Unlocking the social and economic potential of savings groups in Tanzania: The potential US$175 million market

by 18th Nov 2015
Unlocking a savings box at a meeting of the Amani Village Savings and Loan Association in Usangi village, Tanzania Unlocking a savings box at a meeting of the Amani Village Savings and Loan Association in Usangi village, Tanzania

Despite promising advances and commitments to financial inclusion and mobile money, Tanzania remains home to millions of unbanked or under-banked people. Analysis of data about financial inclusion and savings groups sheds some light on the role that savings groups might play in closing that gap. The results highlight a formidable challenge but also a massive opportunity: millions of Tanzanians – most of them young, poor, rural and female – are collectively circulating roughly US$175 million each year through informal systems of saving and commerce. As the year 2015 comes to a close, stakeholders of the Tanzanian mobile, financial and development sectors are facing massive opportunities and important decisions about how to link this under-served market to formal financial services.

2015: A year of innovation in Tanzania

The year 2015 marked several key developments: rapidly expanding growth and scope in mobile money services in East Africa; new commitments to addressing financial inclusion, women’s empowerment and poverty alleviation from nations all over the world in the 2015 Global Goals for Sustainable Development; and an increasing interest among formal financial institutions in providing financial services to the under-served, specifically to rural savings groups.

Tanzania in particular is a nation of interest, as recent developments in innovative mobile money technology are creating new opportunities to overcome challenges in financial inclusion. A global leader in digital financial services, Tanzania has become a hub for money transfers and low-interest loan provision through mobile money. Having recently surpassed its neighbour Kenya in total mobile money transactions, Tanzania’s mobile money industry is among the most competitive and innovative in the world. Inter-operational money transfers amongst telecom providers, interest e-payments on mobile wallet balances to customers, credit product rollouts and cross-border remittance capabilities are some examples of innovative products and services emerging from Tanzania’s ICT sector. With telecom giants Airtel, Vodacom and Tigo all contributing to the dynamic shifts in the e-money landscape, opportunities are emerging for major financial service providers to reach new market segments, forge new partnerships and launch new products in pursuit of sustainable financial inclusion.

2016: A year of opportunity

And yet, while innovation abounds, millions remain excluded. CARE’s experience demonstrates that village savings and loan associations (VSLAs) can provide an ideal entry point for financial service providers wishing to reach under-served markets. And we are working with leading banks at all ends of the spectrum in Tanzania – from national giant National Microfinance Bank to community stalwart Mwanga Community Bank – to do just that.

These partnerships are clear win-win-win propositions. Banks or mobile network operators get new high-quality customers and potentially lower their cost of acquiring capital, VSLAs get access to the formal financial services they want, and CARE is able to help groups and their members move up the ladder out of poverty.

Our current efforts aim to enable more than 10,000 VSLAs nationwide to gain access for formal finance. But a key question remains: just how big is the pool of potential ‘savings group’ customers beyond those CARE has helped to form?

In preparation for a recent (October 2015) National Savings Forum in Tanzania, CARE tried to answer that exact question.

Estimating the market size of the unbanked in Tanzania

Using data from the World Bank’s FINDEX database, we estimated that about 17.1 million (61%) of the roughly 28 million Tanzanians aged 15 and over, remain financially excluded. Of these excluded Tanzanians, four key under-served and highly excluded segments emerge: young adults age 15-24 (13.4 million, 68%), rural adults (13.1 million, 67%), adult women (9.2 million, 65%), and low-income and poor adults (8.6 million, 75%).

Further analysis shows that from 2011 to 2014, the proportion of each of these populations saving at formal financial institutions actually declined – with the exception of the poorest 40% of Tanzanians, among whom the proportion saving at formal financial institutions remained at the already low level of 4% over the four-year period.

Tanzania market potential: infographic

Yet over the same period, the number of Tanzanians who reported saving in any form increased from 10.3 million to nearly 17 million. Of these, a growing proportion – a total of 3.7 million Tanzanians in 2014 – were saving through mechanisms similar to CARE’s VSLAs.

This figure is important because it represents the total potential market for savings groups in Tanzania. While CARE and others have helped over one million Tanzanians to form and manage their own savings groups, this represents just 27% of the total potential market.

Tanzania savings groups: potential market: infographic

For argument’s sake, let’s assume these individuals are in groups similar in composition and savings potential to those supported by large NGOs operating in the country. Public data from SAVIX on NGO-facilitated Savings Groups in Tanzania reveals that the typical group has 23 members and just under US$48 per member in annual savings. Based the national estimate of savings group members, this would therefore equate to nearly 160,000 savings groups collectively holding more than US$174 million in savings and nearly US$250 million in combined savings and assets. That’s a market opportunity that’s worth paying attention to.

Even if such estimates are off by some degree, they still reveal that a growing proportion of the millions of unbanked Tanzanians are turning to informal mechanisms, notably savings groups, to save their money. For banks, mobile network operators and others hoping to achieve Tanzania’s aggressive (and admirable) financial inclusion targets, these groups should be a top priority market segment in the coming year.

Nathan Randall

Nathan Randall was formerly a Financial Inclusion and Linkages Analyst for CARE Access Africa based in Dar es Salaam, Tanzania. He supported CARE’s efforts to link savings groups with banks in Kenya and Tanzania, collecting and analysing data from rural savings groups and financial services providers to evaluate linkage performance and help improve our models. Nathan holds a Bachelor’s Degree in International Business from Carleton University in Ottawa, Canada, and is a current participant in the Aga Khan Foundation of Canada’s International Youth Fellowship Program.