What is savings-led microfinance and why do you do it?

Historically, Five Talents operated both credit and savings-led microfinance programmes. Over time we found that our savings-led programmes in Kenya and Burundi were far more successful than the credit-led ones. Independent evaluations of our programmes revealed that 82% of members in Kenya had increased their household expenditure, and in Burundi, 88% had increased their household assets. Savings Groups have further proven to be more cost-effective and sustainable since we do not provide any loan capital and, after 2-3 years of training and support, Groups can operate alone. Therefore, we have phased out of all Five Talents credit-led programmes and now all of our programmes operate on our innovative savings-led model.

See our Seven Steps Model.

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How do you choose who gets the loan?

The short answer is that we don't! In savings groups, of course, the loan capital itself is owned by the Group and so they are solely responsible for deciding which of their own members takes a loan next and on what terms. Our local partners with their teams of expert staff guide and facilitate this process.because of the Group guarantee system, each member of the group effectively has to approve the loans to fellow-members too, so it's a very 'bottom-up' and democratic process.

All of our partners exist to fight poverty and transform lives so we seek to ensure that your donations are used to deliver savings and loans training to our target member-base, the 'economically active poor'. We often refer to the areas where we work as: ‘smaller, poorer, riskier’. It is the job of our local partners to guide the groups to ensure they make, for example, minimum savings balances accessible and ensure gender balance on the leadership committees.

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How do you assess the difference you are making?

We measure financial and social performance, using both quantitative and qualitative indicators. Financial indicators and outputs are of course much easier to track; we measure number of members, number and value of loans made (cumulatively and the current portfolio), value of savings, portfolio at risk, repayment rates, average loan sizes and operational sustainability, to name a few. We also receive regular income and expenditure statements from our partners. These chart the success of our partners themselves, as microfinance institutions.

Our real objective is to make a difference to our members, the people who use our services. Of course we need to make sure we work with strong partners so that they can serve the members well; that's why we track the performance of our partners carefully and regularly. The buzzword in the microfinance sector for this is social performance management - measuring how far we are meeting our social mission, to fight poverty and transform lives.

It's difficult to assess how far our work is transforming lives but in some programmes we use the Progress out of Poverty Index (PPI) which helps us assess more objectively:

  1. How poor our members are; and

  2. Whether they progress out of poverty over the course of their membership of our programme.

You can read more about the PPI measurement on their website, but in brief, it's a set of 10 questions which are specific to each country we work in. Each question (for example: 'What is your roof made from?') carries a score which tells you how far above or below the national poverty line that member is likely to be. Our local partners are now using these 10 questions for both existing and new members. We ask the same members the same questions 12 months on and see how their scores have changed. Of course, we can't prove a direct correlation between our programmes and any progress out of poverty which our members make, but this is the first time that Five Talents has been able to use an objective measure of social impact so we're excited by it. PPI was pioneered by the Grameen Foundation.

The PPI provides a useful measure for comparison of poverty levels and change across programmes, but doesn’t tell us about other, non-financial changes, which may be important to communities. We also work with each programme to develop a number of indicators which are relevant to the local context and can be used to track change in the communities. These vary depending on what the programme staff, Board and communities themselves see as positive change. They can include, measuring the number of literacy learners who become readers in their Church or village health advisors if this is what the communities hope to achieve. In other places we measure changes in how able women feels to be involved in making financial decisions within her household.

Another vital way of measuring the difference we are making is by meeting the members and hearing their stories. The economists amongst you and those who like hard data might feel uncomfortable with anecdotes, but when a member tells you in their own words that microfinance made a difference in their lives and now they feel they themselves to be successful - well, who are we to argue?

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How Christian are you?

Five Talents was founded on Christian principles. This leads us to honour and serve all peoples – irrespective of ethnicity or religion. The global network of Anglican churches provides an excellent springboard or supervisor for microfinance programmes, being respectful of local culture and trusted by their communities. In addition, the church is often present in rural and challenging areas of the world neglected by other organisations. The teaching materials used are all biblically-based.

We don’t have a list of values framed on the wall of our office, but those who encounter us, see that we strive to be clear, transparent, excellent and with a care for the whole person.

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How are local partners chosen?

We identify local partners after a rigorous assessment process. The criteria include vision, needs assessment, market competition, delivery aspects, local church links, leadership and governance. We are often asked to establish work in new countries, but establishing new ventures is very expensive and we are currently focusing on building up our existing partners.

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What interest rate do you charge?

Interest rates vary across programmes but are typically 1% per month on a flat or declining balance basis. Loans are normally repaid over a term of 4-6 months.  Interest rates are set by the Trust Group’s themselves when they start up. The interest is divided amongst the members at the year end in the form of a dividend.

These rates of interest are far below what our members would pay at a bank or a loan shark, infact, members tell us loan sharks charge up to 20% interest per month! Since the groups are self-managed, there is no external pressure on the credit decisions made by the group.

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What are the repayment rates?

Portfolio at Risk (PAR) within our programmes is generally around 5%. This means that at any one time, around 5% of the loans outstanding have repayments which are 30 days or more overdue. Since the groups capital is made up of their own savings, they are incentivised to ensure good management of the loan fund.

Trust Groups can grow to have up to 100 members but within this, there are ‘Cell groups’ of between three and five people. These people now each other well and co-guarantee one anothers’ loans. This helps to ensure that even as they grow, groups make good credit decisions.

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What happens if a member can't repay?

The strong advantage of our approach in this situation is that loan management is handled primarily by the group members themselves. Grace periods are given to members if the group knows that there is a good reason that they are unable to repay (e.g. illness, a death in the family etc).

If the group feels that the member may not have a good reason for not repaying, they normally choose to involve the local Church and/or our local programme staff. This provides someone from outside of the situation to help the group to resolve the issue. The member who isn’t repaying will then be visited by the staff/Church priest. Generally, an agreement is then reached about how the situation can be resolved.

It is very rare that a resolution has not been reached by this point. However, if that happens, the group will prioritise recovering the value of loan above the savings that the member who is defaulting holds. This will allow them to exit the member without other members losing any of their share in the Trust Group.

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How big are the loans?

The biggest loans are typically around £1,000 per person. The smallest are £25 per person. The average loan per person across Five Talents' programmes is around £90. The loan is made to the individual but she/he is accountable to the wider group for repayment and recycling (other people are waiting to use the money).

The groups can vary in size (in some programmes 15 people, in others 50 people). Due to cost of living differences, a small loan of £25 is actually a significant cash-injection to a small business and can yield an impressive rate of return to the business owner. Loan sizes grow with subsequent loan cycles.

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Why do you emphasise savings as well as loans?

We are keen to encourage the discipline of saving. Savings can be used to pay for emergency health care, planned school fees, or business investments. Savings can provide a safety net and help overcome “shocks” such periods of conflict or drought. Regular saving of a small amount can soon build up to a useful lump sum. Our members want a safe place to keep their savings, away from the home, and our programmes provide what is often the first safe place for people to save.

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What are the ratios between your charitable expenditure and fundraising costs?

In our latest (2018) audited accounts, the amount spent on charitable activities was 86%. This is made up of the grants sent to programmes as well as the costs of the programme management staff in the UK. The programme costs in the UK include the work that Hannah our Programme Manager, and the other programme staff do in ensuring that we get good reports from partners, are working with them on their long-term sustainability and that they are sharing lessons.

All charities however incur costs for necessary admin and governance, in 2018 ours was 2%.

The cost of raising funds last year was 12%.

Total Income for 2018 was £797,855

Total Grants to our programmes in 2018 was £478,024

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Microfinance terminology

We have an entire glossary of terms to explain some of the jargon that gets thrown around in the microfinance sphere.

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What sort of training do you do?

Providing rural entrepreneurs with savings and loans is not enough hence giving communities the infrastructure to pool their resources is a start.  And that's why each of our programmes are build around a core of financial literacy and business training. Depending on the needs and history of each community, we may also provide literacy/numeracy training and  trauma counselling prior to starting our programme. We have found that both illiteracy and trauma as a result of conflict, prevent people from fully participating in our programmes. Therefore, our programmes in Karamoja (Uganda), South Sudan, Burundi and DR Congo include these additional training elements.

Our unique combination of experienced local partners, intimately-connected Trust Groups and Anglican Church reach, provides a great platform for training and reduces the costs of administration, monitoring and follow-up. Each Trust Group is trained by our local partners in savings processes, basic business skills, financial literacy, financial planning, bookkeeping, diversification and marketing.

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Where does my donation go?

All of our programmes have expert local management teams and local Boards. The day to day running of our programmes is all carried out by local staff; they train new members in Group formation and business training, how to effectively run their group, literacy and numeracy training (if taking place) and they carry out the monitoring and evaluation.

Five Talents staff in the UK are heavily involved in the planning and training stages. We also provide oversight and assistance where necessary to ensure maximum efficacy and efficiency. A large proportion of our time is devoted to fundraising.

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Where do you have programmes?

We currently work in mainly sub-Sahara Africa:

  • Burundi

  • DR Congo

  • Kenya

  • South Sudan

  • Tanzania

  • Uganda

We also have active programmes in:

  • Bolivia

  • Myanmar

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Where do you have offices?

We work through independent implementing partners who each have their own offices in the communities where we work. We also have registered Five Talents offices in the USA, UK and in Kenya, federated under the umbrella of Five Talents International.

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