Profit-Generating Entities or Cash-Management Vehicles? Unpacking the Financial Performance of Savings Groups Worldwide

Savings Groups (SGs) are informal community-based entities that act as grassroots financial cooperatives. They provide financial services to their members over an agreed-upon time period, commonly referred to as a ‘cycle'. During this cycle, saving and borrowing transactions take place during regular member meetings. Using new data on SGs worldwide, we conceptualize and quantify SG performance at the group level. Starting from the financial economics of the SG model, we introduce the savings capacity, profit-generating capacity, and borrowing conditions as complementary performance dimensions. We study these dimensions both across and within cycles to capture the financial efficiency of SGs. Our findings suggest that while SGs strengthen savings capacity over time, they primarily act as short-term cash-management vehicles. Groups prefer easy and affordable loans for emergencies over profit generation via micro-lending. The profit-generating capacity is curtailed by two major implementation restrictions, namely, loan-tying and unproductive periods at the beginning and end of the cycle. Based on our statistics, we formulate recommendations related to the cycle setup and lending policies.