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Rotational savings: opportunities for investment
Rotational savings clubs have long been a feature of the rural economy. They have been encouraged by NGOs, churches and government alike, and often linked to ‘women’s empowerment’ programmes. The highest density of such clubs is found in the communal area sites in our study areas. This is where the NGOs congregate and the state is more present. These are also areas where significant surpluses from agriculture are rare, and it is necessary to aggregate through savings for any form of investment.
There are a variety of forms of such clubs, but the basic principle is that a group of people come together and pool funds on a rotational basis, often with an initial subscription and then a regular monthly payment with each member receiving a payment after a few months. From our discussions across our sites, joining fees range from US$10 to US$50 and regular monthly contributions are between US$1 and US$10, sometimes allowing ‘in-kind’ investment of say goats that are managed as part of the pool. Cash contributions are always in US dollars (or Rands) largely as a hedge against inflation, as the local currency loses value so quickly these days with high inflation and devaluation. Variations on this typical format include burial societies to facilitate funeral and burial expenses, beef committees to allow for purchase of meat, as well as others.
The amounts generated can then be invested in a variety of projects, sometimes facilitated by external players, with horticulture, goat and chicken production projects being especially popular. As noted in an earlier blog, the Ministry of Women’s affairs is active in mentoring women’s groups not only to get access to loan finance, but also in the creation of savings groups.
Trust relations amongst members is crucial to allow continuity of payment and avoid pilfering of funds. This is why groups tend to be small – around 5-10 members – and often based on close family or neighbourhood connections, including links to church congregations. Sometimes children with jobs outside the area can be involved, channelling remittance income through such mechanisms.
Savings challenges in a volatile economy
Most such savings groups do not generate a huge amount of money, and so do not drive the sort of investments we have seen linked to remittances for example (see the last blog). Access to funds for women, who make up the majority of members, may come from gardening or other agricultural activities. Men are also involved these days, as they too see the value of managing money through savings as important, avoiding the dangers of frittering away agricultural income on regular expenditures without getting the opportunity to invest.
Most such projects deliver enough to buy a goat or two, some broilers or some basic irrigation equipment, but rarely are enough to deliver the bigger financing required for major investments, whether a tractor, some cattle or a full irrigation system. These must await a big harvest, which may happen only irregularly, or a project focused investment through remittances, as discussed in the last blog.
As all our informants noted, there are many challenges to such arrangements. Some drop out as the costs are too high, and monthly payments cannot be kept up due to other demands on income. Inflation devalues the savings pool, even as is always the case if the contributions are in US dollars. If someone waits six months for the payout, the value may have depreciated considerably as prices continue to rise, and it becomes impossible to realise the planned investment.
Case studies of savings clubs
Nevertheless, such savings systems are important within rural settings where small contributions can add up. The following cases highlight a variety of arrangements.
Case 1. Mrs N in Matobo explained how she started with a group of five, a mix of men and women, all local. She was doing it with her kids involved, so they could start establishing homes and build assets on the farm, such as cattle. They did two rounds, but it dissolved. “I want to do it again now to raise money for seeds for the coming rainy season”, but it’s difficult to mobilise people… It only works if people trust each other. They should be from the same family or totem.”
Case 2. Mrs S from Matobo explained how she got finance from the Women’s Bank to start a broiler project. Training was supported by the Ministry of Women’s Affairs, and she attended several courses on managing savings, business management for projects and so on. The project was supported by Our Beautiful Home project, a local NGO, and training on broiler farming was on the Cunningham farm nearby. There was a US$10 joining fee followed by a dollar a month. This she said was incredibly useful in getting going.
Case 3. Again in Matobo, Mrs H helped organise a savings club initially with 12 members in 2017. They started by focusing on goats with a US$50 joining fee, but many could not keep up the required payments and the group contracted. They decided that goats were too expensive and so switched to broilers where smaller amounts were needed. With the smaller group of four (all women), they have been able to establish viable broiler projects through the savings scheme, which really got going after COVID-19 when markets open up again. Initially they all purchased 50 chicks from the scheme, but now they have 200, 150 and two with 100. Now the scheme no longer functions as the savings system has served its purpose of providing the start-up funds for the project. Today each batch of 150 realises about $200 profit, from selling birds at $7 each, so it’s self-sustaining. She explains, “I have bought several goats from this project, along with a deep freezer, and I am planning to get solar panels and a battery, so I can sell frozen when prices are high like around Christmas”.
Case 4. In Chatsworth area in Gutu, around seven local teachers initiated a savings club. They also offer a loan option both to members and outsiders, who are charged higher interest rates. Since many teachers also farm to supplement their salaries, savings are invested in expanding horticultural operations. A group of four agricultural extension workers in the area have copied their system, although don’t offer loans as this is seen as too risky. They are linked to a local horticultural irrigators association and again invest in their farms, which are essential complements to their meagre government salaries. Investments have included building on a stand in Chatsworth, buying cattle, poultry investments and upgrading irrigation systems.
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Managing money through savings in a volatile economy with high inflation and parallel currencies is not easy, and the failures of many such groups is understandable. Trust is crucial amongst members, emphasising the social nature of managing money outside the formal system. Despite the small amounts involved and the fragility of many arrangements, such systems remain an important part of local agricultural economies. |
