Passing the buck?

Money literacy and alternatives to credit and savings schemes

Helen Pankhurst

Credit and savings schemes have much appeal for many different actors involved in development. They offer one of the few economic blueprints for tackling poverty. However, there is a growing consensus that their gains are highly exaggerated. They do not address structural issues such as intra-household relations of power and rights, or inequalities created at the global level, which have a detrimental impact on equitable development. These schemes are also unsustainable, seldom managing to cover costs and increase their capital base. If future credit and savings schemes are to be effective in poverty alleviation, they need to make stronger linkages between the macro- and microeconomies, and understand economic interventions as part of a wider programme of women's empowerment. This article draws on examples and lessons learned by Womankind Worldwide and its international partners, to illustrate these points.

The visibility of women in a particular development sector, and, even more unusually, the existence of some gendered rationale for increasing their involvement, makes a refreshing change in development practice. Women's economic poverty is highlighted by the oft-quoted statistic that women represent 70 per cent of the poor (UN 1995), and this is a common justification for targeting women in credit provision. However, there is another reason for women's greater visibility in credit and savings schemes: their involvement in income-generation is believed to be a more effective path to poverty alleviation in households and communities. Women are said to be more 'prudent' and 'trustworthy' in terms of repayment, and they are easier to find if they fail to repay their debt. The link between mothers' income and family welfare is also made – that is, the fact that women are more likely than men to prioritise spending income on the needs of their family.

A short critique of the pros and cons of credit and savings schemes follows, before I move on to discuss Womankind Worldwide's approach to women's poverty, and work which has been undertaken with Womankind's partners to achieve sustainable livelihoods for women in poverty, from micro- to macro-level.

A critique of credit and saving schemes: the pros and cons

With few other forms of alternative microeconomic initiatives on offer, credit and savings schemes are seen as a useful support for many poor people. It is argued that the key benefit is that they can provide a resource to people otherwise left out of the loop, who would have to resort to less favourable lending and savings possibilities; being forced, for example, to bear the very high rates of moneylenders, or having to put their savings under the bed. These schemes can allow people to pursue and protect their livelihoods, and repeat loans can be given, so that the schemes become part of a long-term support system that reduces vulnerability. Access to loans of increasing size provides the possibility of stepping up the economic ladder. Proponents of credit and savings argue that the schemes also avoid creating dependency; rather, they are premised on a business relationship, hence the focus on repayments with interest.

Credit and savings schemes are widely understood to be a springboard for other forms of individual and communal capacity-building: a means to a much greater end. Joining a credit and savings scheme may increase levels of self-esteem and self-worth for individuals, whilst the process of coming together in groups, developing a system of group management, and so on, can open doors leading to wider change and empowerment.

Credit schemes are assumed to be a form of economic development which is cost-effective, efficient, and relatively easy to administer. A group of clients can be inducted, trained, and monitored together. Group collateral, guarantors and group management systems can be adopted, and credit and savings operations can be consolidated into single accounts to maximise returns.

The combination of group structure and individual reward fits well with the predominant global neo-liberal economic ideology and the importance attached to community initiatives and active civil society. Credit schemes therefore offer the best of both worlds, seeming to meet both financial backers' and development practitioners' ideological and financial interests: ideological interests because of long term development goals, and financial interests in the sense that a single injection of capital – if managed 'properly' – can be seen to continue working by rotating indefinitely. This kind of development work is therefore seen to be good value for money.

The arguments against

Credit and savings schemes currently play a very visible role in poverty reduction strategies in the developing world. However, critics maintain that all they amount to is a banking service. Credit and savings schemes, when offered on their own, ignore the structural roots that make poverty stick. They do not tackle the underlying causes of poverty and vulnerability. Instead they assume that individuals can escape, by 'pulling themselves up by their bootstraps'.

Credit schemes only offer an advance on earnings. The money is not a grant, but a loan which carries risks. Basic economic theory highlights the fact that a desire to avert and minimise risk is a key element of human behaviour. Despite the clear association between poverty and particular reluctance to be exposed to risk, credit schemes are being heralded worldwide as a method of poverty alleviation.

Ensuring the sustainability of credit and savings schemes is often a goal as elusive as poverty reduction. Torn between the goals of organisational financial sustainability and poverty reduction, compromises are often made. In true capitalist spirit, the direct economic activity for which credit is given tends to be decided upon by individuals who are motivated to work in private endeavours. Schemes supporting joint income-generation activities are the exception rather than the rule. In a model of working within groups for individual financial gain, the issue of inter-household relations of power and...