Savings in Sub-Saharan Africa: Key Insights from the Mastercard Foundation Savings Learning Lab

The following publication was led by the SEEP Network, funded through the Savings Learning Lab. This publication was originally published on the SEEP website.

Itad have cross-posted this publication on our website to support knowledge management after the closure of the SEEP Network.

Financial inclusion practitioners and others invested in this field relentlessly seek to learn more about what works and what doesn’t. A few questions are on the top of their minds:

• Does financial access substantially improve the wellbeing of customers?
• Which financial services and channels are most valued by the financially disadvantaged?
• What drives the business case for financial service providers to serve this segment?
• What does an enabling environment look like?

In fact, these four overarching learning questions guide the implementation and learning agenda of five savings initiatives spanning 16 countries in sub-Saharan Africa: POWER Africa by CARE Canada; Expanding Financial Inclusion in Africa (EFI Africa) by Catholic Relief Services; MicroLead by UNCDF; Savings at the Frontier (SatF) by Oxford Policy Management, and Making Small Scale Savings Work by World Savings and Retail Banking Institute (WSBI). They collectively represent the Mastercard Foundation savings portfolio, and are also partners of the Mastercard Foundation Savings Learning Lab facilitated by Itad.

In this blog, we share high level insights from a recent review of program data, research and publications across these five programs. We share these insights in anticipation of SG2018: The Power of Savings Groups, where all the Savings Learning Lab partners will be leading Peer Learning Sessions and events exploring some of our key lessons in more detail. These sessions include:

• Speeding Up Useful Linkages: Reducing Time in Meeting Group Demand for Formal Services
• Bringing the Informal Into the Formal: A Step by Step Guide
• How Low Can We Go? Evidence-based Approaches for Savings Groups
• Formal Finance and Informal Groups: Inside the Black Box
• Scaling Savings Groups through Government Programs – Motivations, Achievements and Challenges
• POWER Africa Learning Event: Dissemination of findings and lessons from CARE

So, here is what we have we learned so far.

Does financial access substantially improve the wellbeing of customers?

Yes, without a doubt. Learnings gleaned from the five programs show positive outcomes in key areas, including livelihoods and wellbeing, resilience to environmental and economic shocks, gender dynamics, and other impacts, for example, social cohesion.

Evidence from Mastercard Foundation’s savings portfolio indicate that savings groups members improved their livelihoods and economic wellbeing because of their participation in such programs. They invested in productive activities, increased their income, and enhanced their ability to prioritize expenses on household assets and children’s education. These programs have reached an impressive total of 1.4 million savings groups members.

Moreover, we learn that savings groups members are better equipped to weather economic and environmental shocks. The development of problem solving, and decision-making skills coupled with access to savings, loans, and income-generating activities allowed through participation in savings groups provides members with a wider range of mitigation strategies in crises.

Participation in savings groups has also improved agency of women. Access to finance has improved their overall household income and boosted their confidence and dignity. Training in financial management, business development and other targeted topics such as household decision-making has supported their enhanced role in making household decisions, led to shared household duties and women undertaking non-traditional activities (e.g. selling livestock in the market) as well as assuming leadership roles in their communities.

Which financial services and channels are most valued by the financially disadvantaged?

There has been significant learning in this area, but it needs to continue.

The poor continue to save informally in savings groups and other informal savings mechanisms as these options provide many advantages over current offerings from formal finance. The proximity, affordability and ease of use provided by savings groups are highly valued by members. In addition, gender and youth-tailored approaches, along with geographic targeting and other pro-poor strategies employed by the five programs contributed to increased access to savings groups for the poorest and previously excluded.

Nevertheless, demand for formal savings is high. While savings groups share-outs generate a lump sum that would be difficult for many members to accumulate at home, these do not always suffice to cover the amount needed for larger investments, such as business assets (including livestock), home improvements or construction. Many members also want to be able to save more and for longer than one year. Other motivations to access formal financial products (linkages) include the potential access to larger loans and to secure the safety of their savings.

Successful examples of formal savings products are those that are tailored to the context and have been designed following a customer-centric approach, enabling low-income customers to save in a way that is affordable, convenient, and secure, better enabling them to meet their savings goals. We also learn that once linked, members feel that their money is safer and they save and earn more than members of groups that are not linked. Women’s individual account ownership also increases, helping to close the gender access gap. To date, these programs contributed to linking a cumulative number of over 1 million members through partnerships with 22 financial service providers (FSPs).

Savings groups linkages and small balance deposit accounts remain a focus of the Mastercard Foundation savings portfolio and we will continue to share learnings as they emerge.

What drives the business case for financial service providers to serve this segment?

Providing savings products and services to low income clients sustainably is still work in progress but clear strategies and encouraging examples exist.

We learned that to serve the low-income market successfully and sustainably, financial service providers need to use a long-term horizon and a ‘customer life time value lens’ – the value a customer will contribute to their revenues over their entire future relationship with that provider. Their business models must include strategies that focus more extensively on satisfying client needs and demands, on deepening customer engagement, on solving proximity and affordability challenges, and on reaching new client segments such as savings groups.

Several institutional capacity areas also need to be considered. These include: the size of the institution, which influences what investments providers can make for small balance savings mobilization; internal institutional capacities such as IT, dedicated staff for products/client segments, collaboration across departments; and when the FSPs, INGOs or MNOs (Mobile Network Operators) are reliant on partnerships, knowledge of partners’ products, roles and responsibilities is essential.

The five programs used three notable strategies to optimize business models for serving low-income clients.

• They employed customer-centric approaches for understanding demand and for product development and adaptation.
• They relied on partnerships extensively, especially for the deployment of alternative delivery channels and linkages.
• Lastly, they employed the use of technology, which, while still presenting affordability and trust challenges, shows great potential in key areas: movement and storage of money, collection and analysis of customer data to improve product offering, real time agent management, and digital linkages.

While the financial service providers involved in these programs are still working on the viability of their services to low-income clients, there is a keen focus on proving that a strong business model exists. We expect to learn more on this topic within the next few years.

What does an enabling environment look like and what is the appropriate role for facilitators to play in supporting it?

Emerging examples exist on changes within the wider ecosystem influenced by initiatives within the savings portfolio. However, there is a lot more to be learned in this area.

The business case for savings services for low-income segments is often influenced by government regulation and financial inclusion policy. Examples within the Mastercard Foundation savings portfolio include:

• Influencing a recent amendment to national microfinance policy in Tanzania, resulting in savings groups being recognised in policy.
• Contribution to the establishment of a regulatory framework at the Central Bank of Liberia on the supervision of credit unions, which were previously operating without a regulatory system.
• Technical assistance to the Ghanaian Ministry of Finance and Financial Inclusion Policy on including a section related to bringing the ‘informal to formal’ to cater to the potential of SGs in broadening financial inclusion.
• An effective advocacy program in Ethiopia led to the adoption of the VSLA methodology by the Government of Ethiopia in its Productive Safety Net Programme (PSNP).

These are only high-level highlights of the rich learnings emerging from the five programs. For more details, data, examples and tools we encourage readers to visit these programs’ respective websites, delve deeper and come meet us and our partners at SG2018!

Diana Dezso is Team Leader of the MasterCard Foundation Savings Learning Lab, an initiative implemented by Itad, in partnership with the SEEP Network. In this role she provides organizational and technical leadership on activities aimed to support learning among the learning partners and others in the sector through the generation, synthesis, curation and dissemination of knowledge. She has worked in senior leadership positions of international organizations including the SEEP Network and ACCION USA.