For decades the Netherlands was considered having a strong national welfare regime. Nowadays, however, the welfare state is cutting down on social assistance due to high costs, ageing of the population and economic crises. In addition, consumption opportunities are widespread leading to severe indebtedness especially of low-income people. Furthermore, due to the individualization, the quality of social networks declined and social cohesion is threatened. People also lost confidence in the financial sector and look for ways to keep financial affairs in their own hands. That is why an increasing number of people seek for economic alternatives outside the formal sector and set up different grassroots initiatives in the popular economy to face these challenges of the current crisis and strive for a sustainable society. This paper provides insights into the operational features of such an initiative -called CAF-group - in the Netherlands. A CAF-group can be considered as a very small social enterprise and community-based financing initiative which aims to solve individual financial problems by establishing social networks dedicated to principles of solidarity and trust. It is based on the idea of the South-North Knowledge transfer and that we can learn from recent developments in the Global South.
Rotating Savings and Credit Associations (ROSCA) are one of the most widespread and popular community-based financing arrangements in the Global South. Basically, ROSCA participants contribute a fixed amount to a common fund that is then given to one of the contributors consecutively (Bouman, 1995). Inspired by these ROSCAs, several international development organizations developed a methodology for setting up so-called self-financed groups (SFGs). SFGs aimed at helping vulnerable people in Africa, the Americas and Asia that were insufficiently served by informal financial mechanisms, such as ROSCAs, or the microfinance sector. SFGs serve as financial safety nets, generate economic benefits, improve personal financial management, empower members in terms of their social status and social networks, and stimulate entrepreneurial activities (Hendricks & Chidiac, 2011; Fleischer-Proaño, Gash & Kuklewicz, 2011).
After successful implementation for millions of vulnerable people in the Global South, SFGs were also introduced in Europe, named CAF-groups. CAF groups, like the majority of other SFGs, are self-financed communities where up to 30 people save and lend money to each other on a monthly basis. All financial transactions are recorded and cash balances of every meeting are deposited and kept in a secured box. In sum, every group functions according to the same structure but each sets its own rules and regulations.
Practical experience of CAF-groups in Spain, suggest that this approach may also work in the Global North (Korynski & Rodriguez-Ferrera, 2010). However, the performance of SFGs has not been investigated against the specific challenges of the European context. To fill this gap, I started an action research based on participatory methods and set up five CAF groups in the Netherlands. During two years, each group was guided, observed, analysed and compared to the others. The groups varied with respect to ethnical diversity, age and income.
Based on the capability approach of Amartya Sen (1999), the research aimed at exploring whether and how group members can improve their well-being. This paper discusses the conditions for successful performance of CAF-groups on the group level. First, I analyzed the influence of individual characteristics of the participants, such as education, income and employment. Secondly, I observed group factors that impacted the performance of CAF groups. Important factors were specific social and financial needs, previous experience with ROSCAs or the level of trust among group members. Finally, I linked the individual characteristics and group factors to the financial performance of the different CAF groups by looking into for instance the number and size of loans provided and total size of savings.
In summary, this paper demonstrates under which conditions community-based finance initiatives in the popular economy operate successfully and can contribute to the general well-being of people. It supports the idea that we can learn from initiatives in the Global South to improve the well-being of citizens in countries of the Global North, such as the Netherlands.
Literature
Bouman, F.J.A. (1995). Rotating and Accumulating Savings and Credit Associations: A Development Perspective. World Development, 23(3), 371-384.
Fleischer-Proaño, L., Gash, M. & Kuklewicz, A. (2011). Durability of savings group programmes: A decade of experience in Ecuador, Enterprise development & microfinance, 22(2), 147-160.
Hendricks, L. & Chidiac, S. (2011). Village savings and loans: A pathway to financial inclusion for Africa’s poorest households. Enterprise development & microfinance, 22 (2), 134-146.
Korynski, P. & Rodriguez-Ferrera, J. C. (2010). Debate on Asset Building, EMN Bi-Annual Magazine on Microfinance in Europe, 8, 2-5.
Sen, A. (1999). Development of Freedom. Oxford: Oxford University Press.
7. Informal sector, popular economy, microfinance and development
