VeNews September 2008

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South African Project Aims for Big “LEAP” in Economic Development

In South Africa’s rural Eastern Cape, economic prospects seem bleak. The region’s isolation, the absence of significant infrastructure, and the scourge of AIDS conspire against sustainable economic development.

Yet here a dozen women gather in hope. They pool their savings, drawn mostly from small monthly government grants. They give loans to each other to buy food and health care. They charge a nominal fee for their loans, so that over time their collective savings grows.

And over time, they use the loans to acquire assets—a hen to lay eggs, for example, or a refrigerator to store food—thereby planting the seeds of self-sustaining enterprise.

That’s the vision Vesper Society shares with its South African partner SaveAct, a Pietermaritzburg NGO that creates financial services for the poor by forming savings and credit groups.

Working with local agencies, including Vesper Society-sponsored Masangane Treatment Program, the partners are focusing their efforts in the village of Matatiele, some three hours drive from Pietermaritzburg, the nearest big city.

The project’s formal title is Local Economic Action Project for Socially Excluded Groups in Alfred Nzo Municipality. The shorthand is LEAP—which captures the partners’ aspirations.

“We expect to take meaningful, significant steps toward improving the community’s health in the broadest sense,” says Mary Baich, Vesper Society’s president. “Building capital and increasing financial literacy are the first steps toward creating a sustainable local economy.”

Assets and Building Blocks

But LEAP is not starting from scratch. The project will leverage existing community practices to promote group savings.

The Masangane Treatment Program, one of only a few AIDS treatment centers in the entire countryside, has made a significant impact in Matatiele through a unique approach that ties daily anti-retroviral drug therapy to the rituals of a faith community. Last year, the program served more than 60 people—an impressive number in the Eastern Cape, where health services are sparse and the stigma of AIDS is strong. The program’s philosophy is captured in its Xhosa name: Masangane means “embrace.”

Vesper Society helped Masangane expand its presence last fall by adding a small portable office building in Xaxazana, a country crossroads about 45 minutes drive from Matatiele. Here, Masangane staff distribute medications and health information to people who previously had to walk three to four hours to the nearest care facility.

Masangane’s experience is an asset for economic development, says Anton Krone, founder of SaveAct.

“The involvement of Masangane for SaveAct is very exciting,” Krone says. “It enables us to introduce what we believe is a powerful household livelihood security methodology to households directly affected by HIV/AIDS. It allows us to be targeted in our work as well as in enabling Masangane to develop its own capacity to respond to the acute poverty that many of their clients experience.”

Here is where Vesper Society and its partners connect health care with economics. “[The project] allows for a more rounded and effective response to people living with HIV and AIDS,” Krone says. Adds Baich, who spent a week in the region in July, “Economic security is critical to stabilizing households and ensuring that people make good decisions about their health over the long-term.”

LEAP will leverage Masangane’s successful community approach to AIDS. The program uses support groups and a buddy system to help patients overcome the social stigma of AIDS and adhere to rigorous treatment schedules. Patients eventually become counselors. That kind of collective discipline lends itself to group savings, Baich says.

Starting last spring, Krone and his colleagues introduced their model to Masangane and other local partners, including a visit to an existing savings club in Hopewell, a village outside Pietermaritzburg. In June, a local contingent traveled to Pietermaritzburg for a weeklong training that included participants from other African and Asian countries.

So far, the reaction has been “extremely warm and enthusiastic,” Krone says. “The common response has been, ‘Where have you been hiding? We have needed this so badly.’”

A Different Model

Launched in 2005 and backed by the Ford Foundation, SaveAct has started 46 savings groups across South Africa with a total of 736 members. Groups range in size from seven to 25 members. Ninety-two percent of participants are women.

Each group sets its own rules for membership and its criteria for loans. Members buy shares in the group, typically contributing 40 to 50 rand per month, or $5 to $6. Loan defaults are rare.

At the end of 12 months, there is a “share-out,” a full distribution of the funds. This is done partly to avoid the security risk of keeping a large sum of money, Krone says. But the practice also gives participants a return they can use right away to meet basic needs or acquire assets – tangible benefits that underscore the wisdom of group savings.

The approach differs from the microfinance model, made popular by Nobel Peace Prize-winner Muhammad Yunus and Grameen Bank, in which a financial institution gives small loans to individuals. The savings club creates its own capital.

And it builds upon practices that run deep in South Africa. Burial societies, which provide insurance and emergency aid, and stokvels, which pool savings and rotate payouts to members, have for years attracted widespread membership in South Africa, offering financial services for people with few options in the formal economy. Through the savings clubs, SaveAct encourages group decision-making and greater transparency than the older models, Krone says.

Savings club benefits extend beyond economic development. “We are seeing this also as a strategy for women to empower themselves,” he says. “This is achieved in part through building up capital, which would develop more respect or independence in the household, and through ‘social capital’ by virtue of their membership in a group where there will be a support structure in times of crisis, whether this be gender-based violence or some other problem.”

The Road Ahead

The path to financial security in this region will be challenging, Krone admits. “People live far from any established formal economic activity, aside from some limited opportunities in neighboring farms. People are therefore even more dependent on social grants from government and some limited subsistence farming around their homes,” he says. “Of course, many families’ capacity has also been devastated by the prevalence of HIV/AIDS and other serious chronic illnesses, such as new deadly strains of TB.”

The savings clubs will initially focus on “survivalist economic activity” rather than formal enterprise development, he says. After years of Apartheid, extreme poverty, and few educational opportunities, the confidence or skills required to start new ventures under very challenging conditions is not always there, he says. People with lots of initiative may have already left the countryside to seek opportunities in the city.

But the savings clubs will be a significant step toward self-sufficiency. The “Act” in his organization’s name is important, Krone notes, because local people must say, “We’ve got to take responsibility to climb out of poverty.”

Strong local groups will be able to link with others to deal with systemic economic and social issues. “But that needs to evolve from the ground upwards,” he says.

Vesper Society, which has made an initial two-year commitment to the project, is aiming for the larger goal of economic justice. “We realize that myriad issues are at play here amid profound human need and a history of injustice,” Baich says. “But we take these initial steps in hope and faith that the future of the Eastern Cape will be brighter.”

Vesper Society is collaborating with several partners in LEAP:

• SaveAct, a Pietermaritzburg NGO that provides financial services for the poor via savings and credit groups plus training in life skills and enterprise development, is the overall project manager.
• Masangane Treatment Program, an HIV/AIDS education, counseling and treatment project, has offices in Matatiele and Xaxazana.
• Environmental and Rural Solutions, a Matatiele-based group, is providing office space for the project, strategic support, as well as monitoring and evaluation services.
• Matatiele Advice Centre (MAC), a Matatiele-based NGO, protects vulnerable people’s rights and trains people to cope with HIV/AIDS, gender-based violence and other problems in the region.
• Siyanakekela Community Development (SCD) is undertaking similar services to MAC.
• Social Change Assistance Trust (SCAT) is based in Cape Town and oversees Life Skill Training and explores possibilities for spreading this work into other regions.
• The European Union and Thina Sinako Provincial Local Economic Development Support Programme are providing funding along with Vesper Society.

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Vesper Society, a private operating foundation, promotes social justice locally and globally by addressing critical social issues including the provision of health services for the underserved.