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The authors would like to thank Enrica Detragiache, Lennart Erickson, Michael Hadjimichael, David Hauner, Christian Josz, Ekue Kpodar, Edouard Maciejewski, Jon Shields, Francisco Vazquez, and Robert York for helpful comments.
The Bank of Tanzania (undated) reports the results of a survey conducted in 1997, which showed that 80 percent of the households were willing and able to save if appropriate products and saving mechanisms were there. Ledgerwood (1999) discusses evidence on the willingness of the poor to pay for saving services in India. Rutherford (1999) and Wright (2000) also discuss in detail the importance of saving services for the poor.
Chao-Béroff (2003) notes for example that in West Africa, rural populations continue to prefer in-kind savings as they seem “more liquid, cheaper to maintain, and even sometimes more profitable (i.e., in the case of livestock reproduction)” (p. 16).
As presented by Bennett (1998), this approach is described as the “parallel model”, as opposed to the “linking model” that “integrates disadvantaged clients into the formal financial system through building up self reliant groups that can reduce the costs and risks to banks in dealing with small savers and borrowers” (Bennett, 1998, p. 109).
In Guinea, the Agence Autonome d’Assistance intégrée aux Entreprises (3AE) provides finance to small businesses run by handicapped poor. First Allied S&L in Ghana works with occupation-based groups such as butchers, kente weavers, carpenters, and other associations.
Contagion of a default arises when the group defaults following a downgrade of its rating due to a default by a single sub-group. Coordination failure arises when each sub-group of borrowers defaults expecting others to default, even when all group members are solvent.
In Ghana notably, NGOs have worked extensively in the northern part of the country, where licensed MFIs are scarce.
In Tanzania, NGOs and donors are heavily involved with all layers of the microfinance system, from regulators to rural MFIs, in staff capacity building and technology transfer. To mention only one of many examples, the Department of International Development (DfID) works and provides funds for capacity building to the Microfinance Capacity Building Programme for Africa (AFCAP), and to Microsave Africa—a joint initiative with UNDP to provide technical assistance to organizations to strengthen the development of saving services.