P9 in Hrishipara, started March 2007

P9 is a savings-and-loan service for poor people running at the rural version of SafeSave in Hrishipara, Bangladesh, since the spring of 2007. 

It is very much in the SafeSave tradition: an individual service with no groups, no meetings and no joint liability, featuring daily doorstep collection and very flexible variable repayment terms. An English translation of the rules can be found here. 

However, it differs from other SafeSave products in that it responds even more directly to Ruthertford's understanding of the key financial service need of the poor – to manage liquidity in the face of low and irregular incomes. Because poor people have so little cash on hand at any one time, they constantly need to dig into past income (via savings) or future income (via loans) to manage even quite small purchases – a shirt, a visit to the doctors, a school text book, etc. 

Most poor people know that saving is the best way of doing this – saving is less stressful and cheaper than borrowing. But their saving is constrained precisely because of their lack of liquidity, so that the best savings intentions get swept aside by the need to spend. It can also be hard to find convenient and reliable places to save. Very often, therefore, the poor end up borrowing, expensively and with difficulty, to satisfy their liquidity management needs.

P9 responds very directly to this dilemma – by taking deposits, but doing so at the same time as offering liquidity in the form of interest-free loans. It is simply designed: the client takes an interest-free loan one-third of which is placed in a savings account. The loans are sequenced to grow in value each time, and very quickly the client finds she has on deposit more cash than she is borrowing, even as her loans grow bigger. She is soon borrowing back her own rapidly-growing savings, lowering risks for both parties. So the P9 experiment tests the question ‘will clients be willing to borrow their own savings in a bid to maximise their savings and at the same time have access to liquidity?’

The answer appears to be ‘yes’. The product is popular, the intensity of transactions has been very high, and account-closures minimal. Clients borrow, repay and save bigger sums more rapidly than they do in conventional Grameen-style MFIs or even in SafeSave.
 

Note some other advantages of this product. Its management is extremely simple: the collectors collect only repayments, since there is no interest to collect and savings are made in the office when loans are disbursed. In a Muslim country and in a world that has grown a bit sceptical of microcredit, the fact that the loans are interest free has enormous appeal.       

P9 in Kalyanpur, a Dhaka slum, started October 2010

We have long wanted to test the P9 concept in a Dhaka slum. We believe it will suit slum dwellers, and we also believe that we can take it to slums that are subject to sudden clearance by the authorities and where other microfinance providers fear to tread because of concern about resulting loan losses.

We started in early October 2010 in Kalyanpur, a slum that was cleared overnight, by bulldozer, several years ago. However, the authorities failed to carry out their proposed developments there and as a result the slum has grown back to resemble the way it was before. Nearly all the major microfinance providers stopped working in the slum, with the honourable exceptions of Shakti Foundation.

P9 in Kalyanpur builds on learning from the earlier Hrishipara project. The rules are similar but with differences that benefit us as providers and our clients as consumers of our product. Loan values are much higher, the fraction of the loan amount placed in savings rises from one-third to one-half, though to make top-ups more useful, only one-tenth of top-value is placed in savings.Fees for disbursement have risen, but fees for 'premature' withdrawal have been dropped.