Wednesday, August 4, 2010

Would You Pay to Save?

That’s not how it’s supposed to work. Banks are supposed to pay you. But a lot of people here in Ghana (the poor), are paying in a system that’s called susu. The origin of the word is debatable, but it refers to rotating savings. The way it works is that a Susu collector comes around the village and collects a daily or weekly installment, usually a very small sum, from his agreed-upon customers that have formed a group. At the end of the month (or whatever cycle they are doing), the Susu collector keeps one installment’s worth as his wage. Each time the group members make a payment, someone in the group receives the full sum. So if there were 30 people in the group making payments of 2 Ghanian cedis (1 cedi = $1.4), each time the entire group makes a payment someone would get 58 GHC. The susu would earn 60 cedis in the month.

It might seem counter-intuitive to pay to save, but the kicker here is that for those who receive the first payments, it’s basically an interest-free loan – they only had to put in a few cedis to get the 58. But for the later ones, it’s like forced saving with slowly decreasing interest rates (I'm not yet sure how they decide the order and how it is made fair the next cycle). This creates an opportunity for people to access savings schemes and credit in deep rural areas that wouldn’t otherwise have it. Seven out of the 13 banks in Ghana's north region have no banks. Susu collectors generally take the pooled savings and put it into a rural bank – with the money pooled together he (typically they’re men) can access banking products for the group that no individual member could. The Susu collectors usually have anywhere from 200-500 customers, according to Kwaku Akwetey, the General Secretary of the Ghana Co-op Susu Collectors Association (GCSCA), who I recently met for discussions about using susus in an upcoming project for TechnoServe.

So what’s the difference between microcredit and susu? From my understanding, and it’s still very basic, is that the susu system is focused more on savings – having a secure place to save – with the benefit of having access to cheaper credit. Microcredit in the Bangladesh form, on the other hand, focuses more on lending, and operates on the principle of peer pressure that access to credit is only open if everyone is making a payment on their loan. The peer pressure component is present in the susu system, but rather peer pressure that compels you to save. For Ghanians, the microcredit loans done by the rural banks are at annual interest rates of about 30%, and are given to the entire group. Susu collectors do offer loans outside of the typical rotating savings payments (at similar interest rates), but they go to the individual.

Of course, this type of informal banking can be rife with fraud. The Susu collector might not deposit the correct amount collected, for example, or one of the first people to receive the payment could just stop making installments, causing the rest of the members to lose part of their savings. I assume this works better in villages where everyone knows everyone. I recently visited a village (which I'll talk about later) and my friend and villager Stephen explained that crime is never an issue. Because of the fraud, there's an effort being made to formalize it, which is what GCSCA is all about.

This is another prime example of how the poor have to pay extra for the same products we take for granted. Sachet marketing - the strategy of selling small amounts of things like Head 'N Shoulders shampoo - is huge in every country I've been to. And pay-as-you-go cell phone schemes are comparatively expensive - in less than three weeks in a country 67 times poorer than the US, I've already dumped $15 into phone credit compared to my monthly US bill of $15, and I don't even know many people here!

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