There are currently about 12 million informal savings groups across Africa, facilitated by NGOs or other development organizations.
Though savings groups have emerged as an effective way for the poor to access basic financial services and build financial skills, challenges remain. Most groups keep their records on paper stored in a lock box, susceptible to theft, damage and fraud. There’s also a lack of visibility of records to outside parties, who might provide more services to groups if given insight into behaviors and access to such valuable transaction data. What’s more, the majority of savings groups are rural and extremely poor, and their distance to the nearest bank branch is often prohibitive – costly and unsafe.
In a recent NetHope Solutions Center webinar, Lauren Hendricks, Executive Director of CARE's Access Africa, shared how CARE is addressing these challenges by working with banks, mobile network operators (MNOs) and technology partners to develop demand-driven saving and credit products, processes and delivery channels for group record keeping and group mobile wallet transactions.
“At CARE, we view savings groups as part of a financial inclusion ladder,” said Lauren. “We see savings groups as the first step for the financially excluded to become part of the formal financial sector.”
The “financial inclusion ladder” starts with community members joining together to become an informal group, eventually opening a formal group account with a financial institution, and ultimately individual members within the group beginning to open their own accounts.
From paper to digital record
To address the limitations of paper records in Uganda, CARE, Grameen Foundation and Barclays Bank Uganda developed Ledger Link, a simple app for Android phones that mimics the group’s record keeping in a digital environment. At the end of each Village Savings and Loan Association (VSLA) meeting, members can use the app to send data from their phone to Barclays Bank.
For groups, the app provides a safe, secure place to store data. It also enables access to historic data and provides visibility into group transactions for others. For banks, group products like Ledger Link provide an efficient way to serve the poor and monitor group performance. CARE and Grameen Foundation are also better able to continue to support and monitor groups thanks to the app.
Similar to Ledger Link is an open source app called e-Recording, developed by Financial Sector Deepening Kenya (FSD Kenya). Unlike Ledger Link, e-Recording is bank neutral and transferrable across country environments.
Digitizing the analogue multi-code approach + leveraging the MNO distribution channel
CARE has piloted two different mobile solutions to help alleviate the issue of groups’ distance to bank branches.
In Uganda, CARE worked with Grameen Foundation and Barclays to co-design e-Keys, a group wallet linking Barclays and mobile money partner Airtel.
A typical mobile wallet doesn’t have the functionality that would allow a group account to be secure (e.g. it only has one pin code). CARE and partners have worked hard to protect the integrity of groups as they transition to the formal sector by maintaining principles of transparency, ensuring no one person has the power to access the group account. Thus, the e-Key wallet has three pins and requires everyone to be physically present. To cash-in, a SIM holder initiates the transaction and the three pin-holders have to enter their pins in order to push the money into the Airtel group wallet. Once that happens, five group members get an SMS notification. To send money from the Airtel group wallet into the Barclays group account, the SIM holder once again must initiate the transaction and the three pin holders push the funds from the group wallet into the Barclays account. This also triggers an SMS notification to five members.
In Tanzania, CARE worked with Access Bank and Vodafone to develop a slightly different system in which groups push and pull money into or out of their Access bank account through the M-PESA system, with one initiator (SIM cardholder or group treasurer) and two approvers via SMS. SMS withdrawal notifications go out to all members.
Each individual member also has the option to open his or her own Access Bank account. This product helps to not only encourage group accounts, but also makes it easier for group members to open individual accounts because they can transact in and out of the group account “fee-free.”
Increasing group functionality + building financial identity
Lauren emphasized the lack of group functionality in mobile wallets is still a huge barrier to financial inclusion of VSLAs. Adding wholesale group functionality onto MNO platforms (rather than market by market) would be a huge enabler to financial inclusion, and there’s still the need for an industry-wide push for MNOs to see the business case in working with groups.
Once group data is digital, there’s also a question of how it can be used more effectively to build groups’ and members’ financial identities. CARE and team are interested in exploring how they can start to share this data with financial institutions while at the same time respecting members’ rights to control their own data.