When they first started saving their money, the 20 members of Tushirikiane Savings Group never imagined they would one day be operating a successful restaurant inside of a refugee camp. However, after only three months of actively participating in the savings group, these Burundian refugees were able to make a huge stride towards economic self-reliance by opening their own restaurant.
Kigoma, in Western Tanzania, is one of the poorest regions in the country. It also hosts nearly all of the country’s 300,000+ refugees who have fled civil conflict in Burundi and Congo over the past 25 years. Refugees in Tanzania face challenges in becoming economically empowered due to the country’s restrictive policies—The country’s encampment policy prevents refugees from leaving the camps or seeking formal employment. As such, most refugees engage either in small income-generating activities within the camps or in incentive work for NGOs, where remunerations and entitlements are significantly reduced.
Given the many constraints, refugees must take baby steps to move towards economic resilience. Savings groups are a key tool to facilitate savings in the refugee context, where formal financial inclusion is often not an option.
What are savings groups?
In the literature on improving access to finance, a variety of acronyms crop up: VSLA, ROSCA, SILC, VICOBA, ISM – all of these are versions of savings groups. Despite their differing methodologies, several commonalities emerge among all savings groups. Savings groups are community-managed groups, typically comprised of 15 – 25 people who get together regularly to save and eventually borrow small amounts of money to build their business or make investments in their homes and futures (e.g. paying children’s school fees).
The activities of savings groups generally run in “cycles” of about one year, after which accumulated savings and profits are shared out among the members according to the amount they have put in. Throughout each cycle, group members “buy shares” i.e contribute their savings and have the opportunity to take out a portion of the pooled funds as a loan, which can then be used as capital for businesses, or to cover education, medical, or a number of other expenses. At the end of every cycle, all outstanding loans are recovered and the collections or loan fund is shared out. The loan fund and the interest accrued is redistributed to the members according to the total number of shares purchased by each member during the cycle.
Savings groups are member-managed; members create their own constitution, bylaws and select leaders. All savings group transactions are performed at the meeting in front of all the members. To ensure that transactions do not take place outside the savings group, funds collected and the passbook are locked in a cashbox.
Savings groups are powerful. They have proven to be one of the most effective mechanisms to provide basic financial services to the poor, particularly in rural areas or refugees camps. They are sustainable and profitable. Savings groups help to foster a culture of saving which is otherwise deemed to be out of reach for people whose poverty makes them ineligible for traditional banking.
Savings groups mobilize refugees’ resources, create support networks, and empower members to better plan and manage their financial lives. Improving access to capital while participating in a network of like-minded women with similar goals makes refugees less vulnerable as they start small businesses, grow these businesses, and manage their money more efficiently. This, in turn, improves their economic situation, and helps them become more self-reliant and resilient, allowing them to cover unexpected costs like medical or funeral expenses.
In the camps, many refugees have already received the necessary business and entrepreneurial skills trainings, but lack the seed capital to pursue their business ideas. At the same time, the establishment and increasing prominence of the Tanzanian camps’ common markets has incentivized many refugees to join savings groups so that they can begin raising capital to start their businesses.
How does UNCDF work with savings groups?
With the help of Good Neighbors Tanzania, beginning in October 2017, UNCDF began to implement a savings group program in Nyarugusu refugee camp. Since October, more than 60 groups with over 1,200 total members have been formed. As a result, more refugees than ever are economically empowered, be it through small business ownership, or simply because members are now better equipped to face shocks (such as health issues) due to increased savings.
One of UNCDF’s groups, Tushirikiane, is a prime example of the tangible benefits of savings group formation in a refugee setting. After they identified demand in their community, the group’s 14 women and 6 men accumulated savings and opened their restaurant only three months after they established their savings group. To date, the restaurant continues to operate successfully, consistently earning profit and improving the lives of each member. The restaurant even caters to the camp’s NGOs. Agencies bring orders when they have trainings or other events which need catering services in the camp. Rehema, one of the restaurant operators, attributes this success to the lessons learned during her savings group meetings, “our savings group taught us how to create a budget so that we could run a business. We had the passion, but now we have the knowledge and the money to make a successful business.”
Savings groups have the potential to foster economic resilience among refugee communities in a way that other mechanisms cannot. In tough regulatory environments with stringent refugee policies, incorporating savings groups into livelihoods programming teaches refugees good money management practices and allows refugees to save what little they have and eventually take loans—putting them in a better position to manage shocks and invest in their future. Improved savings and investment among refugees also stimulates regional economic activity. Including savings groups as a livelihoods tool can improve relations between refugees and host communities, while improving the wellbeing of all involved.
UNCDF in Tanzania
In Tanzania, UNCDF's Financial Inclusion Practice Area (FIPA) team works to advance access to finance, strengthen savings, and improve financial capability in the Kigoma Region. Our target groups are small farmers, refugees and surrounding host communities, and our focus is women and youth.