In a world where loan approval and online banking apps exist at the press of a fingerprint, it’s easy to forget that money isn’t easily accessible for everyone. Microfinance plays a crucial role in the developing world. It assists low-income entrepreneurs and small businesses in heavily populated cities and suburbs. However, formal financial institutions rarely reach rural areas, leaving people without loan options. Women's Worth launched a community savings program to address this need.
Here are three reasons why this practice makes the most sense for the women who work in Nicaragua and other rural areas.
Easy access: Regardless of how large or small a loan is, the cost to create a loan will remain the same. Like any business, banks want to make a profit with the least amount of effort in order to be time and cost effective. With this model in mind, microfinance is not the most viable in rural areas. It's too costly to service, a rural loan. A local savings program gives a tight-knit community the ability to create rules and payments that work for them with little need for travel or involvement of a formal banking institution.
Creates a culture of saving: Nicaragua does not have a savings culture. For that matter, neither does the US. Spending over saving is also common in countries like the United States where pay ratios tend to be higher. Making savings a community affair cultivates a culture of savings and creates social capital for rural villages.
A local program gives the community the ability to work, save and build a culture of saving that can be passed on to future generations.
Flexibility: Another benefit to this banking system is that the participants know each other, and can use empathy when making financial decisions for the group. For instance, if a member was to suffer the loss of a family member, or if it’s a lean month (crops are inhibited from growing due to the season, less rainfall, etc.), the community can choose to disperse funds to those in need and reset their program. By creating a savings program that is unique to the community, everyone can agree to work together and find a saving regiment that works for them.
Local savings programs can serve as a vehicle to improve the quality of life for business owners in rural areas. They provide a chance for communities to save together and work towards creating a better quality of life. Anyone who wants to pursue entrepreneurship should have the ability to do so regardless of where they live, and these programs are a way for that to become possible. You can learn more about what Women’s Worth is doing with savings programs specifically in Nicaragua here.