May 8, 2013
By Avril Perez
crossposted from ProSavings blog
By Xavier Martin and Avril Perez
The use of savings groups is not a recent practice. This model has been around for centuries and is currently frequent among societies lacking access to formal financial services. The benefit of participating in these groups is clear – if ten people each save $5 every month to purchase an item valued at $50, everyone will have to wait ten months to accumulate enough money to make such purchase. However, if these ten individuals gather up and form a savings group, most will be able to purchase the item prior to the ten month mark – one member will have access to $50 during the first month, another during the second month, and so on until the last member receives the money during the tenth month. The simplicity and immediate benefits offered by this model explain the popularity of these groups among low-income individuals and those living under extreme poverty.