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 rights are rarely addressed. The way that these individuals and groups relate to other socio-economic structures, particularly to the household and to other kinship structures, is ignored. Yet it is these other structures that centrally affect people's access to key resources such as land, labour and capital. The real costs of this form of economic support include the stresses and strains of maintaining group cohesion and the issue of people, often the most vulnerable, dropping out. Problems within groups and issues of exclusion from them are rarely brought to the fore in assessments about credit and savings schemes.

In practice, few credit and savings schemes manage to cover costs and accumulate capital. However, most measure their success primarily in these terms – as if there are no other valid measurements of success, and despite the fact that the financial sustainability measure is rarely applied with such rigour to many other forms of development assistance. NGOs, bilateral agencies and governments have, in my view, focused on the issue of financial sustainability in ways that respond first and foremost to their own financial constraints. The gains of such schemes are invariably romanticised, and there is a silence around the costs.

Although women are increasingly targeted in credit and savings schemes and the language used is sometimes that of empowerment, the rationale behind the interest in women's involvement is problematic. By increasing the burden on women, and making them responsible for repayment, such schemes use women as instruments to achieve efficiency and sustainability, while actually exacerbating their poverty and vulnerability. Promoting women's involvement is rarely seen in terms of promoting their economic rights and the schemes fail to engage with the root causes of women's subordination. At different points in their life, women's rights to property are subsumed by those of their husbands, fathers, or sons. Likewise, options open to them in terms of choice of economic activity are often narrowed down by traditional perceptions of the sexual division of labour. Credit schemes that fail to look into these realities fail to address the need for a more fundamental change in ownership rights in society.

NGOs and women's organisations involved in credit and saving schemes often become involved in a policing role associated with repayment. The bulk of the effort of such organisations turns to issues of ensuring high repayment rates, and the difficulties of making the scheme work profitably. The reasons for women encountering problems with repayments – that is, constraints to individual women brought about by culture, tradition, laws, and much else besides – can cease to be the central concern.

At the level of service delivery, there is a lack of co-ordination which almost amounts to a culture of individualism between various micro-credit schemes (whether NGO- or government-led). The result is confusion for potential users of the services, with different rules and regulations to consider, patchy coverage (some communities, or groups within them offered a range of options, and others none at all) and people being able to play one scheme off against the other.

Issues of limited markets, and saturation of markets are a key constraint for almost all schemes. Poor women are likely to have a narrow choice of economic activities because of lack of resources, their existing reproductive and social roles, and cultural prohibitions on women doing particular kinds of work. The markets for activities that are open to them tend to get saturated, and profit margins are driven down. Unless these issues are addressed and market analyses made to identify new options, more money borrowed by groups of women in the same areas can yield limited benefits.

Credit schemes operate at the microeconomic level without giving attention to the macro-level reasons for poverty and inequality, and the ultimate goal of removing the need for such schemes. Work at the micro-level must be undertaken with a full realisation that action for change to national and international policies is required. Many service delivery-oriented NGOs do not engage in dialogue with policy-makers, and rarely consider economic issues within the wider context of the community as a whole. The contradictions between micro- and macro-level policies are thus ignored, and the potential to change macro-policy lost.

To sum up, although saving and credit schemes provide banking services that can be useful to millions of poor people, they do not engage centrally with the reality of poor people's experiences of making money. Questions remain; for instance, in whose interest are these schemes? Are development organisations 'passing the buck'? A poverty-eradication strategy related to people's struggles and needs requires a more holistic approach, based on a more grounded overview of the constraints that people face.

Women's poverty and the 'literacy' approach

Womankind Worldwide is a UK-based international women's rights and development organisation which, together with its local partner organisations, has been grappling with many of the issues outlined above. Our approach to the issues of women's rights has evolved over the 13 years of Womankind's existence, taking into account lessons learned in the process. Two key strategies that have emerged are the concept of the 'four literacies', and the concept of the 'four tiers of activism'. Both of these shift the attention away from the resource provided to an individual or group – for example, provision of credit – to focus on a holistic and integrated approach through which people can gain knowledge and information, and hence power.

The conceptual framework of the 'four literacies' can be summarised as follows:

Each 'literacy' represents one component of women's rights. Work with partner organisations and with women themselves aims to overcome barriers to women attaining the literacies. The fact that the framework recognises the existence of linkages between the literacies means it provides an integrated approach to women's empowerment, which links development to social and political change. Although this article is most immediately concerned with money literacy, the issues it raises are also connected in various ways to the other literacies.

Womankind places its efforts on four levels: awareness-raising; individual- and community-level support; capacity-building of local organisations; and policy work. We have found that the most effective work relies on interventions at all levels, creating a momentum which can lead to real change. Womankind and its partners aim to look at women's position, addressing the interconnectedness of constraints. We aim to bring NGOs together, supporting and valuing the direct work they do with particular communities, but also looking for opportunities for 'peer learning' with other organisations, in the form of joint awareness-raising, lobbying, or policy work.

Our vision of peer-level learning is summarised in Figure 1. Starting from the bottom of the diagram, the four tiers of activism include in practice:

• Facilitating joint awareness-raising events (for example, demonstrations) or materials (for example, posters)

• Providing services and supporting capacity-building of individuals, and community-based groups

• Facilitating exchange visits for community members

• Supporting individual NGOs

• Forging programme links between a group of NGOs (joint funding, joint training)

• Forging links between bodies at macro-level, for example, NGO and government policy-makers

• Using individuals' stories to raise awareness and advocate for policy change (in person, and via briefing papers), and looking at ways in which existing policies can be made more useful to individuals.

Using the four literacies approach

Training in money literacy

As with most other credit and savings schemes, the ones administered by Womankind's partners tend to include training and explanations about the conditions before loans are provided, usually through a group-lending scheme. One element of the training is around basic procedures, including how much can be borrowed for what, at what interest rates, repayment schedules, grace periods, and penalty costs. Another conventional element of the training for group-lending schemes is a focus on group dynamics and issues of transparency and accountability.

Womankind and its partners are giving attention to improving these two forms of training, as well as exploring and addressing additional issues which we feel constrain women's ability to access funds effectively.

The idea is to go beyond training NGO staff and community in the rules of credit and savings delivery, by providing information as to what is needed to make the money yield a safer profit, which women can control. Women themselves are encouraged to express what they think they need to arrive at these goals. Sometimes women express a desire to be given some basic maths skills. Others request basic banking and economic training, including knowledge of notes, coins, banking procedures and options, inflation, and so on. These are often issues women want to understand better. This training is based on experiential learning – that is, learning by doing, and based on people's own experiences rather than learning through formal standardised courses. As appropriate, the training moves on to focus on more complex areas of economics, finance, business, marketing and entrepreneurship. The aim is to expand women's understanding of the transactions they are involved in and their choices and their constraints, so as to maximise the chances of their being able to succeed in the economic exchanges undertaken to make a livelihood.

Once again, we have had mixed results in practice. However, the main lessons learned about these training sessions were concerned with over-ambitious agendas and poor follow-up.