> Posted by Alice Allan, Head of Advocacy, CARE International UK
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
CFI has rightly identified that having a range of financial products informed by client needs is a key priority area for achieving full financial inclusion. Through the Banking on Change Partnership, CARE, Plan, and Barclays have developed new savings-led products based on a link between informal savings groups and Barclays bank branches that have proven to be a good fit for low-income clients in the current financial services landscape.
To date, Banking on Change has developed three different types of savings accounts and an overdraft facility, connecting a total of 500 groups (that’s around 25,000 individuals) to Barclays branches. Together these groups have deposited $103,694 into accounts, showing that linkage with a global bank is possible when done in a controlled and responsible way.
Now, for the details…
The Uwezo savings product in Kenya is a good example of a Village Savings and Loan Association (VSLA) product designed with client needs in mind. The design process started with an assessment of the group’s needs, which clearly brought out the fact that members had greater financial services needs than the VSLAs could provide. We learnt that members could meet the obligations of these more formal financial services, provided they were packaged appropriately and delivered through the right kind of channels.
With this in mind, Barclays adapted its procedures to allow savings groups to open accounts easily. Before this initiative, formal registration with the Chamber of Commerce was required to open a group account. To simplify the process, Barclays agreed to accept a photocopy of the savings group’s constitution, signed by all members, as the necessary identification. By allowing group accounts, Barclays has lowered its transaction costs, as one group account is far more economical to administer than 25-30 individual accounts.
How is the Uwezo account different?
Uwezo (and the other products created by Banking on Change) are part of Barclays mainstream business at the country level, and are intended to become commercially viable sooner or later. Currently with the Uwezo account, withdrawals and deposits are free, there is no maintenance fee, and the opening balance requirement is 2,000 Kenyan Shillings (around US$23).
Barclays recognizes the real business potential presented by this largely unbanked, informal sector and the strategic importance of designing appropriate products that can support sustainable financial inclusion. The demand for linkage and potential for scale-up is enormous. Today there are about 6.3 million members of savings groups in Africa, most of whom need financial services that can complement the ones they can access in their VSLAs.
This process of linking members of informal VSLAs with Barclays branches is guided by a set of principles, originally developed by CARE, which first began linking savings groups with other national, rather than global, financial service providers. These principles are essential to ensure sustainability and to ensure both the group members and the bank benefit from the experience. Some of these principles are:
- Linkage is demand-driven not supply driven: linkage relationship should be based on the needs and demands of the groups.
- Linkage is savings-driven and always starts with the offer of savings products.
- Minimize the use of savings as collateral: the flexibility and accessibility of savings is considered an important attribute by group members. Where possible, group savings should not be held as collateral by financial institutions.
- Groups are prepared before they are linked. This covers any basic financial literacy modules not already provided as part of the process of forming the group, as well as specific information about the proposed institution they will be linked with, the products the institution is offering, account opening requirements, and any other relevant information. This information allows the groups to be better prepared to enter the formal financial sector and use new types of financial services.
- A conservative savings to credit ratio is maintained.
(For the full list of principles, please click here)
What is needed for scale
To truly scale up a product, you need an appropriate delivery channel to reach an existing large-scale market. For formal financial providers to engage in this area, more research is needed on product development to help build the business case. It is also crucial to build public-private partnerships, involving both donor and developing country governments working alongside major mobile operators and financial institutions to develop and support products that can serve this market at scale.
The technology exists to significantly expand mobile banking, for example, but the business case for the private sector to invest in this market segment is not yet strong enough. Donors should seek to invest in innovative financial linkage models to help lower the risk for business.
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