A Savings Pool is a community group in which the members pool their savings and use them to provide interest-free loans for individual members’ projects. Members earn no interest on their contributions to the pool but cooperation boosts the group’s purchasing power, without incurring the interest costs they would otherwise pay for a loan. Repayments to the Savings Pool are by regular instalments. The keys are trust, integrity and reciprocity.
Examples of projects include paying off a hire purchase, replacing an appliance, paying off a credit card debt, seeding an educational venture, starting up a small business or paying off a mortgage. A Savings Pool loan gives the advantage of avoiding the interest charged by banks which can end up costing multiple times the original loan amount.
There is a strong social aspect to Savings Pools, as it is about community building and mutual support. When creating a Savings Pool, the group should be well balanced in terms of capacity and need. For example, to begin with there might be 10 people with no immediate need and 3 ready to take turns with their proposals. Trust is established through careful selection of pool members and maintained by effective meeting procedures based on consensus decision-making. It is often an advantage to start with a group of friends who already trust each other, then the group expands as each person invites others. The chemistry must be right, and also geography. It is possible for someone to participate in the meetings by skype, but it’s better if everyone lives nearby and can meet in person.
Some groups are small, with 4 or 5 people, and others bigger, up to 30 or more. The limit is probably to do with decision-making because a larger group means it’s more difficult to gather everyone together for meetings and also consensus becomes very time-consuming. Some groups allow for consensus among those present at a meeting, maybe with a stipulation that there must be a certain percentage of membership attending, say 60-90%. This makes it possible to proceed even if someone is unable to attend. Each group makes its own rules about this.
The group opens a bank account but the balance is ideally quite low because the money is usually out working. The bank should hold enough to allow a member to withdraw some of their savings if an unexpected need arises. Occasionally someone leaves the group because their circumstances change, so then their funds are withdrawn. This payment takes priority over any other request. The bank account earns some interest and currently members agree to forgo their personal share of this interest so the money can go towards development of the Savings Pool and eventually creating a web site.
Contributions are mostly by automatic payment but others are by lump sum, and different amounts are put in by members according to their means. Members may nominate a term for contributions or it can be indefinite. Some members simply love the concept and decide to contribute even without any need for a loan themselves. The pool is for all sorts of people, not just financial experts, however, someone competent is needed to do the accounting.
If an individual needs a loan, a proposal is submitted for discussion stating the purpose, how much is requested, their time frame and capacity for repayment. For example, the amount someone is currently paying for credit card debt repayments plus interest may be considered a comfortable repayment rate. Repayments are usually monthly or fortnightly by automatic direct debit. Members sign an agreement that includes the terms for repayment.
Usually security is suggested, or a guarantor can be named. A guarantor’s capacity for repayment may also need to be checked. In the case of security, the applicant retains possession of the security item but agrees to hand it over if they fail to repay the loan. Actually this has never happened yet. There has been the odd occasion where someone was struggling to repay due to changed circumstances, but the group discussed the case and allowed a break from repayments (extending the repayment term) to help the person get back on track.
Usually one proposal is considered at a time. All the information is gathered, discussed and a decision made. Sometimes a proposal is declined, for example if the terms seem unusual or the group is not comfortable with the length of time for the commitment. Some negotiation leads to revision and usually then a successful outcome.
Reciprocity is the main principle in a Savings Pool. Everyone who takes a loan agrees to pay it back in full plus reciprocity. Reciprocity is achieved when the member’s contribution equals the value he or she has received from the savings pool.
For example, someone borrows $10,000 for a project and agrees to repay it in 10 months. This requires instalments of $2,000 per month comprising $1,000 repayment plus $1,000 contribution. After paying instalments for 10 months, the member has repaid the $10,000 loan, and has saved another $10,000 as reciprocity. The reciprocal savings component belongs to the member and may be withdrawn at any time after completion of the contract, or it could stay in the pool to be lent to another member. The term of the reciprocity commitment may be substantially shortened if the applicant has pre-savings in the pool.
The members of a Savings Pool agree on how to share the risk of loss in the unlikely event any occurs. In practice, participants are highly motivated to be completely confident before approving a proposal. In this situation, due diligence is an expression of caring for the community, ensuring that applicants have their feet on the ground, have explored all options for meeting their needs in the best way for their circumstance, have provided realistic security and so on. This movement is changing the culture around money as sometimes it can be quite challenging to speak openly about this subject with each other.
The New Zealand Savings Pool is based on the Swedish JAK cooperative bank. JAK started in Denmark about 45 years’ ago when there were severe economic problems and farmers were under stress. It was subsequently taken up in Sweden. In 2006 New Zealanders liaised with JAK and developed the concept to create a practical and legal model for small community groups. There are about 40 Savings Pools in New Zealand and so far there are none in Australia, nor has this model been in use in any other country until recently. The first UK pool is about to start soon.
Further information about Savings Pools is presented on the Living Economies web site http://le.org.nz/savings-pools For any group intending to initiate a Savings Pool, some resources and assistance with setting up and administration may be available from the Living Economies people in New Zealand. There is online accounting software, with an open source system in progress.
If we wish to live more ecologically, it would make sense to adopt monetary systems that make it easier to do so (Richard Douthwaite, author of The Growth Illusion and other books). He emphasises that a diversity of economic systems is the most sustainable way for the future.
by Alison Bird, with thanks to Helen Dew and Bryan Innes from Living Economies in New Zealand.
Some more information has been published here in the Organic NZ Magazine.