Banking the missing billions is within reach

by 19th May 2015
A mobile transaction during a savings group meeting in Kenya A mobile transaction during a savings group meeting in Kenya

A ground-breaking piece of development progress was marked last month when the World Bank updated its financial inclusion database and revealed that in the last three years alone, the number of people worldwide who have an account grew by 700 million, bringing the number of unbanked individuals down to 2 billion. The speed and scale of progress is staggering.

Nonetheless we still have the remaining 2 billion to think about – the data shows that more than half of the poorest remain unbanked, and that a significantly lower proportion of women than men have a formal account.*

At CARE we are convinced that a major part of the solution to this problem lies in linking informal savings groups (a grassroots locally-based innovation) with bank accounts – something that the best of the private sector is already doing through new products and services designed for these group savers (such as  group accounts, mobile wallets, even overdrafts). I’m just back from Kenya and have seen how what was once considered to be primarily an act of corporate social responsibility (CSR) is now becoming core business for many pioneering providers.

Here’s a few reasons why I think it’s happening and a few pitfalls we need to avoid along the way to achieving full financial inclusion:

1. Banking savings groups is good business

Through the Banking on Change initiative, our aim was always to demonstrate that banking savings groups is good business. We are on the path to succeeding in that goal, which will multiply the impact of our many years of work on savings groups. Banking on Change is changing banking.   

The journey that the Barclays retail managers have been on is exemplary. When Banking on Change started linking savings groups to branches of Barclays, the programme was managed by the bank’s community investment team. However, as more groups banked and branch managers began to see the potential of banking savings groups, the retail teams got interested – and it’s now becoming part of their core business.   

There are 8.9 million savings group members in Africa (50% of them in East Africa), and if they save an average of $58 a year, that represents approximately US$516 million in savings per year – so it’s a substantial viable commercial market. Over four million of these savings group members are supported by CARE, and thanks to the financial literacy training provided by CARE, savings groups are good customers and they have high repayment rates (99%).

During my Kenya visit I saw true commitment among Barclays staff, both at branch and HQ level, to include these groups in formal banking. The Barclays Kenya Retail Director told me about their desire to make linking of savings groups to banks a core business for Barclays Kenya, rather than a CSR project. The Head of Retail at Barclays Uganda was equally passionate about linkage. In Uganda he has introduced mobile digital banking for groups, in order to reduce their need to travel to the branch to just one trip – to open the account. He is offering affordable credit to groups through limited overdrafts. And he is collecting data through an ‘e-ledger’ app which allows the bank to build up a credit score for groups and individuals. With this data he also knows that his best performing group in Uganda has grown the incomes of its members eight-fold in four years!

2. Mobile and tech are playing a crucial role

In sub-Saharan Africa, 12% of adults have a mobile money account (compared to 2% globally) and 45% of these account holders rely on mobile alone for formal banking. As well as enabling broad access, tech and data can also potentially benefit the very poorest by helping to overcome some of the reasons banks have shied away from the poorest (namely ‘know your customer’ rules, lack of a credit history, and distance from branches). What we next need to explore is  how to use the data obtained from the records kept by savings groups and their members in order to create a digital credit profile that will ultimately enable savings group members to access new products.  

3. National governments are increasingly recognising that widening access for the very poorest should form part of their national financial inclusion strategies

The global challenge of banking two billion people requires national strategies to make it a reality. The Alliance for Financial Inclusion (AFI – a global network of financial policy-makers from developing and emerging countries) have facilitated a process that has led to over 47 countries making institutional commitments to overcoming financial exclusion, including tackling regulatory barriers or enhancing financial literacy. Twenty-one countries have developed specific national strategies to tackle the problem.  

At CARE we are particularly eager to see explicit recognition of the value of savings groups in national strategies, as has happened in Rwanda. We believe there is a case to be made that increasing formal access for poor savers can ultimately help pump more money into national economies. This would be a win-win for individuals and governments alike, and more money could be made available for spending on development. This is a point we will be making ahead of the Financing for Development Conference in July this year, when all states will meet to work out how to fund the forthcoming Sustainable Development Goals.  

4. Competition and collaboration are driving financial inclusion

Providers, both banks and mobile operators, have spotted the business opportunity and seen the success of initiatives like M-Pesa. Safaricom in Kenya has joined up with Commercial Bank of Africa to create the mShwari account and with Kenya Commercial Bank to create the KCB M-Pesa account. Even hybrid bank/telecommunications companies are emerging, such as Telenor in Pakistan buying a share of Tameer to launch the Easypaisa account.  

In Nairobi, we had a breakfast to brief key financial inclusion players – including Equity, CBA, Ecobank and more – on the Linking for Change Savings Charter. All of them expressed their interest in linking more savings groups to banks, and several are actively working towards this, which should lead to more choice and better products for savings groups. And there is demand – during my visit the groups I met all said that linking to banks was giving them a safe place to store their pooled savings, and encouraging people to save up to twice as much. The challenge for us at CARE is to ensure that groups are banked responsibly and understand fully how the financial services and products work.

So what are the pitfalls?

Two main pitfalls that strike CARE are the potential for multiple pilots creating duplication of efforts (apps, digital credit scorings, etc) rather than scale; and the risk that providers start to rush ahead and link individuals – and charge high interest rates – without ensuring that people have the financial literacy to make informed decisions and manage their commitments. What we don’t want is a repeat of the micro-credit boom and bust.  

To overcome these challenges we initiated the Linking for Change Savings Charter – a loose alliance of ‘linkage pioneers’ committed to responsible and innovative practice. This platform has provided an opportunity for signatories to innovate and share the latest research (including a forthcoming publication with Accenture and a global mapping with Bankable Frontier Associates). It has helped spark cross-collaboration between signatories – such as between Airtel and CARE, and Visa and Barclays – and it is helping to raise the profile of linkage with events at the World Economic Forum and Mobile Money Africa. We hope more will get on board, to develop innovative scalable solutions as well as to prepare the market by helping to bridge the gap between 9m savings group members and 2bn unbanked people.  

Our partnership with Barclays and Plan is known as Banking on Change – a nod to the fact that financial inclusion can really change lives, from affording the basics to empowering individuals to lead communities or start a business. But in addition, we at CARE believe we are also helping to change banking for the better too – and that is what we like to call systemic change...

*Among the bottom 40% of the economic pyramid, account penetration increased by 17%, though more than half of the adults in this group remain unbanked. The financial inclusion gender gap remained constant over the past three years at 7%, with 65% of men and 58% of women having a formal account in 2014.

Laurie Lee

I joined CARE in August 2014, because I believe strongly in our focus on economic development, gender equality and people holding governments accountable. My focus at CARE is on ensuring we have the best people to do the job we do, to support our teams on the ground in over 70 developing countries, and to ensure we continuously improve our ability to monitor the impact of our work, and learn how to do it even better.  

Prior to CARE I worked for the Bill & Melinda Gates Foundation for seven years, advising them on development policy issues in Europe and Africa. Before that I worked for the British government. I managed British development programmes in South Africa and Afghanistan. He worked in 10 Downing Street to prepare the G8 Gleneagles Summit on Africa in 2005. And I ran the DFID Trade Policy Unit until 2008.

One good thing I've read

One of CARE’s goals is to help the 2 billion people – including 1.1 billion women – without access to financial services, to get them. This great and easy book, Portfolios of the poor: How the world's poor live on $2 a day, by Daryl Collins, Jonathan Morduch, Stuart Rutherford and Orlanda Ruthven, explains why there’s no such thing as living 'hand to mouth'. The poorer you are, the more you need financial management tools.

Email: Lee@careinternational.org

Twitter: @lauriejlee