One of the latest issues of The Economist contained an article about the hottest trend in microfinance: village savings and loans associations. This novel scheme began in Niger in 1991 thanks to the relief and development non-governmental organisation (NGO) CARE International. This system is based on savings rather than debt and managed by members of the community rather than professionals.

Since then, CARE and other NGOs, including Plan International, Oxfam US, Catholic Relief Services and the Aga Khan Foundation, have promoted village savings associations. The schemes are so successful that savings groups now have 4.6m members in 54 countries.

A village savings scheme involves a small group of 15-30 people who pool their savings. Each buys a share in a fund from which they can all borrow. All must also contribute a small sum to a social fund, which acts as micro-insurance. If a member suffers a sudden misfortune, they will receive a pay out. Returns on savings are extremely high, generally 20-30% a year. Borrowers typically pay interest rates of 5-10% a month on loans that usually have to be repaid within three months.

At the end of a cycle (usually about one year), all the money accumulated through savings and interest is shared out according to members’ contributions, and a new cycle starts. Once members have got used to the system, their groups can also perform other tasks, such as providing training in agriculture, health, leadership and business.