Interview with Hugh Allen

Again, Sierra Leone in 1987.
What strikes me now (because I am a slow learner) is how much the VSLA model has evolved back to adopt a lot of the standard traditional practices I saw at that time. So much of what was done by INGOs to hopefully improve traditional practice (particularly record-keeping) was, initially, over complicated and derived from conventional accounting methods, best suited to corporations than SGs. Slowly, VSLA programmes have shrugged off a lot that’s just not relevant, and taught me to make fewer assumptions about the ‘proper’ way of doing things 1. Perhaps most important personally, it has taught me the power and essential humanity of community-based action and its capacity to transform livelihoods and social position.

1. An example is how interest is charged. Declining balance interest is usually deemed to be fairer(although it can be done in many different ways), but flat interest to be less fair. The tradeoff, however, iscomplexity, with declining balance methods leading to challenging calculations (I have seen Tanzaniashilling results calculated to 3 decimal places!) Personally, I go further these days and advocate for up-front interest as a one-time sum added to the principal sum and subject then only to repaymentsubtractions – with far fewer errors. The point here is that decisions on the way to charge interest areoften doctrinal, instead of what keeps things simple. No matter what system is used, in essence, theborrower is being made an offer: This is what you are borrowing, and this is what it will cost – do we havea deal? This is the basis on which the most sophisticated of us take loans: the rest is theological, ánd indealing with SGs keeping it simple should be the over-riding priority, even if it offends our professionalstock-in-trade.

Coming back years later and seeing things still working cooperatively, without outside support

The most important thing is investment in high standard, regular supervision of field staff who, in turn become accountable and thereby motivated. Equally, stressing group quality rather than very low cost and creating large numbers of SGs leads to spontaneous replication (which improves efficiency and cost-effectiveness).To do this programmes need to not only track performance to satisfy donor reporting requirements, but to regularly analyse operational data in order to better manage field staff and to improve the effectiveness of their work. Most programmes that use the SAVIX MIS tend, however, to see it primarily as a reporting tool, rather than an instrument of quality control.

Post project performance and spontaneous replication. There is incontrovertible evidence that if a programme is well designed, after 2-3 years, for every ‘foundation’ group there will be an additional two groups that have emerged spontaneously. Very few practitioner organizations see this as an opportunity to work at much larger scale at lower cost, or realize that a heavy investment in the creation of foundation groups pays off as the methodology spreads virally. Greater donor awareness of this would be welcome. Projects tend not to follow-up group performance long-term, even with a stratified sample. It seems that if the donors don’t ask for it, it doesn’t happen, but a lot of useful learning is lost

Apart from initial download and Google backup, there is no internet dependency at all, and the app can be transferred by Bluetooth as an apk file. The plan is for the app to spread through a variety of self-defined channels (i.e. Bluetooth) and for feedback to identify useful additional functionalities

I haven’t personally been in the field with the app, except with CRS in Kenya, although it has been also tested by CRS in Isiolo What I learned was how far off the mark we originally were in terms of making the app compatible with meeting procedures and using clear vocabulary. We have also subsequently learned that the app is better suited to more technologically literate groups (not a surprise).

1. Prioritizing group quality above group numbers as a foundation for spontaneous replication.
2. Ensure regular supervision and evaluation of trainers and supervisors, working with manageable caseloads
3. Define success as groups becoming fully autonomous, and incentivize staff toward that goal

Yes. At a Boulder training, a Kenyan director of a large MFI told me he was part of two SGs: one was an informal group for small family expenses, and another a serious investment SG of 12 people financing a Nairobi real estate portfolio worth over $1 million. He said it was more efficient than dealing with banks—even his own. He estimated that about half of middle-class urban Kenyans belong to similar investment groups, far more than those who are MFI clients. The lesson: savings groups thrive at every economic level, often under the radar.

Knowing when it is time to move on and let users and markets find a working balance. SGs will exist to the extent they provide accessible, safe, flexible financial services and a competitive shareholder return. They are, however, more at risk of theft so when digitization is more secure and offers a real shareholder return - plus flexible repayment systems - this may confer a decisive advantage.

Greater emphasis on creating self-managed federations, rather than linking groups to regulated financial institutions. Federations keep capital in local communities, align better with member interests, and offer higher returns on deposits. Unlike MFIs, their focus is not on extracting maximum value for external shareholders, but on serving their own SG members. It is these principles that drive Credit Unions worldwide 2

2. More than 33% of adults in the USA bank with Credit Unions, for much the same reasons that SGs are attractive to their members

I believe that the idea of a natural unexploited relationship opportunity between formal MFIs/banks and SGs may be questioned, for 2 reasons.

1. MFIs and banks make their money by issuing debt. Debt is a high-demand product for the growth oriented (SME) entrepreneur who has a visible level of fixed assets, good technical skills, has learned to manage risk, has reliable sources of income, and probably has a stable business in place, which needs significant investment debt to be, lower cost and long-term. An important factor is that such businesses tend to maximise reinvestment and minimise drawings. In contrast, most SG members, if they run enterprises at all, tend to be risk averse, and prioritise savings, running businesses that are intermittent, with very few fixed assets, low levels of technology and low skill levels. Such IGA owners tend to minimize reinvestment and maximise drawings. Thus, growth-oriented businesses that prioritize debt finance are well served by MFIs and banks, while SGs are ideally configured to meet the asset protection and household cash-flow support that meets the needs of the most vulnerable, and does so at very little risk. I think that trying to get SGs to adequately satisfy the needs of both client types is unlikely to be broadly successful.
2. This is not to say that MFIs and banks don’t have a role to play, but one that is safest (at this time) in securing excess SG liquidity while providing debt finance to the more entrepreneurial SG member as an individual client. Trying to forge a relationship between an MFI and an SG is difficult, if only because the relationship is competitive rather than compatible, and an MFIs need for detailed KYC with fixed loan repayment conditions can easily become punitive. Relationships between MFIs and an individual SG member eliminates the existential risk to the SG, which can, if trusted, provide supporting evidence of borrower creditworthiness. It also doesn’t call on the SG to make substantial changes to practice in order to handle larger, longer-term loan transactions and to offer multiple credit products. To the extent that Banks and MFIs create attractive products that allow for a win-win relationship, the driving force needs to come from the financial institution that is both committed to poverty lending and sees a genuine market opportunity

The Savings Led Financial Services Working Group was instrumental in reaching consensus about evolving best practice among all practitioner organisations and bringing the nature and dynamism of SGS to industry attention. It was also the forum in which performance metrics were defined, resulting in broad adoption of the SAVIX and was highly collaborative. I think the biggest future opportunities for collaboration lie in maintaining and refining performance norms and studying and reporting on innovations related to the work of the DSG Hub on digital technology and practitioner (Plan and Oxfam) experience on creating federations. Above all, any new forum should balance enthusiasm for innovation with advocacy for efficient, large-scale programs.

Borrowing is debt and increases risk. Savings reduces risk. My wife is very clear about this.

Walking on mountains. Preferably with my dog. And manufacturing vegetable oil presses in my basement workshop