A market trader in Ghana hands over part of her day’s earnings to a susu collector every day. In Tanzania, villagers hold weekly Vicoba gatherings to pool savings, receive loans and catch up with the other members of the group. Informal savings mechanisms (ISMs), such as savings groups and daily savings collection, have long been of interest to the financial inclusion community because they demonstrate high quality savings and borrowing behavior and they work for people who do not normally consider themselves “bankable.” The digital services revolution offers a prospect of closing the gap between formal and informal alternatives, combining a richer and more robust service offering with a greater understanding of savers’ needs and preferences.
Documented challenges on proximity, cost of acquisition and practical delivery make the provision of a service that benefits both formal and informal actors difficult to achieve. But Savings at the Frontier (SatF), a partnership between Mastercard Foundation and Oxford Policy Management (OPM), has set its sights on this goal, and is working directly with FSPs to achieve it.
During the early stages of the program, we selected a set of partner FSPs with promising concepts and provided them with up to $100,000 in business plan development funding to flesh out their ideas using whatever mix of technical assistance, customer research, piloting, systems work or prototyping required.
Full proposals underwent a second selection round, with the approved finalists eligible for conditional funding of up to $1 million to implement their business models. To date, SatF has partnered with three institutions in Ghana (Access Bank, DSS and Interpay), four in Tanzania (Equity Bank, Maxcom, NMB and TPB Bank) and one in Zambia (M-Finance).
What We’ve Learned So Far
Contrary to some stereotypes about the willingness and ability of FSPs to meet the needs of customers, particularly those of low income savers or people outside their traditional customer base, we have been surprised and pleased at how far our partners’ thinking has already gone, in understanding what it takes to make products relevant to this customer segment, how that can translate into a long-term relationship with internal savings mechanisms and their members, and how much institutional buy-in the SatF partnership has enabled. For example:
- The funding incentive has allowed middle-level managers to promote linkage up the institutions’ corporate agendas. Operational managers feel able to use SatF’s support to further internal discussions with senior management and other stakeholders, potentially including regulators, government, mobile network operators, etc.
- Customer centricity has become a central feature of the FSPs’ approach. Our partners understand that sustainable business means understanding and responding to genuine need. FSPs that conducted research and pilots and ultimately developed a full proposal were able to understand the ‘pain points’ and needs of their customers and reflect those in their product offerings.
- Early piloting has allowed our partners to foresee and address operational constraints. From systems changes inhibiting take-up, to ensuring regular contact with customers to maintaining sufficient liquidity through the agent network, FSPs have been quick to pick up on issues that may hinder implementation and have either already identified workable solutions or are in the process of doing so.
- Their reaction to challenges highlights the FSPs’ commitment, creativity and capacity to innovatively develop and deliver solutions. With the flexibility offered by their role as lead institutions, our partners have been able to consider a range of consortium options (working with facilitators, creating and facilitating their own informal savings mechanisms, identifying niche technical and delivery partners) and develop effective route-to-market strategies. FSPs have negotiated channel strategies to keep fees and charges affordable, reached out to specialist solution providers, and iteratively developed customer friendly interfaces or engagement strategies to make their products appealing and drive take-up.
- FSPs appreciate that attracting clients and offering relevant services are key to achieving long term sustainability. Our partners acknowledge that working with informal savers is not about extracting margins. The viability of their business case will be determined by the FSPs’ capacity to attract and retain customers and develop products that address customer needs and expectations. In looking to offer customer friendly, convenient and affordable services, and creating improved outreach and communication channels, our partners are signaling they are taking sustainability seriously.
Some upcoming challenges are already visible, such as bringing pricing more in line with customer expectations. Why, for example, should anyone pay to use a financial service when cash transactions are free? Other challenges include financial education, closing the proximity gap, agent availability and float management.
The ability of our partners to overcome these challenges will depend on how well they have learned from similar previous challenges. We as a project will also need to be flexible and create space for the FSPs to identify and implement solutions specific to their operating environment. To this end, we have developed a disbursement mechanism that allows us to assess progress and consider course corrections at various points in the process by releasing funding in tranches based on individually negotiated ‘promise cards’, which incentivise design work in the early stages and delivery in later stages. Each tranche has its own delivery milestones built as much around the emerging value proposition being offered to informal savings mechanisms and their users as on the usual kinds of activity/output milestones. These milestones create a continuous dialogue with FSP partners, which allow us to react to needs as they emerge, provide tailored support, and work together to identify elements of the business case that will support the sustainable delivery of their linkage products beyond the lifetime of our project.
As we head into the fourth year of the program, it is encouraging that both the SatF team and our FSP partners are as optimistic about the prospect of successful delivery as we were when we first started. Nurturing the interest and capacity shown by our partners, and taking a flexible and adaptive approach to fund disbursement, we stand a good chance of turning our optimism into success.