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But do we really need another poverty alleviation method? Don't the ones we have already work? Unfortunately, no, they don't. Below, Jeffrey highlights the three most popular methods currently in use, and why they are so ineffective:
1. Donations and Charities: In principle these are good things -- money with "no strings attached" that is given to those in need so that they can secure food and shelter and other necessities. The problem, however, is that donations only secure an environment of dependability where people are not self-sufficient but completely dependent on the support of others. Given how charities boom and bust these days, there is no guarantee that money will always flow to those needy hands, and the consequences can be dire.
2. Microfinance: Another idea that in principle was actually quite brilliant but in practice was not as effective. Micro lenders need to make a profit on their loans and when they are loaning such small amounts, the profit margins are even thinner unless they charge a heftier interest. (A 10% interest on a $5000 loan is appealing, but a 10% interest on a $50 loan is a lot less so.) So interest rates are higher and lenders can often be ruthless about collecting payment or penalizing people for delays, and all this does is put borrowers in debt to the tune of many times more than the amount they initially borrowed.
3. Business Enterprise/Entrepreneurial Ventures: Introducing entrepreneurial techniques to those in need is certainly one way to make them self-sufficient and in control of their own financial destiny but there are two problems with such programs: (a) Entrepreneurial ventures fail more often than they succeed -- even in the developed nations the failure rate for new enterprises is over 70% within the first two years, but in this case, you are dealing with a demographic who stand to lose a lot more if their startup fails; and (b) resources are limited as are potential revenue-generators in many rural areas, which means one person could generate a decent income producing handicrafts and beads for export, but given the lack of other options, now twenty or thirty people will also have to compete with one another to sell handicrafts to the same markets. This benefits no one.
With savings groups, the money is kept within the group, and all stakeholders have an equal share and equal responsibility and reason for maintaining the savings, so there is no competition and no outsider trying to collect. That is why savings groups triumph where others have failed.