South Africans want to save, they just need the right products

National Savings Month is drawing to a close, having once again highlighted the indebtedness of South African society despite the introduction of various pro-savings initiatives, writes SaveAct executive director Anton Krone.

Of particular concern are reported statistics from Old Mutual which point to an increasing reliance on credit, illustrated by a 214% increase in consumers aged between 21 and 25 applying for debt review between 2014 and 2015.

Financial literacy, particularly among our future generations, is now urgent.

Since its founding in 2005, KwaZulu-Natal-based NGO SaveAct has accumulated nearly 52,000 members in more than 2,500 savings groups across five provinces.

The average age of members is 46 years, but interest among the youth is growing and some groups are made up entirely of young people seeking to take greater control over their personal finances.

Each individual member and group is supported not only to save and grow their money at interest rates well above standard bank rates — and frequently in excess of 30% — but they receive financial education as an embedded part of the SaveAct model.

Collectively members mobilise about R230m a year to meet basic needs, improve homes and invest in their livelihoods. This indicates a high demand for innovative ways of saving in SA.

Ours is a unique model, adapted to the South African context and loosely based on the stokvel system.

Beyond savings and credit groups and financial education, the model offers savings group members with an interest in starting their own small businesses the chance to undertake enterprise training.

At this stage training is largely focused on agricultural activities and is conducted through a specially designed SaveAct programme, which is run in partnership with a range of industry experts including Potatoes SA, Grain SA, the KZN Poultry Institute, the Institute of Natural Resources and another local NGO, Siyavuna.

Uptake of SaveAct services, particularly in the Eastern Cape and KwaZulu-Natal, is high — and in some cases higher than the organisation can support. This highlights the lack of income-generation alternatives available to rural communities seeking a constructive and sustainable path out of poverty.

Research done by FinMark Trust shows 60% of members are involved in enterprise activity, while 11% have started new enterprises using the money accumulated through their savings group. Over the past year, SaveAct has established 33 groups geared towards enterprise development across focus areas which include poultry (broilers and layers), sheep, maize, potatoes, and organic vegetables.

The enterprise development methodology closely follows SaveAct’s cyclical savings and credit group schedule, following a 12-month cycle during which groups hold 10 formal meetings. Group members — on average 15 — attend two preliminary meetings during which they are guided through the process of formally establishing and managing their groups.

Members are taken through three business education modules aimed at teaching the foundations for running a business enterprise. There are also elective modules specifically geared towards the group’s chosen focus area. An elective module addressing the important issue of bulk buying is also offered. Thus, members obtain business enterprise expertise as well as specific expertise related to the practice of farming. They also receive support from dedicated enterprise development officers.

With its emphasis on financial education and enterprise development, SaveAct is helping to shift the fortunes of young people in SA. The high levels of women’s participation in savings groups ensures that there is high uptake of women in enterprise training and participation in enterprise groups, where members work together to advance their smallholder farming interests. This includes saving for bulk buying, and learning and sharing around improved production methods.

Over the years SaveAct staff have observed a predictable pattern in the way in which its group members move over the course of one to two years from tentative savings and borrowing towards fully-fledged independent enterprise activities.

According to SaveAct KZN programme co-ordinator Sazile Mtshali, members generally start with home improvements, borrowing money from the group to buy building blocks, cement and roofing materials for their homes. Thereafter, as confidence builds and basic needs are met, they progress to borrowing to fund tertiary education for their older children and school uniforms for their younger offspring. At this point borrowings are also used to purchase “luxury” household items such as fridges and stoves.

“Thereafter, there is more emphasis on food security and money is spent on inputs for food gardens and crop production, after which interest is shown in enterprise training,” says Mtshali. Other benefits, such as improved sense of confidence, wellbeing and empowerment, are less tangible but no less important.

Greater financial security and progress to improve rural incomes are end goals of SaveAct’s work. The savings group methodology has been advanced to a point where people are able to overcome financial obstacles such as debt and threats to livelihood security by using their own and collective resources.

This emphasis on independence and sustainability is what makes the model remarkable. Our work has shown that involvement in savings groups reduces dependence on loan sharks and builds financial capabilities among individuals and communities.

While government grants fill a substantial poverty gap among vulnerable groups in South Africa, social grants on their own are simply insufficient to lift people out of a relentless cycle of poverty which perpetuates subsistence rather than development.

With high unemployment rates continuing to be a feature of our economic landscape, the need for greater self-sufficiency — particularly among younger South Africans — is obvious.

Given the demand for SaveAct services, we believe there is scope in SA for 2-million to 3-million savings group members sourced from among the country’s estimated 20-million rural poor.

By drawing them into a network of savings groups, with access to financial education and opportunities for enterprise training and support, they are better able to resist the vicissitudes of poverty, and chart their own futures.

This article first appeared on BDLive on 30 July 2016.

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