “savings for savings”. The example Borann likes to give: “If we could encourage people to save one dollar a month for their future needs, in 20 years when their first [child] goes to university then they have enough money [for that] – that’s where AMK can help.”

Borann even has in mind a pilot project in which SfC group members have the chance to look further ahead and save. But, he adds, it requires everyone acting: “The government also needs to play its part, not least by improving education about personal finance in schools. If we start teaching students that saving is important for their lives, then we can ask them to start making small savings for themselves.”

Moving Ahead

“In 2011, a formal assessment by the United Nations Development Programme (UNDP) rated the SLM as arguably the foremost project in Cambodia with the potential to go to scale and positively affect the Millennium Development Goals,” says Oxfam’s Brian Lund. “And with 100,000 members in Cambodia today, SfC has gone beyond being a project. It really is a new entrant bridging a critical gap in the market.”

Lund says now is the moment to push ahead. “We can see the demand is really there and it is growing fast. It’s one thing to consider that estimates put the number of rural households in Cambodia set to gain from SfC at a minimum of one million,” says Lund. “It’s another thing entirely to consider that as many as 250,000 young people are entering the job market every year and the majority of them are without strong income prospects or collateral, suggesting a good many of them would also stand to gain from SfC.”

“The challenge is there to respond to this market demand,” he adds, “but at the same time the challenge is there to respond to the critical questions posed by government, industry and community leaders so that SfC stays at the forefront of best practice.”

Even Small Starts Matter

Thirty-nine-year-old Chrob lives in one of humblest homes in the same village as the group president. Her home’s palm leaf walls, earthen floor and corrugated asbestos roof provide little protection in the worst weather. She belongs to the village’s second, smaller savings group, which has 19 members. Her husband, a fisherman, is away three weeks out of four, leaving her to care for their three children.

Chrob saves 5,000-15,000 riel a week ($1.25-$3.75) with the group, and has managed to accumulate 300,000 riel (around $75) to date. She has borrowed around half that amount from the group, and pays one percent a month in interest. The group proves particularly useful when Chrob needs money urgently.

“Before I never had any savings,” she says. “I used to borrow from relatives when the kids were sick. Now I don’t have to do that.”

Borrowing from an MFI, she explains, is out of the question.

“I’d be worried that I couldn’t repay them, and besides they charge a lot in interest,” she says. “Also I have no collateral.”

Each member of Chrob’s fund also pays in 200 riel ($0.05) a week to a social fund. That now has a balance of $50, money that is set aside to help the poorest in the village deal with shocks.

The savings group repays its members every two years. At the end of the first savings cycle in 2013, Chrob was paid out 800,000 riel ($200). With that money she purchased a young cow, which she hopes will one day produce calves. More recently she borrowed 100,000 riel from the group to buy a pig.

The next cycle ends in February 2015. By then, says Chrob, she should have saved one million riel.

“I’d like to use that money to improve my home,” she says. “I would spend it on building new walls.”