> Posted by Hannah McCandless, Program Support Associate, Village Enterprise

Through its one-year graduation program, Village Enterprise provides business and savings training, access to savings groups, seed capital, and mentoring to rural East Africans living in extreme poverty. In part one of this series, Village Enterprise reflects on some of the learnings gained through these interventions, focusing on facilitating behavior and attitude change to increase financial capability.

In a recent CFI blog post, Robert Stone of Savings at the Frontier reflects that technology can serve as a valuable tool, but not a silver bullet, in the quest to improve well-being through expanding financial capability. As tech-thinker Kentaro Toyama notes, “Even in a world of abundant technology, there is no social change without change in people.” Toyama’s words resonate with Village Enterprise’s approach to financial inclusion for the extreme poor. Stone argues that effective change will occur when interventions that create change in people are connected to systems that amplify the effectiveness of these changes. This is a good description of what Village Enterprise is about.

Village Enterprise’s graduation program instills behavior change in people by providing a package of supports that enable them to move forward: access to savings networks, an asset transfer, skills training, and mentoring. Then, we capitalize on these changes by connecting participants to formal financial services. The combination of these services dramatically increases financial capability–the knowledge, skills, attitudes, and behaviors needed to facilitate healthy financial decision making–in the extreme poor.

Capitalizing on behaviorally informed practices

A few months ago, I met with a Village Enterprise business owner who was part of our program in 2009, before savings was a core aspect of our model. Emukajo Gilbert used his training and seed capital to start an orange orchard, which he still operates. Despite enormous increases in income and significant livelihood improvements, Gilbert does not habitually save money. He explained, “We have plans to save, but we already spend most of our money paying school fees.”  In our current program, we now require participants to start saving as soon as they enter the program. Before they start their businesses and before they receive a grant, they practice making weekly sacrifices to put aside whatever they can. We’ve learned that increasing savings isn’t about just creating change in income, it’s about creating change in people—and Gilbert’s story is a perfect example of why.

CFI’s Seven Behaviorally-Informed Practices for Effective Financial Capability Interventions provide an optimal framework through which organizations like Village Enterprise can effectively create the changes needed to facilitate increased financial capability leading to graduation from extreme poverty.

Customize it

According to the CFI study, “tailored interventions may powerfully shift the learning from passive to active.” Village Enterprise tailors its program to the unique set of needs that the rural extreme poor have for high-touch interventions. For instance, low self-confidence and social isolation are among the barriers we must address to prepare participants to be successful consumers of more advanced financial services. Allowing for one-on-one mentoring and access to social capital through savings groups, the Village Enterprise graduation program offers the valuable first step on the ladder of financial inclusion by addressing not just the material symptoms and drivers of poverty, but the emotional and mental ones as well.

Teachable moments

Village Enterprise establishes VSLAs, which we call Business Savings Groups (BSGs). The formation of the BSG is our first intervention as well as our exit strategy. BSGs provide a financial safety net, access to capital, and a space for social inclusion and support.

We establish our BSGs in the first weeks of training. Participants are expected to begin saving the very week their BSG opens and every week thereafter, with guidance and support from their Village Enterprise business mentor. “Reaching consumers at the right time is perhaps the core practice [of the financial capability approach],” according to the CFI study. By establishing BSGs at the start, Village Enterprise establishes the connection “when a person is about to make an important financial decision or use a financial service.” Investing seed capital in a small business or taking a loan from their BSGs are some of the most significant financial decisions most of our participants have ever made. BSGs provide our business mentors with a platform through which they can take advantage of the teachable moments that arise throughout the first year.

Learning by Doing

Households living in extreme poverty rarely save money. However, as shown by Gilbert’s story, saving is not solely correlated with an increase in income—saving money is a behavior or habit that must be adopted and reinforced through opportunities to learn by doing. “Practice,” reads the study, “enables customers to overcome the initial barriers to use that come with unfamiliarity and lack of confidence.”

Our BSGs share out participants’ savings and interest accrued once per year. It can be difficult to convince participants of the value of saving when the payoff is so far away. The Village Enterprise Savings with a Purpose (SWAP) intervention was born out of this need. SWAP provides a platform for participants to learn the benefits of saving from the start. Upon the inception of a Business Savings Group, participants identify one item that they would like to SWAP for, in addition to their regular weekly savings. For example, they might save to buy a small radio, a set of pots, or a new mattress. Their business mentor helps them identify how much they need to save each week. After a month or two of saving, the participant buys the item and learns the value of saving through the gratification it provides.

One of the tenets of successful behavior change interventions is that the system must reinforce the benefit of the desired change. SWAP provides this reinforcement early, which allows for better savings throughout the program, and after exit.

From change in people to change in access

VSLAs serve as a vital starting point on the journey to financial inclusion. Village Enterprise BSGs and savings trainings provide this starting point through tailored interventions built to provide teachable moments and opportunities to learn by doing, both of which reinforce behavior changes among the extreme poor. Thanks to this foundation, participants are better prepared to access and benefit from formal financial services when they graduate from the Village Enterprise program. Access to insurance, more sophisticated financing options, and opening a bank account can build upon previous interventions to continuously contribute to improvements in well being. High-touch, grassroots level interventions like those offered through Village Enterprise are essential for laying the groundwork to prepare the ultra poor for formal financial services.

However, the transition from VSLAs, or in our case BSGs, to formal financial institutions can be easier said than done. In the next post in this series, we will share learning from our experience facilitating healthy and sustainable linkages for our BSGs in Uganda.

Image credit: Accion

Have you read?

A Change in Behavior: Innovations in Financial Capability

Six Recommendations on Financial Capability

Shifting the Paradigm: Providers as Financial Capability Builders