Innovations in Savings Services in Rural Sub-Saharan Africa
Microfinance Gateway Staff
What’s Working and What’s New?
While savings services in rural sub-Saharan Africa face numerous challenges such as inadequate infrastructure and low literacy levels, exciting innovations from the private and public sector are helping to overcome these difficulties.
NGOs and private sector initiatives are finding new ways to combine the power of the past and local traditions of informal savings mechanisms in Africa, with the promise of the future through emerging technologies to reach greater numbers of people.
The Microfinance Gateway recently spoke with organizations working in the field to learn about new models of rural savings service delivery. To hear more about why savings is important at the household level, how community organizations are formed at the village level and why now is an opportune time to invest in rural Africa, listen to the experts in our audiocast.
Community and NGO-led Innovations
Linking informal institutions to formal institutions. Since 1991, CARE has worked on mobilizing savings through locally-owned community groups called village savings and loan associations (VSLAs). When a group’s financial needs outgrow the pool of funds that is generated internally, CARE links them to more formal service providers such as M-Pesa, Barclays and Centenary Bank. Without changing the group's structure, CARE works with the financial institutions to customize products for rural, low-income markets. The banks initiate a product development process while CARE educates interested group members on the products’ terms and conditions. Interestingly, CARE has found it easier to work with commercial banks over MFIs when connecting savings groups to formal financial services. “MFIs want to change the structure of VSLAs – change them to a BRAC group or FINCA or Grameen group. MFIs tend not to tailor the products to the needs of the VSLAs. On the other hand, commercial banks have been willing to create specific products,” says Lauren Hendricks of CARE.
Integrating savings groups within value chains. Oxfam America’s Saving for Change program, which started in Mali in 2005, now reaches 318,000 women in 14,000 savings groups. Through this program, Oxfam works to link remote producers to fair trade companies and other potential investors interested in buying local products. For example, Shea nuts are produced in abundance but tend to be of low quality. Oxfam works with investors to provide farmers with better training and equipment so nuts can be exported. Often, private investors view these farmers as too dispersed and costly to conduct business with. To address this, savings groups aggregate producers and provide them with skills so they can engage with the global market on more equitable terms.
Accounts for SuSu collectors. Some financial institutions leverage the outreach of traditional practices that have long existed in the financial landscape, like SuSu collectors. The Dwetiri (investment capital) account, launched by Barclay's Bank in Ghana, is one such innovation that combines the traditional with the modern. The account enables SuSu collectors to deposit their funds, and also provides them with loans to help build their capital, which they can then on-lend to their customers. Barclays also provides capacity-building services to SuSu collectors so that they can calculate their credit risk and operate with basic formal financial skills.
Private Sector Innovations
EcoBank provides flexible services to farmers. The Pan-African banking group, EcoBank, received a $6 million grant from the Gates Foundation to bring affordable savings products and services to 10 million poor savers in Africa. Since May 2010, the pilot has mobilized over 5,000 rural savers in Ghana through innovative features including:
Roving agents with flexible time schedules to work around farmers’ needs: The ability to provide saving and withdrawal services in the field has lent the program credibility and enables the rural poor to own a bank account without incurring travel costs to bank branches.
Updating accounts online in real time via POS (point of sale) devices: EcoBank staff say real-time online processing has generated confidence in communities where dishonest Susu collectors had absconded with savers’ funds in the past.
Use of biometric identification: The POS devices can register clients’ fingerprints, thereby addressing the challenge of signatures among populations with low literacy levels.
Safaricom launches new mobile savings service. In 2007, Kenyan telecom Safaricom launched its mobile banking service, M-Pesa. Recently, Safaricom joined hands with Equity bank to launch M-KESHO. Through this product, M-PESA users have access to an interest-bearing savings account and other banking services like microinsurance. Just like M-PESA accounts, M-KESHO accounts have no account opening fees, minimum balances or monthly charges. However, they offer more benefits than M-PESA as the accounts pay interest and do not have a limit on account balances. A regular account holder of Equity bank can only transact at 140 branches but M-KESHO customers can take advantage of 17,000 M-PESA retail outlets.
“The financial crisis has deepened institutions’ commitment to savings mobilization because it is now seen as crucial for business sustainability. They realize it is important for them to encourage savings with their clients because their clients will be able to resist shocks and invest in their future if they have good savings habits,” according to General Manager Renee Chao-Beroff of Pamiga, an advisory services firm for MFIs in rural Africa.
This growing commitment to savings is evidenced in the increasing number of innovations by NGOs and private sector organizations, as well as recent savings research. To further expand outreach to rural savers in sub-Saharan Africa, organizations must continue innovating and exploring potential linkages between the powerful traditions of the past and promising opportunities of the future.
We would like to thank these experts for their contributions:
Lauren Hendricks, CARE USA Malcolm Harper, Cranfield University, UK Patrick Akinwutan and Rotimi Nihinlola, EcoBank
Evelyn Stark and Salah Goss, Gates Foundation David Cracknell, MicroSave
Jeffrey Ashe, Oxfam USA Renee Chao-Beroff, Pamiga Daryl Collins, Co-author Portfolios of the Poor
Xavier Martin Palomas, Co-author, “Is there a business case for small savers?”
The impact of MFIs on poverty alleviation is in no doubt noticeable. But I think that more research is needed to assess how this impact has contributed to smoothening the lives of the people who were initially thought to be living on less than 1USD a day.
Godlove Kalinga The Open University of Tanzania Tanzania
30 Dec 2010
Which way to go? Dependence on donor funding or internally-generated funds for M
As MFIs provide more savings products and lend more credit to the poor, the question of whether or not they can continue to rely on donor funding remains. MFIs need to conduct major assessments to determine how to best generate more funds locally, to cover activities that are currently funded by donors. Without over reliance on donor support, can MFIs continue to maintain the low-balance, savings innovations that have been introduced into the market? I believe a comprehensive financial assessment is required in order to avert possible risks that may affect savers, as well as the reputations of the specific institution, and its stakeholders.
Ghana
16 Dec 2010
The future of savings
This article has made me interested in other issues, such as whether or not innovations and the bridging of the traditional with the modern has any influence on the basic principles guiding the operations of community-managed, savings-led microfinance.
Kenya
17 Nov 2010
Looking forward to More Content
I look forward to hearing more about this subject, as well as other issues, from the Microfinance Gateway.
