The HM Treasury estimated that in 2008, there were approximately two million adults, in 1.3 million households, that did not have a bank account. More than 80% of the population live in urban areas, so living off your crops is not a common lifestyle and the service sector is the main driving force of the economy.
As a result, living on cash, without possessing a card or access to credit becomes inevitably stressful, especially if you need to make a large payment, maybe for accommodation or education.
There are different reasons why some people may not own a bank account, but the main barrier comes down to a lack of collateral. In order to cover risk, banks demand that you have a full-time job or assets, such as a property or significant savings.
This may be a successful strategy in terms of risk management but it also implies that the banking system is not interested in financial inclusion. As Muhammad Yunus says; “The world’s basic banking principle seems to be ‘The more you have, the more you get and if you don’t have it, you don’t get it.’”
When the Caribbeans first emigrated to the UK in the 1950s (the Windrush), they were excluded from financial services and so they used a group saving scheme that was originally used by African slaves in Jamaica called pardna.
Pardna is what is commonly referred to as a rotating savings and credit association (ROSCA), where a group of people save the same amount of money monthly into a common ‘account’, so that every month one member of the group gets a lump sum of their communal savings.
For example, Somali women living in the UK use the same ROSCA system, but call it Hawa Group and what they do is to create a group of five, whereby each one puts in £100 a month and every 10 months one will receive £1,000 back.
It is interesting to note that this savings group scheme seems to be intercultural, since amongst Pakistani people it is called Kommittis and Hui or Wee Chen amongst the Chinese.
Savings groups vary in their levels of operation, from a family saving every month to use their money for Christmas presents, to others who become part of an association that uses agents collecting money and charging commission.
In addition, people find savings groups helpful for different reasons; as some have argued it is helpful to save money in a place where they know they cannot access it and others enjoy the scheme for quick access to cash, in cases of emergency without having to show proof of collateral, or to go through tiresome paper work.
The main advantages of the saving groups seem to boil down to the fact that it is simple, easy to use and that it is set up with people you know. The peer pressure amongst group members helps to ensure continued saving and the trust that already exists within these chosen members ends up functioning as a type of collateral.
In all, this encourages, whether you live in a developed or developing country. The savings group schemes work well in the UK because it is a community-led solution for those who do not have access to taditional banking and, not only protects the poor from expensive moneylenders, but also gives them a piggy bank that is bigger than a single one. Also, its its lid is as tightly closed as you want it to be.