Major opportunities to scale up access to formal finance in Tanzania

by 09th May 2016
The National Forum on Linking Informal Savings Groups to Formal Finance held in Tanzania last month The National Forum on Linking Informal Savings Groups to Formal Finance held in Tanzania last month

Opportunities exist in Tanzania to scale up access to financial services for unbanked groups. The National Forum on Linking Informal Savings Groups to Formal Finance, held last month, revealed the depth in which organisations are supporting this market segment to develop.

CARE International has been working with informal savings groups for more than 25 years through our flagship Village Savings and Loan Associations. The VSLAs support informal savings group members to grow their money and develop financial capabilities through financial literacy training. Many groups will also go on to access relevant financial services and products. The model now serves more than 20,000 informal savings groups across Tanzania and more than five million members in sub-Saharan Africa alone. There is increasing support from formal financial service providers in Tanzania to serve this growing market.

The tri-annual National Forum, led by CARE Tanzania, created the opportunity for banks, mobile network operators, micro-finance groups, NGOs and development groups to discuss the successes and challenges of reaching informal group savers in Tanzania, and propose recommendations for scaling up linkage activity.

1. Banking the informal savings group segment is a win-win

The Within Reach report states there is a 380 billion dollar opportunity for banks who opt in to servicing under-served markets in emerging economies. According to Tanzanian banks, there is a strong business case to serve informal savings groups; one reason is the liquidity which savings group deposits create. These deposits provide liquidity for banks to serve a booming market for lending to SMEs. According to Banking on Change statistics, informal groups linked with banks deposit around US$69-$84 per member each year. This lends credibility toward the business case that banks can grow profitably by being more inclusive.

From the demand-side perspective, access to group savings and credit products is a fundamental need for low-income earners. As the funds of informal savings groups grow, so does the requirement to access a secure place to deposit. Savings group funds, typically kept in a locked box, become a security risk. The need among savings group members for more sophisticated products and services also grows as they develop their financial capabilities and savings.

2. Redefining ‘Know Your Customer’ identification processes presents an opportunity for scaling up financial services for unbanked groups

During the forum, organisations participating in linkage felt Know Your Customer requirements have a tendency to push customers away from registering for a financial product or service. Poorer segments of society and group savers often struggle to produce personal identification or meet stringent identification requirements. During the forum, a number of recommendations were proposed for improving Know Your Customer processes, including the fast-tracking of a national identification system akin to the system in Kenya, enabling one form of identification for all citizens to make Know Your Customer processes quick, easy and compliant.

3. Incorporating mobile access into the product adds advantage

Attendees discussed the value in cross-sector partnerships to scale up financial inclusion opportunities. Banks are increasingly working in partnership with mobile network operators (MNOs) in order to stay ahead. The usual story is that banks use MNOs as a delivery channel and MNOs link their platforms to a banking product, reducing costs associated with access and product development for both industries. One of the many benefits to customers in accessing their bank account via a mobile network platform is that it overcomes transport costs, especially for the rural population. Tanzania banks are increasingly working in collaboration with mobile network operator platforms to roll out new savings group products and enhance customer access.

4. Credit for groups is still a way off being mainstreamed

Approximately 40 percent of all group savings and credit products across Africa are offered by banks and other financial service providers in Tanzania, Kenya and Uganda alone (see the State of Linkage report). Yet there remains plenty of opportunity to add further scale to this progress, especially due to the appetite among group savers to access responsible credit and product variety. As groups mature, their needs grow for more sophisticated products and services beyond savings products. During the forum, some banks saw the potential for extending credit to group savers but felt limited by systems and processes; others were well positioned to offer credit and were doing so or planned to do so.

The third National Forum on linkage is due to take place in September 2016, with the discussion set to focus on national financial regulatory policies, such as Know Your Customer requirements.

Fiona Jarden

Fiona was formerly Senior Policy and Advocacy Advisor - Financial Inclusion for CARE International. She describes her role below:

I support CARE’s work to enable women and girls to have equal and increased control over their financial resources and access to financial services. My role is to ensure institutions like banks and governments adopt policies to bring women living in poverty into the realm of financial inclusion. Since joining CARE I've been leading the development of CARE’s global financial inclusion multiplying impact strategy, and have worked with CARE offices in South Asia and Sub-Saharan Africa to influence financial inclusion policies and practices in these regions. I'm a member of Women Advancing Microfinance, GADN’s Women’s Economic Justice working group, and SEEP’s Savings Led working group.

I have previously lived and worked in remote Australian aboriginal communities to address the barriers families face through financial exclusion and generational poverty. I've also worked with banks to strengthen their ability to link with poor rural customers and I was an advisor for the Permanent Mission of New Zealand to the United Nations. I have an MA in International Development with a specialisation in development economics from the University of Newcastle, Australia, and a journalism qualification from the University of Canterbury, New Zealand.

One good thing I’ve read

Radical Hope by Noel Pearson. Noel is the chief architect behind a radical new approach for social change and development for disadvantaged indigenous Australians. Having worked with him for years he is equally as brilliant and inspiring as he is controversial. In this book he turns his thinking to education with new ideas for transforming the lives of the disadvantaged to ‘raise up the many’ and ensure ‘no child is left behind’.


Twitter: @FiJarden