Savings and loans, drawing lessons from some experiences in Asia

Abstract

This paper describes the role of community-managed savings and loan schemes in poverty reduction and how these are best supported by external agencies. It draws particularly on the last ten years work of the Thai government's Urban Community Development Office including how the 1997 financial crisis and the difficulties this brought to low-income savers was turned into an opportunity to rethink how to support savings groups. Community savings and loan schemes bring people together, helping them learn how to develop and manage their own resource base. They reduce individual vulnerability by providing an immediate lending facility the poor can access. They strengthen community processes so that other key issues can be addressed - for instance, developing plans for housing and negotiating with external agencies for land and infrastructure. If savings groups are supported to learn from each other (through community exchanges), networks develop, creating stronger, larger groupings of the urban poor with a greater capacity to negotiate with external agencies and develop a common fund. The possibilities for collaboration with government increases greatly as these networks demonstrate cheaper, more effective ways of addressing housing problems. Thus, community savings and loan schemes can reduce the poor's exclusion from formal political and financial systems by providing a bridge between these and the informal systems from which most of the poor draw their living. They can also become the means by which the urban poor obtain good quality, well-located, secure housing with basic services, without the need for large subsidies.