Recent experiences demonstrate the significance of collective savings among low-income urban citizens in developing countries. Such practices have helped to raise incomes, consolidate and protect individual and collective assets, and reduce political exclusion. Some savings groups have evolved into substantive institutions. Not only can community savings initiatives trigger multiple reinforcing effects that help to move households out of poverty, they can also achieve changed relations with government agencies that support a more effective pro-poor and accountable state.
Local savings schemes can catalyse a more substantive process of pro-poor change as they connect together. Networks or federations of community schemes pool savings ‘upwards’ into city, regional and/or national funds. They also allocate loan capital ‘downwards’ from these funds and sometimes ‘across’ the network. Two significant umbrella organisations for networks and federations of the urban poor are Slum/Shack Dwellers International (SDI) and the Asian Coalition on Housing Rights (ACHR). These have built political movements on community savings capabilities. The activities and outcomes of these organisations and their affiliates include:
- Providing emergency credit: Most community savings groups allow members to access credit quickly and easily when confronted with an (often health- or employment-related) emergency.
- Supporting women: Many groups are women-only, and provide a supportive social space for low-income women, who may have few alternative forms of support and limited opportunities to build relations with those beyond their street or neighbourhood.
- Improving collective capacity: Informal savings groups provide the foundation for changing adverse external conditions and low-income households’ relations with state authorities. Members learn to negotiate with local government, undertake initiatives together, and generate and realise aspirations.
- Increasing knowledge: By setting up records, procedures and governance systems, and by managing their own funds, savings group members gain skills and confidence in handling cash and in interacting with each other.
- Increasing collective investment capacity: Savings group members can gradually develop their homes and settlements and negotiate public infrastructure and services, or negotiate for land on which to build homes at prices they can afford.
- Contributing to greater political inclusion: Capacity building contributes to substantive changes in relations between those living in informal settlements and local government. Also, federations have demonstrated their capacity to negotiate political inclusion by showing government what they are capable of and then offering to work in partnership.
- Poverty reduction: Community savings takes households beyond the simple accumulation of specific assets and strengthens their ability to use these assets strategically at the community level.
The expansion of such activities to meet the scale of the need requires financial capital well beyond the savings capacities of local groups, even when federated. Despite the success in negotiations with various levels of government, there has been relatively little interaction between community savings initiatives and formal commercial finance. The paper suggests that:
- Savings finance alone is unlikely to attract the formal banking system, but loan finance gives commercial banking services a chance to earn money, while providing community groups with the necessary mix of finance to undertake development activities.
- Urban Poor Funds are pools of financial assets that advance loans to organised collectives which have demonstrated, through their savings group practices, that they are ready for additional investment capital. Their emergence is a promising solution to the challenge of integrating external finance in ways that benefit the urban poor.
