“A shilling saved is a shilling earned”
It’s hard to believe that this is my second holiday season living in Kenya. Last year I vacationed at the coast and, in the absence of mass marketing, it didn’t really feel like the holidays. I was running errands in town yesterday and did see some Christmas decorations but there is no seasonal shopping frenzy here. This year I’ll be experiencing a simple Christmas in the village and, with a church right next door, it’s sure to be a cultural emersion. Still, I’ll be with you in spirit, envisioning you enjoying your holiday traditions.
The last 18 months have been enlightening and given me a whole new perspective on how I want to live going forward. 1 year of unemployment + two years living in the developing world = lots of time to reflect on conspicuous consumption and the choices I will make in the next chapter of my life. Whether or not my Peace Corps experience will dramatically and/or permanently change my lifestyle remains to be seen but I already sense a shift in my priorities and vision for the future. Shopping has sort of been a sport/hobby for me in the past. and, while I can’t say I’m not not going to want things anymore (okay, I want an iPad so bad, it hurts), I envision being more of a minimalist. It’s not my intention to place a value judgment on the American way of life; it is not intrinsically good or bad. It is that way of life, after all, that often drives achievement AND it is satisfying the desire for goods and services that catalyzes economic growth. American children are raised in an environment where they understand that while money can’t buy happiness, it can buy a pair of Nikes, a ski vacation, a bicycle or an XBox. They also experience the reality that, as the Rolling Stones pointed out, “you can’t always get what you want but if you try sometimes, you just might find, you get what you need”. We were raised in a culture where we crave things and experiences that are very rarely free and where that line between want and need, can easily become blurred.
Financial literacy and planning is something that we tend to take for granted and it is a focus area for capacity building in Kenya. With a population of 40M, approximately 60% live on less than $1 a day. In an ideal world, a couple would size their family according to how many children they can afford to feed, cloth, house and educate. Unfortunately, family planning and financial planning are both rare, particularly in the rural areas. Children’s school fees typically absorb much of a household income and the concept of discretionary income is a foreign one. The idea that it is wise to routinely put aside some money each week in anticipation that some unexpected need may arise is a difficult one to convey. The benefits of saving have to be demonstrated and it has to be practiced regularly in order for it to become a habit.
In America, we give our little ones a small weekly allowance to introduce them to the concept of currency. A little later, they’re expected to earn their allowance by being responsible for simple household chores. The piggy bank teaches them that by delaying gratification and saving money, even a little bit at a time, they can accumulate enough to spend on sweets or a coveted toy later on. In school they’re tasked with selling wrapping paper or candy to raise money for a cause. Participating in a walkathon and securing sponsors teaches them that volunteerism and charitable giving can be rewarding. In their early teens they are encouraged to earn money to spend as they choose by delivering newspapers, babysitting etc. and deposit some of those earnings in their own bank account. American kids grow up playing the game of LIFE where pat of play is to choose a path, see the impact that education has on available job opportunities and how those jobs translate into salary which determines what kind of house you can afford. It also illustrates the financial impact that the number of children they have has on the family budget. The game of Monopoly doesn’t necessarily spawn real estate moguls but it does emphasize that personal finances are affected both by conscious choices and by chance. Going off to college is often when a young adult has the opportunity to learn how to budget for food and entertainment. It may also be when they first experience writing checks and using a credit card. When they get their first job they will likely assume responsibility for paying their own bills. Hopefully, they have the benefit of enrolling in a retirement plan where savings are automatically deducted from their salary. By the time they are independent, they have established an attitude about money that is likely to influence their financial decisions for many years to come.
The Village Savings & Loan Association (VSLA) structure has had a proven track record of success throughout Africa for many years. It is a community-based approach that has the power to turn the act of saving money into a matter of routine. It provides an alternative means for building personal savings to those who, for a variety of reasons, may be resistant to traditional banking. Some do not trust large institutions or have transportation challenges or cannot afford to pay account maintenance/transaction fees or may not meet the qualifications for receiving small loans. It incorporates procedures to ensure transparency, which significantly reduces the likelihood of corruption. It also places the responsibility for governance with the group’s members who tailor the constitution to meet their needs and elect the officials presiding over their meetings. Members are expected to make a weekly deposit of 1 ro 5 “shares” (share price is typically 50 -100Ksh). A member can request a loan for up to three times the value of the shares they have in their account. They pay interest (usually around 10%) monthly until the loan is repaid which must be done within three months. While savings do not earn interest, at the end of each cycle (9-12 months is recommended) the loan fund is liquidated and members are paid out for their shares which have increased in value due to interest accrued. Afterward, a new cycle begins.
Tujijenge is a huge CBO of 240 members spread across three counties (see October post). On average, about 80 people attend the monthly meetings. At the last monthly meeting I did a presentation to educate everyone about VSLAs. I extracted key points from the official VSLA Program Guide that encourages the formation of groups of 10-25 members who know and trust each other and are committed to following the process. I described the VSLA kit that includes all of the supplies needed for administration and explained that the group’s members will share the 11,000Ksh cost. We had a Q&A session to address any concerns raised, the biggest one of which was theft. 43 Tujijenge members added their names to the signup sheet and 37 of them already have a history of saving. Isaiah (Tujijenge’s Secretary) and I identified 4 regional groups to start. We will begin with a group of 12 and a 4-6 weeks later roll out a second group of 18. In the meantime, we will recruit additional members for the remaining 2 groups which each have only 6 members signed up.
It usually takes a few weeks to get the VSLA ready for launch. In the kickoff meeting Isaiah and I will I’ll be reviewing the VSLA concept, going through the constitution template, discussing the purchase of the VSLA kit, choosing a location and day for weekly meetings, discussing the election of VSLA officials and describing how the meetings will be conducted. The group will customize the constitution to define the share price, minimum and maximum number of shares to be deposited each week, fines for various transgressions (i.e. unplanned absence, tardiness, talking during the meeting), interest rates on loans and whether or not members will make a weekly contribution to a social fund for emergency grant requests. Isaiah and I will actively facilitate the meetings until the group members have internalized the processes and are able to operate autonomously.
I have high hopes that this system will enable us to get these VSLA groups implemented and self-sufficient quickly and that it will have a significant, positive impact on the financial outlook of its participants. I will report on progress in the Comments of this post so, if you want to be alerted when I add an update, please add a Comment now and check the box that says “follow this post”.
Update July 29, 2013: As I prepare to depart Kenya, I am pleased to report the accomplishments of the three most active VSLAs launched during my service. All together 92 members have, so far, saved 145,100ksh, collected 23,055ksh of accrued interest on loans and contributed 12,860ksh to a social fund! In addition, each of the group raised 11,500ksh to pay for the VSLA kit. Two additional groups have received their VSLA kits and are preparing to launch. Please join me in applauding them for their commitment to financial independence.