2009 - FSD Kenya

Box 2: Group Savings and Loans associations (GSLs)
FSD KENYA 2009 ANNUAL REPORT • 19
Group savings and loans associations (GSLs) are a simple financial
intermediation model where members of a group (usually between 10 and
30) contribute an agreed set amount of savings or a multiple thereof during
at regular meetings which are held weekly, fortnightly or monthly. Loans are
provided to members out of these funds, at an interest rate agreed by the group
(often surprisingly high to some external observers reflecting the high value of
liquidity in many low income communities). The members’ passbooks are the
core form of documentation although in some GSLs a simple ledger is also kept
summarising each meeting’s transactions. The groups’ funds are liquidated on
a cyclical basis (usually every 12 to 18 months), sharing the funds (including
the accumulated interest) among members. Referred to as an ‘action audit’ this
helps increase transparency and prevents irregularities building up over long
periods. Assuming no major problems are encountered, the groups then restart
savings and credit immediately. Research has shown that can GSLs continue functioning well and independently following initial training and support. Replication
also often occurs through spontaneous group formation supported by existing groups.
CARE and FSD have been working together over the last two years to develop and extend the GSL development project in Kenya. The project looks to establish the
basis for extending the model at very substantial scale to reach a substantial proportion of the financial excluded and those currently poorly served by informal
means. In addition to refining the basic GSL model the project is testing the use of more cost-effective channels for delivering training and support to groups.
Prior to the project support costs per member across the continent have been in the region of KShs 3,200 ($40). This level of cost will inevitably limit the reach
of the system.
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Figure 13: Cost per member by channel (KShs)
The first point of departure for the project is to use community based trainers
(CBTs) to form, train and support groups. Using CBTs offers cost advantages
and frequently a better connection to the communities targeted. Management
of delivery is another major area of cost. Two alternatives to the conventional
approach of direct trainer management by CARE are being tested. In one
approach local entrepreneurs (referred to as franchisees) and in the other faith
based organisations (FBOs) are engaged to manage and supervise CBTs. In
order to align incentives with the project’s objectives, the franchisees and FBOs
(and their CBTs) are paid exclusively on commission based on the number of
group members successfully organised and trained.
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CARE began forming groups in Western Kenya in November 2008, and the
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